Coming back from the weekend markets have a calmer opening as compared with Friday’s explosion to the upside in beans. The explosion, as I put out on Twitter, was completely based on rumors of fresh Chinese demand for beans off the PNW. Though we have seen only partial confirmation this morning, basis does support the talk with the western half of the US higher than we were on Friday morning. Corn and wheat lost dramatically to beans due to a lack of fresh demand rumors or any food for the bull in those commodities.
Spreads were supported in beans while bearish in wheat and corn. All spreads are active but let’s focus on CU-Z. This spread has recently collapsed from 37.5 inverse to a 7.5 inverse. Full carry for this spread is around 16-cents offering another 20-cents or so movement to the bear side. Traders need to consider that all the early planted corn will be delivered against the Sep contract. Informa made this known on Friday stating 1 billion bushels of corn will be deliverable; I feel this is dramatically understating the issue. If 60% of IL and 50% of MO are both planted and emerged by May 1st, using a 110 day growing cycle, the dry down date is give or take August 18th. This is not even considering TN, KY, KS, OK, TX and all the other southern states with corn acreage. Simply put, I think the trend is your friend here and the bear side should win this week.
On the flip side of the subdued corn bullishness is the amazingly long position in meal offering downside momentum. As expected, SMK-N went out past $4.00 then traded back under overnight on more money flow issues. Meal is not a bull. It is simply benefiting from the strength in beans which is in turn slowing crush. Meal demand should slacken off as other competing proteins move into rations. $400.00 meal makes many feeders balk at buying especially with massive inverses and a record long fund position. All that being said, meal will have a hard time falling until beans stall. Meal is a child of beans so look for extra weakness in meal if and when beans finally break which I’m sure they will do in the next 60-days. It’s not a revelation that I am bearish beans at current levels but the market is simply overextended. Positions wise, ratio wise and acreage wise, beans and meal are not in the right place. This is not to say the rally will not continue. Positioning against a money flow rally has hurt myself and many others. If you want to get bearish either, look at buying extremely cheap skewed puts establishing your risk.
Looking to today, beans are modestly bearish with spreads backing up the weaker tone. Corn and wheat are modestly bullish with spreads supporting that tone. KWN looks to gain a bit of recently lost ground to CHI with the spread sitting at a shockingly tight 14-cents. Minny will lag behind both as spring plantings roll along. Meal will be the weakest commodity on the floor while bean oil tries to hold ground in oilshare. Look for a relatively quiet session to start with the downside the path of least resistance even for corn. Crude is lower and the USD is higher which supports a bearish stance for the day. Watch spreads for best action and momentum with CU-Z sure to give up more by day’s end and even more by week’s end.
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Matthew Pierce
Disclaimer: Trading in futures and options involves a substantial degree of a risk of loss and is not suitable for all investors. Past performance is not indicative of future results.
