Soy Complex
Old crop new crop corn and bean and meal spreads continue to trade range bound into Friday’s key USDA report. While funds press the short side in outright soybean contracts, May/Nov 18, July/Nov 18 and July/Dec Soy meal spreads have barely budged lower. This most likely states that longs are liquidating ahead of the crop report across the board in beans while funds press the short side of the market. As of January 3rd, managed money is short 85 K bean contracts which might be understated given the market has dropped almost 20 cents from last week’s highs. While China secured over 260 K metric tons in a flash sale announcement this morning, only 65 K was sold for 17/18 shipment, while they purchased 130 K for 17/18 shipment on Monday. With China back in the market this week, why all the selling? The reason in my view is that traders and managed funds fear a bearish USDA report concerning ending stocks. The average trade guess is for ending stocks to be raised 34 million bushels higher to 479 million bushels. The range is from 442 the low end to 595 on the high. Technically March beans settled through key support in the 958-959 area today to trade down below recent lows at 954.4. If this level can’t hold look for March beans to test 937, the next area of major support. From there I would be a buyer as Argentinian weather could still push this market back up to the 10.00 level.
Trade: If we get a bean sell-off Friday, look to catch a bounce buying the March/Nov bean spread at a negative 24 cent carry, or buying July/Nov bean spreads at a 5 cent carry. I still feel there will be another weather premium later this month down in the Southern Hemisphere pushing these spreads 15 to 20 cents higher from the aforementioned buy levels in my view.
Wheat/Corn
KC wheat vs Corn
Wheat continues to gain on corn as funds are more aggressively short covering in wheat than they are in corn. This spread has made a nice run from 63 cents wheat over corn to 85 cents. KC wheat has pushed out to 90 cents KC wheat versus corn. Reasons for this spread continuing to push is the fear that winter wheat sowing’s are lower than last years 109 year low. Given weathers unpredictability in the western wheat belt this year with a lack of moisture and freezing temperatures without snow cover, we have some light short covering in outright wheat. Managed money though is still short 128 K contracts of Chicago, while short 28 K contracts of KC. I like both spreads here to push to 1.95 wheat over corn and 1.99 KC Wheat over corn into early next week. I’m hearing a lot of noise on NAFTA being unwound here by the Trump administration. Again I think its noise at the end of the day but could affect corn more than wheat as Mexico is the 2nd largest buyer of U.S. corn in the world. I think the “noise” here keeps this spread bid in the near term. Call me with any questions on trade levels.
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