Happy Monday friends,
“Covering” is the theme this morning as shorts scramble out of the CBOT markets and longs out of the cotton markets. The action over the last four days is almost a perfect inverse between the corn/wheat and cotton markets. Overnight, corn a penny higher and has extended even more as I write this around 630 on Monday morning, with March corn trading 358-6 and Dec Corn trading above 391, the highest level we have seen December corn trade since late October. Wheat is higher as well, up almost 7 cents this morning as KC wheat breaks 450 for the first time on a front month basis since late September and July trades north of 480. Unlike late last week, soybeans are not letting the CBOT rally without being involved as March soybeans push to just under 10.00 and November beans make another run at 10.15. All of these markets are threatening breakouts and with massive shorts still in the trade have the fuel to do so. On the other side, cotton is starting its collapse. March has fallen below 80 cents and is pressing on the 79.50 level. There is an uptrend line at this level, in place going back to October. If this would get taken out I think we could fall all the way to 77 cents. There are two weeks to go before March options expire, if you want to remain short I would roll sooner rather than later as I expect there to be some wild moves in cotton over that time. March may eventually be over May by the time it’s all said and done.
Corn markets look very bullish here in my opinion, given the Argentinian weather, the rising basis out west in both corn and milo, the rising commodity complex and the battle for acreage. Corn prices are about 20 cents lower than a year ago at this time. March corn recovered Thursday’s loss amid solid weekly US exports sales, further weakness in the US dollar, which may be the biggest key of in all of this Scattered rains will impact N Cordoba in the next 10 days, but the overall trend of declining soil moisture will stay intact. We are in the heart of pollination down in Argentina right now, analysts are starting to write down yields as much as 15% and the board remains near record short. Short sellers are going to feel some pressure here. Producers will be joining them on the sell side eventually but most guys I speak with have until the end of Feb to make decisions, given the above factors I think they wait for higher prices. I recommend folks take a shot and get long here, risk a couple of pennies with a cheap put under the price if you are nervous. Below is the COT chart and a weekly chart of corn. If 360 is taken out on a close, I think we have a good chance to see 370-375 in the next few weeks. A fail at 360 would be incredibly discouraging for technical bulls.
Over the week ahead we are going to get a look at the winter wheat conditions, and it is expected that every one of the states monitored out west will show stress. Precipitation will remain limited over the two week forecast while the longer term weather guys keep talking about La Nina keeping the pattern dry. If you are bearish wheat, the argument would be that world cash markets are only slowly moving higher while the bulls will point out that they are indeed inching higher. KC wheat at the gulf is at a $15/MT premium vs Russian equivalent, vs. $7 per ton a week ago. Much like corn the KC wheat net short position is large, although the outright spec short position is nowhere close to where it is in corn. Bearish seasonals kick off at the end of this week, but those were ignored a year ago. March KC wheat tested 470 before falling into delivery a year ago, there is quite a bit of room for price rally. If 480 is taken out in July, I think we run all the way to 510. At that point, sellers will have something to think about. I do not like wheat as much as i do corn at these prices, July is at a 1.00 premium to corn already, it’s tough to think we see much of a push without corn coming along.
The questions traders are asking this week are around whether or not the break in soybeans and soymeal represented a top or just a pause while the wheat and corn markets caught up. The soybean export sales report on Friday was lack luster, total commitments are off 12% from a year ago but above the 5 year average. There is a caveat with this as the meal data has been fantastic. Crush spreads are really wide right now and that should encourage further crush. Soybeans are trading in lock step with the rest of the CBOT today as the short covering really takes hold. If we could trade up to 1020 front month and break through, watch out. The story in South America is really more about corn than beans in Argentina, but that will change quickly if the weather doesn’t. Some I read are already beginning to pencil in higher meal exports for the US next year as folks are thinking Argentina will fall short. Currency is also in the US favor now as the Real, while weaker this morning, is expected to strengthen further after ex-president Lula’s conviction was upheld, preventing another run for his party. Again, watch the price action as we move toward the chart highs. This is why we have calls on ahead of these moves, all of these rallies in the past three years have been sales. It was at this time a year ago when some of the best bean sales of the year were made. Call if you want to talk about your situation.
Cotton is feeling heavy this morning as longs are bailing from the record long ship. Cotton broke 80 cents around midnight and have not looked back as we now test 79.50. December 18 cotton is only down .25 cents this morning which tells me the longs from March are moving out. The question is will they get into the May futures? Right now spreads between March and December is at 4.5 cents. This was near 8 cents a week ago at this time. I imagine we have seen a massive amount of long covering already, but the market probably will reassess things until we get next week’s export numbers. The 67 k bales we saw on Friday combined with cancellations is evidence of high prices curing high prices. How the market fares from here is probably hinging on Thursdays export number. The 50 day MA sits just below 77 cents, which is my target in the short term if the trend line fails. It has broken now as the day has gone on.
Guide to USDA Grain Reports
USDA grain reports have the potential to move markets. This guide outlines the weekly, monthly, quarterly, and annual reports.
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