Good morning friends,
There is little bullish impetus from the outside markets helping row crop prices right now. Weather should be somewhat friendly to price, although fall rain never seems to push funds into or out of new positions. The USD continues its push higher against minor market pairs, while competition against the major pairs has created somewhat of a sideways trade in the USD index. The market is expecting a rate hike in the next FOMC meeting in two weeks, it’s hard to think markets will be bullish ahead of that. So in the meantime we watch volatility slip away while farmers with a timer running on corn and bean sales await higher prices. The elephant in the room right now is the expectation, or lack thereof depending on how you believe the trade is set up, is the US-Chinese tariffs are set to kick in by the end of the week. At this point there is nothing that has me believing they won’t kick in. Trade talks with Canada continue as there is no solution to dairy, which is the sticking point.
Wheat markets continue to tumble as spec fund traders exit post first notice day. September futures are now 65 cents off the highs from the middle of August. GASC was in the market yesterday with a small wheat tender. There was only one shipment booked, at the price of $218 per MT. Down from the high 230’s in early August. Prices are almost $70 per MT or 1.91 per bushel higher than what Egypt paid 2 years ago, and 76 cents per bushel higher than a year ago at this time. The small market correction in the short term takes this as evidence of ample supply in Russia while they continue to deny rumors of export restrictions in the upcoming marketing year. The pace of Russian exports will act to boost domestic prices. The battle between millers/livestock operations & exporters is far from over. Dryness in Australia is spreading to southern and western areas, where conditions have avoided the disaster that is the eastern Aussie crop. If you are a wheat bull, your chance to acquire cheaper supply will be limited to the next few months. The guys I read and trust in the wheat markets think supplies will tighten up drastically in late 2018.
Corn prices continue to meander between 360 and 370. The collapsing Argentinian peso has brought their offers below where the US is currently trading to take the mantle as the world’s cheapest feed grain. Corn is a buy on breaks in my opinion. I wouldn’t rule out a test of 350 but I just wouldn’t get bearish there. I think the front month lows in the high 340’s are in. I am hearing the Nebraska crop is walking backwards from a yield perspective because of these rains. Patience is a virtue, I would love to see a 30 cent rally tomorrow but I doubt there is anything that can change the current story expect for time. Producers looking to reown should learn about collar trades or outright futures. I don’t think calls are the best way to play this market, but they are better than nothing.
Cotton prices are starting to trouble the technical traders. A break of the low 80 low would probably run some stops into the 78 cent area where prices last checked on a break. Traders are nervous over the longer-term demand prospects for US cotton from emerging markets with the huge hit to the spending power of consumers in countries which have seen a collapse in their currencies. In addition, the Turkish economy is still in question and a collapse in the Chinese stock market adds to the bearish demand tone. If the US slaps more tariffs on China goods (including textiles), demand for China finished goods could also decline. Here is the spec fund position for the cotton markets as of last Tuesday, there is plenty of fuel to push prices lower as funds exit.
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