Good morning friends
Row crop markets are mixed this morning, trading just above Fridays close in wheat while the rest of the complex is in the red. Currency markets should hold some sway this week, as the FOMC meets on Wednesday to most likely raise rates for the 3rd time this year. This comes as President Trump’s policy makers inch forward toward an additional 200 billion in tariffs toward Chinese goods. Wheat is performing the best this morning as December contracts try to make a push toward 520, futures trade this morning up 3.5 in KC to 519 and up 2 in Chicago to 514. Cotton markets look sick, as the brutal damage caused by Hurricane Florence is not affecting the market one bit, December futures trade just above support at the 81 cent level. December corn and soybeans are sluggish as well, with December futures hugging to 350 while November soybeans trade on contract and front month lows in the mid 1020’s. Charts look ugly here in Chicago, I wonder if prices can hold off legging lower right now as combines begin to roll.
The Week Ahead
The story of today will be tariffs and the Dow Jones is reporting that the US is going to move forward with new tariffs against Chinese import goods, possibly as soon as today. There is one caveat, President Trump is proposing the Chinese tariff rate be 10%, instead of 25% which I find to be good news. I am not sure what that will mean with China tariffs on US beans. Nonetheless, China is expected to retaliate against $60 Billion of US goods and probably most important, China is threatening to pull out of new trade negotiations that were planned last week. Any tariff steps that would indicate a worse relationship than already is, could be the straw that breaks cottons back and pushes bean prices to the 09 lows in the 780’s. The FOMC report out this week will also be very important for the USD. Rate hikes only make it harder for countries like Vietnam, Turkey and Indonesia to afford cotton on the margins. The last few rate hikes has brought about spells of volatility, I see similar opportunities this round as well. The FOMC projections may be more important than anything, if they would project a similar trajectory for future rate hikes, we could see markets like cotton fall given the long exposure speculators have right now.
Tropical depression Florence has produced catastrophic flooding across North Carolina with record river flooding forecast. Hog farms are suffering amid a lack of power and declining feed supplies. The upper Midwest was summer like this weekend, Corn and soybean harvest is quickening. The remains of Florence will track north/northeast into the middle of the week. The Midwest weather will turn wet and much more fall like by the end of this week. Hurricane Issac has fizzled in the Caribbean and does not appear like it will cause problems to Texas like previously thought.
Cotton markets feel like they are on the precipice of a breakdown in looking at the charts and the recent export numbers. The fact markets haven’t flinched as the Carolinas flood is a pretty large tell. Spec money remains in a pretty large net long position as of Tuesday of last week. The recent consolidation seems to be a continuation pattern and the trend is still down. Reports out of India are for a very good cotton crop while their weak currency will attract buyers from the US. China will shy away from US cotton. The US export pace is very strong but this could change ahead. December cotton has weekly chart support down near 79 cents, longs should be prepared for prices to surge there as stops are run below the recent lows of the last 4 weeks. If you are long here, you need to be prepared to add. Sales should be made near 84 if given the opportunity.
Soybean harvest numbers are likely to stifle any significant rally over the short term. Falling soymeal prices add to the soybean bulls woes. The funds are not record short yet, I imagine there is more selling to go by both producers and speculators in the coming weeks- especially if the likelihood of a deal doesn’t happen before the election, which is now 7 weeks away. NOPA crush numbers today will be massive, but that story has been written and it is difficult to see crush capacity big enough to overcome the loss of Chinese exports. The bean story is well baked into price at this point and the market will be hunting for long term lows on this harvest that should last for some time into the future. I think you have to think longer term things work out, I know that does little for folks who are selling product in the coming weeks.
Wheat markets have been the shining star of hope for grain bulls since last weeks WASDE, rallying almost 20 cents from lows. I wonder if prices can hold here given the outlook for a boost of Russian production instead of a cut. I am hearing Spring wheat yields are coming in below expectations, many are arguing against the USDA numbers. I have no idea what is true and what isn’t, all I know is what the prices are on the Russian export markets as we saw tenders last week come in near 225 per MT, well above last year’s levels. Aussie and EU prices are still too expensive to attract world market share. Debates rage over how much business the US will get. Meanwhile new crop futures sit right at a level near 555 that would have producers thinking twice about planting intentions in 2018. The funds remain very long wheat, which I find problematic- especially given the corn prices. Seasonally, wheat tends to bottom at this time of the year, it should be very interesting to see how wheat handles the pull of lower corn prices and a stronger dollar.
Corn futures are still on the mat following the knockdown that was September WASDE. Record yield will be adopted by the trade, but interestingly yield data so far has been much less/variable than either 2016 or 2017. There’s a strong tendency for yields to rise in Oct following a hike in Sep, but the market will now pay more attention to harvest reports. Heavy rain returns to the Midwest next week. Better sales opportunities are ahead, producers who want to sell and move on should be willing to play the game plan from last year and re-own March into the 350s for an eventual test of the 390 level sometime this spring. S.Am acreage will be down, those reports should be friendly in coming months. Corn needs Chinese relations to improve for future acreage purposes. I expect a slow and choppy week around 350.
Subscribe to Beginner’s Guide to Trading Cotton Futures
Beginner’s Guide to Trading Cotton Futures - Senior Broker and 9-year industry veteran John Payne created the Beginner’s Guide to Trading Cotton Futures to help all traders benefit the most from this market.
Beginner’s Guide to Trading Cotton Futures includes access to premium web content.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.