Good afternoon friends!
Corn (Z17) 342’2 -1’2
Soybeans (F18) 974’4 -12’6
Chi Wheat (Z17) 424’0 -7’4
KC Wheat (Z18) 428’0 -5’2
Cotton (Z17) 68.96 -.09
Markets were softer at the CBOT as we start the week, led by wheat which has shed most of Friday’s gains trading back in familiar territory below 430 in both Chicago and KC contracts. KC is working a premium now over Chicago to the tune of 3.5 cents, the highest KC has traded over Chicago in the last few months. The December 17 corn contract is trading just above last week and contract lows near 342. December 18 corn is holding its double bottom so far, which comes in near 386. January soybeans broke a low medium term trend line that has held going back to August at 985, resulting in a wash down to 974, it appears a test of the magnet price near 960 is in order, we saw that level many times in Soybeans over the past year. December cotton options expired on Friday amidst a run up above 69 cents. Dec cotton traded as high as 6930 last night but have backed off to just below 69 cents as I write this.
The week ahead will be slow regarding new data inputs for the row crop grains. Producer selling is expected to be the impetus for price movement, as is South American weather and currency fluctuations. Grain traders probably need to be prepared for a very boring trade over the interim. This week we will get a lot of Central Bank talk at a conference in Frankfort on Tuesday. I think we will begin to see the USD strengthen against the other major pairs as the expectation for a rate hike in December is high. In both 2015 and 2016 the US FOMC raised rates in the December meeting. You would think that would be bearish grain prices here in the US as a stronger currency here only hurts our competitiveness. Given the hike in corn carryout last week, this would be just a cherry on top of the bearish Sundae the corn trade has been forced to swallow in recent days. Tonight, we get Chinese industrial production numbers which should have some impact on soybeans, cotton and other Chinese trades that have done pretty well of late.
Seasonally, we see new trades kick in this week on the buy side for soybeans outright, and soybeans vs corn and vs wheat. All three have really good track records, give me a call if you want to learn more. Next week we see the seasonal bottom in cotton, as a buy of the May contract is recommended. I’ll try to reach out on this one to folks who are in hedges.
WEATHER: The 10 day outlook is solid for most of Brazil with totals expected anywhere between 2 and 6 inches up North. We are seeing a dry out for Southern regions and Argentina, which is needed to speed along planting. There is some heat coming into the forecasts, but nothing too worry some thus far. So far there is nothing to report that is problematic, longer term models will begin to dictate price. Watch for hot and dry in the southern areas and Argentina. I think that is where the problems could pop up.
CORN: As I mentioned above, WASDE gave everyone another bearish shock which has pressured price since the release on Thursday. Managed money short positions are not doubt at an all time high. COT reports will be released today (Friday was a holiday) but they will not show the damage after the report as the survey is as of last Tuesday’s close. I said this to a friend of mine last week, the only thing bullish about corn right now is the idea that everyone is so bearish. The commodity complex has performed of late, maybe that can get corn prices moving. I like re-owning if you have sold already (look at March near 350), I wish I had some good advice for folks who must sell in the coming weeks, of which there are many. I think there is a decent chance we see a push into the low 330’s in December (Sep contract low). I would definitely reown March contracts on a test there. Corn rallies will depend on the dollar and South American weather, the shorts are in the trade and blow out potential is there, but a reason is not at this point. Again, the only bullish indicator in corn is that many, many specs are in on the bearish side.
COTTON: The price action is darn impressive in cotton given the WASDE report last week. This market is refusing to break and with seasonal lows in the MRCI schedule ahead, I would be covering hedges on breaks. I think we have the potential for some push back near 66-67 in the weeks ahead, but I am no longer convinced of a break in the shorter term. Reports I get from Texas are of a massive crop and given the historically long spec trade, I would have thought a break was in the cards. I think we could still see it but the closer we get to the end of the year the more I think the demand side of the trade could support prices here. Longer term, new crop 2018 acreage will be an anchor if these carryout numbers do not come down, but with seasonal buys on the horizon I would be careful here shorting too much Dec 18. If you have profits in the trade from the low-70’s I think I would take them if we see a spec liquidation soon, prepare to resell if we push back to 71-72 on the potential seasonal push. The MRCI trade that kicks in next week recommends buying May cotton, it has a profit 15 out of the last 15 years. (Please call me if you want to talk about this stuff, seasonals require some explanation). Bottom line for cotton, markets remain in a market dominated by fa
SOYBEANS: Like cotton, there is a seasonal buy recommendation for soybeans starting this week. It will be interesting to see how beans trade after the USDA left bulls with a pretty good sized carryout for next year. The chart reflects that trend line I mentioned, there is a longer term one down near 9.60. This support should be a good buying opportunity for futures traders with the South American growing season ahead in the next few months. Weather is not a factor at this point either way. USDA raised production slightly to 108 MMT for Brazil in the last report, but we are a long way from knowing what is what. The funds will want to buy this market in the short term with good potential for rallies on the horizon, as the seasonal dictates. Spreads are reflecting little supply/demand concern, I think the easiest path is sideways. The break of the medium term trend line supports that in my opinion.
WHEAT: Bulls were walking on air into the weekend with the prospects of a lower global and US carryout on the horizon. It’s been a while since I wrote that. I think it’s premature to be a buyer given the delivery is on the horizon, but breaks back toward 4.00 in Dec 17 futures probably warrant some strategy to help you sell into if given the chance. Folks I talk to in Kansas are not thrilled with the start of the season. Fund positions are still somewhat longer than I would like to see before trying to buy. I would wait until closer to Dec before buying a July call/call spread. With vol this low, you can get some cheap calls in the low-mid 5’s that can give you an upside ceiling to sell into. I expect KC to continue to run over Chica go into delivery. Turner has a good trade rec on that if interested, buying March KC-Selling Chicago at a penny.
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