Staying Reasonable

Steve BruceGeneral Commentary

                                                It’s the time of the season when traders talk about winter kill in wheat but, unless it’s frigid cold for a week and no snow cover and very dry it is very difficult to zap the growth nodule to death…..Wheat is a surprising plant as the crusty  old timers refer to it as the Lazarus crop as it looks dead in April and then we get a rain and it re-tillers and grows and “Holy Moses” a crop is made! Hence, the subdued reaction to the cold weather forecast and the trepidation from the end user crowd that we’ll be plowing up the winter wheat acres this Spring! Yet, there is a shortage of quality in the world and the market has the potential for a lot of activity as we get into harvest in last half May/June/July. And wheat gets hurt with cold weather typically after it breaks dormancy and then gets hit with frigid temperatures in mid April to early May………….Until then, it’s all academic!

                                Are there any opportunities in corn and bean spreads? Working in and with the real users and cash grain trade in my career it’s always been a question of what month do I place my hedges, not if I buy or sell, and old crop/new crop is never, ever, ever  a spread consideration if the spread is not at 80% of full carry or wider. What is meant by that is that a commercial will almost never consider doing the December 2019/December 2020 spread unless it is 60 cents or wider………….Speculators may assume a little more of a risky attitude but, it’s hardly ever a good idea to bear spread old crop/new crop as there’s unlimited risk and limited reward. CZ/CT(December 2019 Corn/December 2020 Corn) is presently at 18 cents and might have more of a tendency to move in than widen as we work into planting in last half April/May. Any planting hiccup could  generate more enthusiasm for CZ! In the real world is still appears that CH might stay on the defensive through first notice day against the May and July. It still appears that hedge longs might benefit by being placed in the July contract and hedge shorts in the March contract. The logic is similar in the SX/SS(November 2019 Beans/ November 2020 Beans) spread. Comfortable old crop stocks and  the impending South American harvest might keep March beans the weakest contract in the bean market with May and July, through first notice day on the March, likely to perform a little better in comparison.

                                Basis levels, freight rates, receipts and shipments, weather forecasts and common sense  appear to be driving price action in  grains and, even though we would all love the USDA to feed us figures, we are surviving!  Analysts are projecting total wheat acres to be slipping in 2019 about 2.5% from 2018 with the exception of durum which is expected to see an increase. Bean acreage is expected to slip to 84 to 85 million acres while corn acreage is expected to rise to 90 to 91 million acres. Of course, Mother Nature will have the final say!

The information contained on this site is the opinion of the writer and obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in current market prices.     

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Steve Bruce

               
Walsh Trading
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