Grain Market Commentary
Jul 14, 2016
While the performance in grain and soy markets has been pleasantly positive since the release of the USDA supply demand reports this week, there is one commodity in particular that has stunned traders, particularly those of the bearish persuasion, and that is cotton. While prices appear to have settled down overnight yesterday, we witnessed a spike higher in this market taking it up to the highest prices witnessed since mid 2014. Domestically, there was nothing within the reports that you would have considered overtly bullish, as ending stocks were projected to drop 200,000 bales compared with the last estimate but still higher than the previous two years: But world ending stocks were lowered just over 3 million bales from the last estimate and over 9 million from last year, which evidently provided a wakeup call that world demand is indeed expanding.
Seeing that I have been traveling through the south this week, I would love to take at least some of the credit for this advance but fear I really had little to do with it. That said, I do think we need to give much of the credit to technical action and the overall shift in the commodity cycle. On the technical side, this market has been grinding in a sideways pattern between 68/69 cents on the upper end and 57/58 cents on the lower since 2014, and when prices pushed through the upper end of that range it was like the lid blew off the top of the pressure cooker and was a signal to the bears that it was time to get out of town. If we had managed to push through this level any time prior to January of this year when the major commodity cycle had turned higher, I do not believe we would have seen quite this kind of reaction: But today and realistically for the next year or two yet, we should see commodities actually respond to bullish input. As I said initially, prices do appear to have calmed down considerably overnight, but we now have yet another cat that has been let out of the bag and it will be some time before we can put it back in. I do not want this to come across as a mixed message, as I have written several times recently that it would appear that commodity indexes should be in a downward corrective phase but recognize that corrective down move does not mean a new bear trend. The basic definition of an uptrend is a market that overtime will establish higher highs and higher lows, and I currently would view corrective weakness as an opportunity to set the stage for next advance into 2017.
Exports sales for corn bounced back well this past week but soybean and wheat numbers were somewhat lacking. In corn we sold a total of 667,800 MT or 26.29 million bushels this crop year and then for the 2016/17 season another 687,800 MT or 27.08 million bushels. Top purchasers for old crop were Japan with 231.4k MT, South Korea with 190k followed by Peru with 162.1k. Soybean sales were 43% lower than last week and 49% lower than the 4-week average at 364,000 MT or 13.38 million bushels. Sales for 2016/17 were respectable at 547,000 MT or 20.1 million bushels. Top purchasers for old crop were China with 279.6k MT, the Netherlands at 86.1k and Malaysia with 22.3k. No surprise the top sales for next year went to China as well with 300k MT. Wheat sales came through at only 317,700 MT or 11.67 million bushels. This was 62% lower than last week and 53% under the 4-week average. Top sales went to Mexico with 66.9k MT, unknown at 49.2k and Chile at 45k.
For now though, weather is the name of the game and the heat in the current forecast is keeping the bears at bay. While I certainly to not have any special insight into the outlook, I would encourage producers to take a solid look at the bushels that you need to be selling between now and the end of the year and begin to pick the targets where you want to reward this strength.