Good morning friends!
Corn (K17) 360’2 -1’0
Soybeans (K17) 995’6 -2’4
Chi Wheat (K17) 434’2 -4’0
KC Wheat (K17) 446’2 -4’0
Cotton (Z17) 74.98 +.10
CBOT markets traded lower again in the overnight, with yesterdays lows pressured in corn, beans and wheat. Cotton markets are slightly higher as the ICE market feels very correlated with the stock market these days. Yesterday was the first 1% down day of the year. Any macro weakness probably affects cotton more than the CBOT markets given the correlation it has with equities and the record long position.
Just a reminder for cotton folks, it was one year ago when front month prices bottomed at 54.00 cents. Since then we have added almost 42% to front month prices. The equity markets feel very heavy at these levels given what is transpiring in commodities. There is talk now about Trump’s tax plan not cutting the congressional mustard, which could be the driving factor in coming months. The market optimism is waning, its time to see rubber meet road.
April CBOT options expire this Friday with the largest amount of corn puts open at the 370 mark, while the largest amount of calls are open a at 380. There is also a significant amount of puts open at the 360 level (15,245), putting some pin risk there on Friday. In Chicago wheat, largest put interest is at the 435 level while largest calls are open at 450. In soybeans, the majority of the open interest is above the market with the largest put strike at 1020 and the largest call interest at 1100. The 1000 strike also has a lot of open interest on both sides. All of this should add to volatility next week as we find new futures positions executed on Sunday night.
Soybeans to the downside feels like a good spec/hedge opportunity ahead of the grain stocks reports. We are hearing more and more private analysts raise bean production numbers in Brazil. We are now seeing 110+MMT estimates. Demand for Brazilian beans sits at around 102 MMT per year, this increase should soften prices. The funds remain long beans, sitting around 90 K long last week. They were 160 K long at one point. Sometimes no brainier traders scare me, but in the case of soybeans where we will continue to see yield hikes in the coming weeks and increased US acreage, I remain steadfast in my recommendation to get some puts bought in beans ahead of this report. There are many ways to skin this cat: buy puts- sell Nov beans. Sell July buy nov beans…sell nov beans buy nov 18 beans.
Wheat markets remain on the offer, making new lows this morning as high protein wheat gets kicked to the curb again. Open interest has exploded in SRW which tells me traders are jumping on the short side. The basis falling tells me producers are moving product out ahead of summer row crop planting. We are back to the “no bullish story in wheat” area where the bullish story is everyone is bearish. I think KC wheat sees a bounce in coming days given the fresh shorts from OI. Ill remain long the July KC wheat into next week.
For today, we get our first round of livestock data for the week with cold storage coming out. I remain short hogs into these numbers. I look to buy back OCT in the low 60’s if given the chance. We also get US energy numbers this morning. Ag markets will look for anything bullish to grasp on to as the markets take away a whole quarter of gains within a few weeks.
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