`Soy complex
While the majority of investor focus has been focused on the massive swings in the equity markets , and rightfully so I might add, the grain sector also came to life today with new highs scored in corn amid a vigorous claw back in beans, meal, and soy oil. The rally in my estimation was due to another change in the Argentinean weather forecast. There has been drought like conditions in central and southern Argentina for the last 6 to 8 weeks with only northern growing areas receiving meaningful precipitation. WX Risk, the AG weather site sees some rain but with lesser amounts to emerge into this weekend for central Argentina, then rain chances collapse into mid month and somewhat beyond. This is a departure from what we saw late last week of wetter forecasts for the areas of need. Today’s 17 cent bean rally and subsequent rallies in meal and oil look to me like a weather event or premium being re-built rather than a turnaround Tuesday trade. Future spreads that we have been following showed some life today with July/Nov beans trading from parity to 2 cents over, while July/Dec meal rallied just over two handles from 1.0 over to 3.3 over. Its important to note that we have a WASDE report Thursday with likely adjustments to ending stocks, exports, and South American production. I will have more on pre-report estimates in tomorrows post. Weekly closes in beans at 977-78 need to hold or I would exit any bullish spread strategies as lower prices will likely emerge. While we settled below 970 yesterday, the market went to the 200 day at 968 overnight before bouncing on bullish weather this morning. 977-78 is the key for me on the week. Upside targets are at 993, 1001.6, and then 1007. Should we continue to get a weather rally look to be buyer of old crop/new crop bean and meal spreads at 2 cents July /Nov beans and 2.0/3.0 July meal over Dec 18 meal. Initial upside targets are 14 cents July over November in beans and 11.0 short tons July over Dec 18 meal. These are good risk to reward areas using multiple units with tight stops.
Corn/Wheat:
Hallelujah! March corn made new highs. (A whopping 1.4 cents from the previous high). We have been advocating buying calls and selling puts in corn since before Christmas in July and December contracts. Calendar spreads in corn haven’t moved much so we have stayed away for now. With low volatility one should be a buyer of options rather than a seller in my opinion. We have been spreading corn vs KC and Chicago wheat back and forth here and continue to lean favoring both wheat contracts against corn in the near term. Chicago wheat vs corn traded down from 97 over last weeks high, to 79.6 yesterday before pulling a little higher to 83.4 over today. In my view as long as 81 cents wheat over corn holds, I think this spread can push out to 96 cents over. Kc wheat over corn has rallied from 72.4 over to 1.10 over. Dryness in the hard red winter wheat areas has pushed KC wheat back near 470. Support levels at the 454-55 area that we gave last week held and the market maybe poised for another leg higher. KC/corn went out at 105.4 over today. If you are looking to be a buyer here put a stop under trend line support under 97. Upside targets are at 1.30 over Kc wheat over corn. Kc vs Chicago wheat has rallied to 23 over, our first initial target, with potential to move to 34 cents over. The rally is steep in nature so those long should look to put a stop in at 15.4 KC over Chicago.
Trade recommendation: while we correctly suggested buying KC/Chicago wheat vs Minneapolis the month prior, we are now looking to reverse the call with a potential trade. Look to buy Minneapolis wheat and sell KC on further break at the 1.29 area Minn over KC. Use a 7 cent stop upon entry with a push higher to 1.60 Minn over KC, a 31 cent move. I’m seeing an oversold condition here and a potential opportunity. The spread went out near 1.38 over today.
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