An in depth look of what is ahead of us this week in grains and livestock
Eugene Graner, CTA of Heartland Investor Services - InsideFutures.com - Sun Apr 14, 6:04PM CDT

Commentary

This past week was baby steps part two for grains, as since the March 29 bearish USDA crop report, grains continue to trade sideways and holding minor gains that were seen the week after. Managed funds are the only ones selling this market, and all they can do is keep it from rising. For example, Managed funds on Tuesday established a new record short position in corn worth 272,000 contracts. Managed funds a year ago were long 175,000 contracts. History is flush with examples of how when funds get too heavy one way, a reversal is in the not-too-distant future where they decide not only to get out of their present position but also reverse and that creates a big move.

Since last Friday, corn absorbed bearish USDA data and increasing South American crop sizes. After absorbing negative news, corn still came back to close back at just above technical support and near steady on the week. There still is not a lot of excitement to create a rally at this time, but there are three factors that still could inspire one. That being weather, Chinese-US trade deal, changing of the trend of the US dollar.

Nearby weather Forecast Wetter Again: 16-30 Day Forecast Shows Hints of Change: broad low-pressure trough will stay anchored aloft over the Plains and Midwest through at least the next 7-8 days. This will sustain cooler than normal temps in most areas. Following heavy cumulative rainfall into Mon/Tues., another frontal system works through the E Plains and Midwest late next week. Heavy, widespread rainfall worth 1-3" will favor MO, IA, and IL. Note that rainfall over .25-1.50" fell across IL, IN and WI overnight. Soil moisture is at/near capacity in many places. Questions remain over the pattern in late April and beyond.

The GFS maintains a lack of precipitation across the principle Corn Belt April 21-27. The better performing EU model keeps an active pattern of showers intact, with the heaviest totals to favor the Delta and Eastern Midwest. Operational models late next week will begin to peek into conditions during the opening days of May. Close attention will be paid to whether a meaningful pattern shift can be established beyond late April.

We continue to await pricing of new crop grain at better values. Extreme pessimism abounds, and very negative news seems to be absorbed at present values. With the Chinese trade deal in the offing, and the total growing season still in front of us, the likelihood of a grain price rally in the next 90 days is very real given the extreme short positions of index fund money. Something is going to create a rally of some kind, as I have been in this business 33 years, and have not seen a year where something doesnt create at least a two-week spike to take advantage of. We await that opportunity.

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Corn

The only excitement about corn over this past week if you want to be from the grain prices, is that it continues to overcome various stories and hold steady just above 360. If weather models continue wet into the beginning of May, corn may then experience a weather concern rally.

A Friday close back under 360 would imply May corn going to the measured move price of 354, and if it fails, there is a break down to 345.July corn becomes spot contract after next week.

There's a long growing season in front of us, we await a challenge of the 415-425 range on December corn as a place to price some new crop, and would expect that a Chinese trade deal would be the event that would get us there. Closing under 380 basis December on a Friday would be concerning that future erosion in prices would be imminent.

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Beans

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Wheat

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Cattle

Cattle futures found a responsive rebounding week off the 120.00 range we had suspected was the bottom side of the initial break. A recovery bounce to the 123-124 range was anticipated with last weeks recovery level at 122.25 before futures experienced trouble.

Cash trade was mostly steady in the South at 124.00 as the northern cattle trade had not taken place due to the snowstorm. They might capture an extra dollar over this weeks activity early next week to satisfy packer needs.

This past week it was reported that China purchased 77,000 MTs of pork March 29 through April 4, double what they have been taking weekly. Until a vaccine can be found for ASF, export demand for US pork will remain strong to the Pacific Rim. Summer hogs are struggling in the 99.00-101.00 range for now, once they clear that value, hog prices will then trend much higher. Summer cattle have topped, and a rebound in price futures should be used for hedging if you have not already done so.

Feeder cattle for the fall contracts are all struggling at the noted 160.00 range weve been talking about for a long time, its a multi-year resistance point that is now the struggle. A Chinese trade deal that takes beef imports finally longer term, will help the December cattle take a run at 130.00 and open up the prospects for feeder cattle to do much better as well above 160.00. Use puts and put strategies for fall and winter feeder and cattle futures, leaving the top side open for the last half of 2019.

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2018 Hedge Recommendations

Corn

Sold 30% of 2018 corn at 409 on the December contract.

Sold 20% of 2018 corn at 421 on the December contract.

Wheat

Sold 30% of new crop HRS wheat at 628 on Sept MN or 638 Dec, depending on need.

Sold 20% of new crop HRS wheat at 630 on Sept MN or 642 Dec, depending on need.

Sold 30% of new crop HRW wheat at 532 on September KC wheat.

Sold 20% of new crop HRW wheat at 570.4 on September KC wheat or 570.4 on Dec.

Beans

Protected 100% of new crop 2018 beans by purchasing the July $10.20 short-dated new crop bean put for 26.2 cents. These were cashed in for $1.14 profit.


NOTE: All trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.

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