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In this podcast we go over the Feb 11 WASDE, our thoughts on rice, crude oil, cotton, corn, and the spread between soybeans and KC wheat. Make sure you take a listen to the latest Turner’s Take Podcast!
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Rice
Imports on rice increased in the last WASDE and that has caused some selling and profit taking. We still like rice but if the USDA is going to balance the tight balance sheet with imports than the bull story may be over for rice. The USDA has average rice prices at $13. Futures are about 30 to 40 cents higher in the front month. The big question is if imports can meet all US demand. If so then it is time to get out of rice and move on.
Crude Oil
Below is a chart of July vs Dec crude. This is a seasonal bull spread that tends to go higher this time of year. I like it because crude has sold off so much due to the coronavirus and I think we are going to rebound. The margin is $600 per spread, I think we are finding support at these levels, and I think the market has priced in the economic impact for coronavirus. The risk is an outbreak in Europe or the US.
Cotton
Below is the May vs Dec Cotton bull spread. We see China buying cotton from the US as part of the Phase One trade deal. Seasonally this spread is bullish too. The trend is higher and support levels are holding.
Corn
Below is July vs Dec corn. I like this as a bear spread. South America has a big crop. The US will have a lot of new crop acres. We don’t have a shortage of corn. The USDA probably understated last year’s crop and farmers are not selling. The basis is strong now but once farmers start selling corn the basis will get weaker. First target is -15 cents (carry) and if the market completely falls apart July/Dec could go below -20 cents with the new storage rates at the CME. Margin is $440 per spread.
Soybeans vs HRW Wheat
This is a seasonal spread of May Soybeans vs May KC wheat. I think soybeans are a very good value at or under $9. Ending stocks are 425mm bushels and we are almost at 10% stock to usage. In a normal year beans would be in the mid $9s and new crop making a run at $10 during weather rallies. KC wheat is elevated due to issues with the Chicago contract. Weather premium tends to come out of wheat as we head into spring and the risk of winter kill passes. Conversely we are just getting started with the US soybean crop. I think the chart is finding support at these levels too.
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Craig Turner – Commodity Futures Broker
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