Good morning friends
Cotton markets are jumping in Sunday/Monday overnight trading as Hurricane Florence bears down on the SE coast/Mid-Atlantic US while the rest of the CBOT complex trades sideways. December cotton trades 83+ cents this morning, breaking above Fridays high. December corn trades right in the middle of its recent comfort zone between 365 and 370. Like corn, November soybeans have been incredibly slow, trading in a tight sideways channel between the low 830s and high 840’s with Nov futures checking in at 847 this morning. I expect both markets to stay in this coil going into the WASDE on Wednesday. Wheat markets are bouncing ever so slightly after the very negative first week in September, as December futures for Chicago are up 2 cents to 514 but about a nickel from overnight highs. The week ahead will be about WASDE on Wednesday, China tariffs (sounds like more are coming), ECB meetings and then broad market preparation for what is assumed to be a rate hike coming at the FOMC meeting next week. I do not see a change in dollar dynamics until that meeting passes, a surprise is probably needed from either the ECB or the FOMC to get the index to change direction.
Cotton markets will trade with hurricanes in mind, with Florence making landfall in NC by the mid-week. There are two other potential storms following Florence, but those do not appear to have the teeth that Florence does. Weatherbell.com provided the graphic below on their twitter feed, they think this could be the worst natural disaster in NC/Virginia history. 3-4 feet of rain is expected. North Carolina “only” produced 735K bales last year, but any losses on the margins in the SE will provide some support to the USDA production data being high. Right now, the storm looks to be north of Georgia cotton areas, which is probably the reason why cotton is only up a penny this morning and not limit. Producers in the SE are beginning to spray defoliant and will be looking to get in the fields sometime in the next few weeks. Cotton futures look to test last week’s highs around 84 cents early this week. Funds have liquidated a lot of futures length in the last month, but remain very long given the situation in Texas. The USDA has not been friendly cotton in the last few reports, it will be interesting to see how it is traded given the hurricane coming the following day.
US wheat futures are trading at 7 week lows after a bloody week, last week. Black sea cash prices are falling, leading the rest of the globe lower as harvest supply is being felt. Russian Ag admin continues to suggesting no cap on exports will be needed. I don’t think the market believes them as in 2014 the Russia had the same rhetoric, not wanting to show its hand before acting. In 2014, the Ministry placed export duties amounting to $35/MT which dramatically slowed Russian exports. KC wheat rallied 30% at that time to almost 8.00. Russia and Ukraine have exported 40% more wheat than last year’s record in July/August. The export pace won’t hold up, the US can expect more business come Thanksgiving. Russian contacts I read have no doubt the government will move to impose wheat export restrictions in October or November. With EU wheat exports down some 55% from last year, once Russia slows its export pace, world wheat demand will be forced back upon the US. In the short term, the funds should continue to pair back positions but prices won’t fall too far as they need to encourage seeding in export countries next year. I would be looking to buy breaks in Dec-July futures spreads into the 38-40 cent area.
JULY 19 KC WHEAT
Soybean markets news has been minimal as has the range in the futures markets. Bulls did get some good news last week as bean meal rallied 10 per MT off early week lows. Cash markets remain depressed while the CBOT spreads and DP rates encourage producers to store the upcoming harvest. Quiet trade is likely into the report with a big crop estimate expected. A US yield under 51.5 BPA would be viewed as bullish while anything over 53 probably sends prices lower. The US and China are not expected to return to the negotiating table until after the US mid-term election when meetings at G-20 take place. At this point, I expect things to get worse before they get better. The good news for bean bulls is some of the trade is insured at this price level, as 80+% RP plans would have downside covered. Funds have little length left as the farmer holds it all. The producer does have some help via government check coming, although one has to wonder how much we can rally given the expectations for an 800 million+ carryout.
NOVEMBER SOYBEANS
Corn remains a bullish market in waiting. Funds are going to focus on the US yields come Wednesday, but I would encourage folks to focus on global data instead. The USDA could finally write down S.AM yields to levels where the local government agencies have them, which could bring global ending stocks below 190 MMT vs 235 MMT a year ago. Funds remain in a somewhat neutral position as the trade sits and waits for direction. If yields fall below 177, I think corn breaks above that downtrend line and begins its hunt for chart gaps near 390 on the continuous charts and 410 on the Dec/March charts. I doubt we get that high before the Dec delivery but I am very optimistic March futures see a 4 handle. Argentina has the mantle of world’s cheapest feed grain today, but that will be short lived. Another hike in freight prices in Brazil, low acreage in 2019, and a poor black sea harvest will keep the US exports high. Ethanol and feed industries are not rationing any demand right now. Build long term positions, don’t let boredom affect you.
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