Head to Head: Bullish Potential

January 27, 2016 02:30 AM

Q: The grain markets have been on a steady march lower since the last part of 2015 into the start of 2016. If you can, give our readers some hope by pointing out keys to watch for that could provide sales opportunities in the first quarter of the year.

Alan Brugler
President, Brugler Marketing & Management

Watch Soybean Weather Conditions, Corn Exports

Sales opportunities vary by commodity. USDA gave us a more bullish outlook for old-crop soybeans in January, trimming projected U.S. and world ending stocks. That will allow speculative funds a chance to come in on the long side. 

First, the key to a hypothetical late-winter top in soybeans likely will be a shift in South American weather forecasts and crop size. For corn, helpful bullish inputs would be a weaker U.S. dollar and a return to some weekly export sales of 750,000 to 950,000 metric tons. 

Second, watch for expanded Chinese efforts to limit air pollution and increase ethanol imports from the U.S. to meet oxygenate needs. 

World wheat stocks are projected to be record large for the 2015/16 marketing year. I don’t see much old-crop price relief other than some bouts of speculative short covering. 

Third, surprisingly small U.S. winter wheat plantings of 36.6 million acres offer the potential for a smaller 2016/17 wheat crop. The key to wheat will be U.S. and Russian crop conditions as the crop breaks dormancy. With the lower acreage base, lower yield would drop production fairly quickly. The Prospective Plantings reports on March 30 will show whether spring wheat producers want to expand to fill in missing hard red winter wheat. 

Contact Alan at alanb@bruglermktg.com.

Mike North 
President, Commodity Risk Management Group

Monitor Record Short Positions in Commodities

One of the largest single opportunities at present is the record short position held in corn, wheat and soybeans. As different stories come into the market or opportunities are presented elsewhere, fund exposure on the short side of the market has the potential of being unwound, giving aid to a rise in prices. Because end users likely will not be motivated to chase prices, the move by large fund groups to exit likely will be unilateral, giving cause to a rally—albeit a smaller one than what farmers would like. Producers need to recognize this as it happens and be ready to sell into such activity. 

The second opportunity that has arisen is the appearance of stronger January basis. December grain movement proved much larger than most expected, while January deliveries were just the opposite. Quiet terminals have allowed for stronger January basis than many predicted. With still-large domestic inventories, as evidenced in USDA’s January reports, there will be a time when grain must come to town. 

Capturing strong basis with a cash sale will allow producers the opportunity to eliminate the risk on open grain. At the same time, they can manage the flat price with call-option strategies at costs comparable to storage without the risk of further price decay.

Contact Mike at Mike at mike@crmg.us.

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee that the advice we give will result in profitable trades.




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