May 20, 2016
Written by Chris Robinson
Corn: July Corn settled up 4 ½ cents at $3.94 ½. Today felt more like a recovery day for corn after yesterday’s volatile trade. For the week, July settled up 3 ¾ cents. New Crop CZ settled up 2 ½ cents at $3.99 ¾, but sadly for bulls, we could not settle above $4.00 for the week. For the week, CZ settled up just 1 ¼ cent. $4.00 has been like the 38th parallel on the Korean peninsula for new crop corn this year. In the last six months, beginning on November 6th, the contract has only managed to settle above $4.00 just 4 times. Fundamentally, the weather forecast remains bearish as by and large the weather, in aggregate, is supportive for continued good progress nationally. The average expectation for planting progress on Monday is 85% for corn. Some in the trade are calling for closer to 90% complete. Rain is forecast for southern and central IN, but will dry out mid-week. Progress for IN and OH will continue to lag the rest of the country. The longer term forecast through mid-June continues to call for normal to above normal precipitation. The bulls are in the crow’s nest looking for drought but they have yet to shout out. The managed funds as of today were estimated to be long 70K contracts of corn. Hedgers: Protect $3.80 corn for the next 62 days for 10 cents a bushel. This protects you through planting intentions on June 30th, pollination, through July 22nd. This is an August short-dated new crop put.
Wheat: July Chicago wheat settled down 1 cent at $4.67 ¾. For the week, WN finished down 7 cents. KCN settled up one cent at $4.49. The contract lost 7 cents on the week as well. Try as the bulls may, there remains very little fundamental (i.e., supply / demand) or technical (i.e. chart action) which is bullish. The best strategy in a market like this is to maintain your protection and roll those options down when the market allows. We have gotten spotty short covering rallies so far in 2016, but most have been due to money flow rather than fundamental shifts in supply and demand. The recent rally in the US dollar has been the single most negative item limiting the demand for US wheat. Our wheat, sadly while it may be of better quality, is fighting the head wind of burdensome worldwide supply and a US$ which is the strongest currency in the world vs. every one of our competitors. The managed funds maintain a large short position of 75k contracts. Hedgers: July put options have just 34 days left until expiration. Any put at or above $5.00 should be rolled down. If you need protection past 6/24/15 you can roll out in an August option and maintain protection until July 22nd.
Soybeans: July soybeans settled up 2 ¾ cents at $10.74 ¼. New crop SX settled down 4 cents at $10.49 ½. The story today was massive short covering in the July soybean meal contract. July meal settled up $14.60 today. That contract has rallied $117 dollars in the past month. There were conflicting opinions in the trade today as to whether or not there was truly a lack of available meal. The continued demand in China has been extrapolated by the bulls, who argue in 65 days; both Argentina and Brazil will have no more beans to ship to China, assuming that their current demand holds up. In my opinion, this sounds more like the bulls just “talking their position”. The rally in the beans so far this year has benefitted from first, the shortage of Malaysian palm oil. Now it’s benefitting from a perceived shortage in soybean meal, due to China’s demand hungry market. At some point, the bull will run out ammo, but for now the market continues to “feed the bull”. Planting progress in the US is expected to be up to 61 % planted. Weather, by and large remains friendly as the planters roll. Monday we’ll get a fresh update on progress at 3PM CST. The funds maintain a massive long position, close to 200K contracts, or 1 Billion bushels. With a crop size slightly greater than 3 billion bushels, they effectively own 1/3 of the crop on paper. That should be food for thought over the weekend. Hedgers: Make sure your protection extends at least through the June 30th planting intentions report. An August dated 10.00 put for 23 cents gives you protection through July 22nd.
This week, the biggest mover for grain prices came in response to Wednesday’s Fed meeting minutes, which showed a shift towards a more hawkish position on rates. The market responded to this perceived shift by slamming commodities in a knee jerk reaction. On May 3rd, the US$ had fallen to its lowest value in 16 months. Since that low, the contract has rallied 3.63 or 4%. If the Fed does raise rates in June, this trend of a strengthening dollar should continue.
In a nut shell, this is negative for US commodities. That’s a big picture which may or may not have outsized impact on our exports. If we have a drought and there’s a cut in supply, a stronger dollar won’t stop that rally. The risk is if we get a huge crop and plentiful supplies along with a stronger dollar. That would pressure prices and hurt our export chances.
2016 has given us a gift of a rally in soybeans. We have yet to see spillover into corn. Wheat continues to be on the ropes doing its best impersonation of Rocky Balboa. The weather gurus are still calling for hot and dry post June and into July. Stay the course. Protect your unpriced grain and leave your upside open.
Have a great and safe weekend as many of you are still out planting.
CER