Futures Commentary and Analysis


Friday Morning in Grain and Oilseeds 4/21
John Payne - IF - Fri Apr 21, 7:35AM CDT

This Week In Grain (T.W.I.G)Good morning friends!

Corn (K17)357-6  unch

Soybeans (K17)  950’6  +4’0

Chi Wheat (K17) 421’0   -‘6

KC Wheat  (K17) 416’4

Cotton (Z17)   74.77  -.09

Good morning friends

Brutal price action yesterday in the feed grains markets (except oats!) is going to lead the tape this morning but I want to start with some bullish news in the cotton pits.Exports were fantastic yesterday in cotton, old crop demand is alive and well.  May cotton touched 80 cents yesterday, almost breaking into the 81 cent territory.  On the open yesterday, May was trading .80 cents under July cotton.  It is now .74 cents above July.  This is a signal hedgers need to be aware of.  I know the fund story I have been pushing is bearish, that remains bearish.  But the rally in old crop here into delivery is a wake up call for the shorts.  As we push on 75 cents in the new crop, I hesitate to do anything on the buy side here. But if you are hedged in futures this is something you must be aware of right now.  Buying cheap calls out of the money to cover sales is something I would highly recommend.  Again, timing is important.  Doing it this moment is not my push, but if yields would disappoint this year OR if yields would have the indication they would disappoint- I think we could see a push to 90 or something crazy like that.  Cotton and cattle have been the best ag performing markets over the last year, I think its a good sign for the rest of Ag but for the shorts in December, be careful.  I will be reaching out to talk about this.

Wheat markets took the brunt of the selling on the CBOT yesterday, a day ahead of May option expiration.  Puts, like the 410 strike in Chicago were worthless 2 days ago, are now in the money by a few cents. The production boom of the last two-three years globally appears to be continuing, on this side of the world at least.  Record shorts are now more record short while I imagine the total amount of outright longs in wheat is back to record lows. With a lack of bullish news, fund selling probably continues but I imagine we snap back at some point. US  wheat is cheap, new crop offers back near lows in the Black sea.  Now is not the time to be bearish, even though it feels horrible from a bullish standpoint. Next week is when “price or roll time”.  

StatsCan will be out later this morning with their Principle Crop Acreage data which should help continue the narrative of declining wheat acres around the globe.  Despite the decline in acres, there is really nothing on the table yet to suggest below trend yields are in-store for any of the major exporting countries.

Corn, like wheat has broken through multiple strikes since late last week.  We traded north of 370 in May futures, now were sub 360.  With volatility in corn options as cheap as they were, the markets were bound to flush.  This is farmer selling in my opinion. Capitulation by folks who are cash strapped and sick of paying for storage.  The funds are record short, so please do not take this as some bearish rec, but if you look at the front month chart of corn- we could fall a bit from here before we hit late summer.  At this point given the amount of moisture in the ground, betting on a drought is probably misguided.  Corn needs a weather problem to hang up here longer term, otherwise the elevated old crop stocks are going to continue to weigh on price.

Soybeans have hung in during the recent sell streak across the trading room at CBOT. Soybeans have a fantastic demand story to lean on and low prices have slowed farmer sales.  Unlike corn and wheat, soybeans are pretty much out of farmer hands from an old crop perspective, which makes these delivery periods somewhat less harsh. That said, yields in Argentina are probably going to stay around 56 while Brasil bean yields could continue to rally.

US weather is looking at storms this weekend in the southern growing areas (corn probably in the ground), while next week we will see storms positioned more northward.  I imagine we are going to see some solid progress on Monday (10% expected) and even more the following week. Have a great weekend.

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