Grain spreads were for the most part quiet to start the week as we saw some slight slippage in wheat versus corn, while old crop new crop bean and meal spreads showed minimal gains. Outright beans were the big mover as managed funds last week sold a sizable 60 K contracts. This took them from a net long to a net short in the market, with a total of 40, 771 contracts short. Bean Oil gained on meal today in the oil share trade but still looks suspect to me as funds have been aggressive sellers of bean oil the last four weeks. Non commercials are long 70 K of meal contracts while being long 30 K of bean oil. I look for meal to gain on oil into the January crop report while I would prefer to get long the July /Nov bean a spread into the January crop report.
Wheat vs Corn
After topping out last week at 77 cents Chicago Wheat over corn, this spread has pulled back near trend line support at 67 over. Outright wheat lost momentum today as rallies in wheat have been met with motivated fund selling. Funds are short 150 K contracts about 15 K shy of the record short. While freezing temps and persistent dryness continue to plague the western winter wheat belt, short covering has been muted by the funds so far. Abundant and extreme global carry-outs continue to stymie rallies in my view and therefore continued buying or follow thru to the upside. While the heavy supply is seen as bearish in my view, it is also a known in the market leaving weather events or something else that enters the market as a bullish surprise. Corn had a 2.2 cent range today so suffice it to say it didn’t move. This spread needs to hold 68.4 over , if not we could see a move to 61 over. A close under here and the spread pushes down to 56 over. Resistance is at 75.4. A close over and the spread trades all the way up to 83.4 over in my opinion.
Minneapolis vs Chicago Wheat
We think there might be better opportunity here to sell Minneapolis and Buy Chicago to catch a bigger protracted move in the market. The market traded down from a summer high of 2.30 Minn over Chicago during the summer spring wheat rally. the spread then lost 70 cents by October to a 1.60 over. The spread then bounced .56 cents to 2.16 in November but since has fallen back to 1.88 over. Any near term rally to lets say 1.95 to 1.97 could be a nice selling opportunity. Look to short Minneapolis and buy Chicago at those levels and be out on a stop over 2.06. I see this spread tightening to 1.61 and then potentially to 1.45 Minn over Chicago.
Old Crop vs New Crop Soy Complex
July 18/Nov 18 Soybean spread: I like this spread at 9 over inverted into the January crop report. I still think we will see another weather premium or two for the South American growing season which would be friendly for old crop beans. Weather and Chinese demand will be the ultimate determinant here on whether this spread has legs or we see this spread go inverted. Initial upside targets come in at 23-24 July over November. A close over and this spread could rally another 12 to 15 cents easy. However be careful if you go long as close under 7.2 could push this spread to at or just above parity.
July 18/ Dec 18 Soymeal Spread: this spread has found rallies during seasonality buy periods in my view, (mid summer and post harvest) but that isn’t to say we wont get another soon. The spread settled at 2.5 over today with recent declines near parity or at a small carry that have become buying opportunities. I would look to be a buy on dips near parity or at a small carry into the January Crop report.
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