Good morning friends
Happy Friday from a cool, crisp Chicago Ill. CBOT markets are mixed this morning as corn and beans trade slightly higher, while wheat is lower. Cotton markets are down 20 ticks this morning to the mid 77.85 level, capping a very boring week for the markets while producers deal with the wrath of Mother Nature. Corn broke yesterday’s low for a short second last night but has since rallied back above 371. Corn needs to close above 373 to print its 3th straight week with a higher close and 4 out 5 going back to the mid Sep lows. Soybean charts look similar as well, as prices trade 864 this morning. They are trading lower than where they closed two weeks back but have made higher weekly highs each of the last 5 weeks. A close above 870 would be positive technically. Wheat markets have taken it on the chin this week as KC trades 513 (this week’s low) and Chicago trades 511-6. KC/Chi premiums have squeezed this week, probably a sign of HRW trying to find a low where it can attract some business. Calendar spreads in wheat continue to flail at 43 cents Dec vs July.
News from the overnight was light, it included Chinese GDP coming in at 6.5% a tick below expectations. Their numbers are all basically smoke anyway, but it’s just another number coming in below expectations when gauging Chinese economics. These are backward looking, I imagine it only gets worse for them from here. The Shanghai composite is down almost 30% for the year. Can you imagine the fallout politically if the US markets were down? I hesitate to say the US is winning this trade war (someone told me there are no winners) but looking around as I walk to work today in Chicago, people seem to be doing pretty well. I’d love to hear from someone outside of Ag who is having their life turned upside down because of Chinese tariffs. Unemployment is low, inflation is down. People here wouldn’t know there was a trade war if it wasn’t in the news. Thank the good lord we have the mainstream and social media to remind us of how bad things are….
Corn and bean traders need to keep an eye on the Brazilian real. Ill do my best to keep the narrative in front of you going into the elections taking place next Sunday. I do not pretend to be an authority on Brazilian politics but folks I read think the candidate who is likely to win will bring about stronger Real policies. You can see the correlation in the charts below as lows in the Real corresponded with lows in corn and beans. I don’t these markets all move in perfect lockstep, but if the real strengthens it only makes Brazilian beans feel more expensive to the Chinese. Remember, the Chinese are using devaluation as a defense mechanism against the lost business from the US tariffs. So as the Real rallies against the USD, it rallies even harder against the Yuan. The net effect would be higher bean prices in Real terms, which would pull their prices higher in USD terms only to pull US beans higher. Confused yet? Bottom line, US producers need a stronger real to stay competitive long term. Outside of everything US producers are battling right now, currency is maybe the biggest factor no one ever talks about.Is the Real the Driver?
Is the Real the Driver?
Wheat markets are simply a dog right now. Calendar spreads make a new weekly low as the Dec-July trades below 43 cents. I am long that spread with a few of you right now, its not painful but just hurts watching it fall slowly every day. I’m a sucker for a story and that story is FUTURE DEMAND! The market is trying to find it. Yesterday’s exports number was decent but now where near the levels we need to see to get folks rationing supply in this country. There has been little change in US gulf basis this week for HRW wheat while SRW is seeing a slight increase. Future cash offers for the black sea and European wheat futures are higher in the New Year, in the case of Russian wheat prices are some 60 dollars per MT or 1.50 cents per bushel higher than a year ago. This will keep delivery lows from September intact. We still have 45 days before CBOT delivery begins, don’t get bearish here. If you haven’t joined me in the Z-N wheat spreads, there is plenty of room for the party.
What a disappointing week for cotton price action. Cotton ground all across the North half of Texas is inundated with moisture, hurricanes devastate the SE cotton crop and further talk of Indian crop problems are bandied about yet prices can’t scratch out a weekly gain as of this morning. The USDA report in a month is going to be incredibly interesting. Weekly export sales came in at 32,700 running bales for the current marketing year and 24,200 for the next marketing year for a total of 56,900. As of October 11th, cumulative cotton sales stand at 63.5% of the USDA forecast for 2018/2019 (current) marketing year versus a 5 year average of 46.1%. BUT don’t let these numbers trick you into thinking demand is light, it’s ALWAYS light at this time of the year. Yesterday’s report was much better than the ‘15 and ‘16 numbers in the same week. Cotton is going to be a buy, again it’s all about timing.
Have a great Friday, I’ll be chained to the desk all day. Give me a shout if you need anything.
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