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Conditions for HRW wheat are deteriorating according to the latest state crop progress report. We are also seeing drought getting worse in many winter wheat states, with OK and KS experiencing the worst of it since the last report. KC wheat is gaining on Chicago wheat. Wheat is gaining on corn. I continue to like both of those trades but once these moves start to sputter I think you need to exit. The problem with Winter Kill rallies is that we don’t know the extent of the damage until the spring. So once the cold weather and winter kill conditions cease, it is usually time to exit the trade.
March KC Wheat vs March Chicago Wheat
March Wheat vs March Corn
This market is stuck in range. I like selling straddles on new crop for traders and hedgers with patience. In the short term I like buying support and selling resistance. Bears will point to the large US and Global stocks, the expectations of the USDA decreasing exports in the Jan 12 report, and the good weather in Brazil. Bulls will point to the competitiveness of US corn prices on the global export market, the bad weather in Argentina, and the money flow coming in from hedge funds.
I think this market has another weather rally in it. The 10 to 14 day forecast is hot and dry for Argentina and parts of Brazil. This should be bullish until the Jan 12 WASDE. We are expecting the WASDE to be bearish due to the USDA decreasing exports for corn and maybe even soybeans.
One wildcard this year could be 2nd crop corn in South America. Corn is not very profitable in Arg and Brazil right now so some analysts are predicting lower acres for 2nd crop corn. Stay tuned!
Soybeans look overvalued compared to corn and wheat. If South America and the US have trend line crops in 2018 I would expect Corn + Wheat to gain over Soybeans. You can make the case corn and wheat are now considered a value trade and are most likely making a long term bottom. Soybeans could still fall over $1 if we see good production numbers in 2018.
March Corn + March Wheat – March Soybeans
The cold weather caused a nice short covering rally in Natural Gas but the cold spell is ending soon and so will this rally. Bear spreads seasonally work this time of year into March and they all went higher during the recent rally. This could be a good spot to get in or add on to those trades. The winter weather for the 2nd half of January and for all of February looks to be closer to the averages and not as cold has it has been for the past week or two.
April vs July Natural Gas
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