CBOT and cotton markets traded quietly lower for most of the overnight, they have come off their lows since I came into the office around 630 am. It is “get down” day ahead of tomorrow’s USDA report. Overnight news was light, today President Trump is expect to meet with bio fuel companies. China lifted some tariffs on necessary imports like chemicals and medication, but nothing ag related. The US forecast will remain hot for the next two weeks with periods of moisture, just what the doctor ordered. Brazil remains dry, take a look at coffee. That market is spiking pointing toward problems in N. Brazil.
The over/under line on tomorrows report is just under 10 cents, as that is where the 360 straddle is priced for Friday expiration. Look for attempts to sell/buy 350 and 370. I know bulls have their eye on the chart gap up near 390, but I would hesitate to make plans to only sell corn there. I know this is not going to be popular, but I just spoke to a guy in Central Illinois who is looking at corn yields in the 260’s. There are problem areas for sure, but the areas where there are not problems should do very, very well. The weather of the last few weeks has been ideal for corn and the latest warm up should do a lot to dry out the crop. I do not see a big yield adjustment in the cards. Now, if you want to talk acreage? Im all ears. If you are looking for a sharp reduction in stocks, it probably needs to start with a harvested acreage adjustment. We won’t find that out for a while. A win for the bulls would be anything that does not see increased supply combined with decreased demand. The result of that could be a big carryout shift, combined with the outlook more adjustments are coming in the Sep 29 Grain stocks report. If you are looking to initiate positions, selling at the daily Bollinger band level near 375 and buying near 352 would be my play. If you want to get ahead of it, you can buy a 375/350 straddle that expires next week for 4 cents. If you want to be really cheap, you can the same straddle for under 2 cents. I explain what that is in the video below.
ATM 870 straddle for Friday is priced at 14 cents, which puts the expected price range for Friday at 884 and 856. You would think given the soybean acreage in the last WASDE combined with the Chinese headlines and dryness in Brazil would have beans pushing a bit harder. If I would be bullish any market, it would be beans. Brazilian stocks are already running low from the massive export pace, planting or complications during the growing season will cause a spike in price. We have also seen the Brazilian real top a bit. I would not rule out a yield hike in soybeans, but demand should hold constant and given the planted acreage the US carryout looks to fall more than 40% year over year even without a trade deal. The one caveat is given the lack of rally this summer, I know producers are sitting on a lot of unsold bushels in the field. Weather has been a positive in recent weeks, its nearly 80 degrees outside in Chicago right now. Development should pick up. Beans have been in a very tight, narrowing range since the end of July lows were made. If you want to buy on a break or sell on a rally, look at the Sep 20 expiration straddle, use the 890 and 850 strikes. You can buy that straddle for around 5 cents, then put buy or sell orders near each strike if you believe the range will hold, if you don’t then leave them be. There are a lot more unknowns about beans than corn at this point, in my opinion. Chinese trade negotiations could change the bean carryout drastically, I don’t know it changes corn a whole lot.
Chicago continues to rally on KC. While KC has moved about 20 cents over the last week and a half, Dec Chicago has moved about 30 while moving up 20 just this week. Global wheat stocks are likely to come in tomorrow at a high level, well above last year considering the big crops in Europe and Black Sea. US stocks will be up as well considering the big Spring wheat and HRW yields. SRW yields are going to be more of a question, but it’s hard to see that moving the KC or MINNY crop much. That said, Minny and KC remain heavily shorted and covering is a big risk. On the global markets, cash is starting to rally. I think we have probably bottomed in regards to Russian and European offers, which said they remain well below the rest of the globe and well below last year. Technical traders are talking about a breakout in the Chicago, but I am always careful to chase those types of trades ahead of a report. There is a Southern Hemisphere drought that looks to persist into late September across key areas of Argentina and Australia. The need for rain in Southern Hemisphere producing regions will be immediate beginning in late Sep/early Oct. The KC 400 straddle expiring next Friday is a little over 12 cents, I would be buying breaks on March to 400. Have orders ready.
Dec futures had their best close in 3 weeks yesterday as the daily Bollinger band gets pressured. Unfortunately, the ICE exchange (which I think exists solely so the CME can avoid being pegged as a monopoly) has no weekly options for Cotton. If you are looking to participate with options, you can use the Oct 18, expiration. The report is likely to be bearish. The only hope would be a small US reduction in supply with demand held constant. We could see some bullishness in global numbers due to India problems. The bull in me would like to think we see spec short covering that pushes prices into the 60’s but I doubt it. If you see a rally like that, I highly encourage producers marketing outside of the pool to take advantage. Ending stocks are expected to come in at 7.14 million bales (6.4 to 8.5 million range) as compared with 7.2 million bales as the USDA August estimate.
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