13.11.

2017 Print window

Subject: This Week in Grain and Oilseeds 11/13-11/17

From: jpayne@danielstrading.com
To: darekstepien@ymail.com
Date: Monday, 13 November 2017, 14:32:58 CET

Published by: John Payne 11/13/17 07:28:58 AM Central Standard Time

Good morning friends

Markets are softer at the CBOT as we start the week, led by wheat which has shed most of
Fridays gains trading back in familiar territory below 430 in both Chicago and KC
contracts. KC is working a premium now over Chicago to the tune of 1.5 cents, the highest
KC has traded over Chicago in the last few months. The December 17 corn contract is
trading just above last week and contract lows near 342. December 18 corn is holding its
double bottom so far, which comes in near 386. January soybeans are trading right on the
low medium term trend line that has held going back to August at 985. December cotton
options expired on Friday amidst a run up above 69 cents. Dec cotton traded as high as
6930 last night but have backed off to just above 69 cents as I write this.

The week ahead will be slow regarding new data inputs for the row crop grains. Producer
selling is expected to be the impetus for price movement, as is South American weather
and currency fluctuations. Grain traders probably need to be prepared for a very boring
trade over the interim. This week we will get a lot of Central Bank talk at a conference in
Frankfort on Tuesday. I think we will begin to see the USD strengthen against the other
major pairs as the expectation for a rate hike in December is high. In both 2015 and 2016
the US FOMC raised rates in the December meeting. You would think that would be
bearish grain prices here in the US as a stronger currency here only hurts our
competitiveness. Given the hike in corn carryout last week, this would be just a cherry on
top of the bearish Sundae the corn trade has been forced to swallow in recent days.
Tonight, we get Chinese industrial production numbers which should have some impact on
soybeans, cotton and other Chinese trades that have done pretty well of late.

Seasonally, we see new trades kick in this week on the buy side for soybeans outright, and

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soybeans vs corn and vs wheat. All three have really good track records, give me a call if
you want to learn more. Next week we see the seasonal bottom in cotton, as a buy of the
May contract is recommended. Ill try to reach out on this one to folks who are in hedges.

WEATHER: The 10 day outlook is solid for most of Brazil with totals expected anywhere
between 2 and 6 inches up North. We are seeing a dry out for Southern regions and
Argentina, which is needed to speed along planting. There is some heat coming into the
forecasts, but nothing too worry some thus far. So far there is nothing to report that is
problematic, longer term models will begin to dictate price. Watch for hot and dry in the
southern areas and Argentina. I think that is where the problems could pop up.

CORN: As I mentioned above, WASDE gave everyone another bearish shock which has
pressured price since the release on Thursday. Managed money short positions are not
doubt at an all time high. COT reports will be released today (Friday was a holiday) but
they will not show the damage after the report as the survey is as of last Tuesdays close. I
said this to a friend of mine last week, the only thing bullish about corn right now is the idea
that everyone is so bearish. The commodity complex has performed of late, maybe that can
get corn prices moving. I like re-owning if you have sold already (look at March near 350), I
wish I had some good advice for folks who must sell in the coming weeks, of which there
are many. I think there is a decent chance we see a push into the low 330s in December
(Sep contract low). I would definitely reown there. Corn rallies will depend on the dollar and
South American weather, the shorts are in the trade and blow out potential is there, but a
reason is not at this point.

COTTON: The price action is darn impressive in cotton given the WASDE report last week.
This market is refusing to break and with seasonal lows in the MRCI schedule ahead, I
would be covering hedges on breaks. I think we have the potential for some push back
near 66-67 in the weeks ahead, but I am no longer convinced of a break in the shorter
term. Reports I get from Texas are of a massive crop and given the historically long spec
trade, I would have thought a break was in the cards. I think we could still see it but the
closer we get to the end of the year the more I think the demand side of the trade could
support prices here. Longer term, new crop 2018 acreage will be an anchor if these

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carryout numbers do not come down, but with seasonal buys on the horizon I would be
careful here shorting too much Dec 18. If you have profits in the trade from the low-70s I
think I would take them if we see a spec liquidation soon, prepare to resell if we push back
to 71-72 on the potential seasonal push. The MRCI trade that kicks in next week
recommends buying May cotton, it has a profit 15 out of the last 15 years. (Please call me if
you want to talk about this stuff, seasonals require some explanation).

SOYBEANS: Like cotton, there is a seasonal buy recommendation for soybeans starting
this week. It will be interesting to see how beans trade after the USDA left bulls with a
pretty good sized carryout for next year. The chart reflects that trend line I mentioned, there
is a longer term one down near 9.60. This support should be a good buying opportunity for
futures traders with the South American growing season ahead in the next few months.
Weather is not a factor at this point either way. USDA raised production slightly to 108
MMT for Brazil in the last report, but we are a long way from knowing what is what. The
funds will want to buy this market in the short term with good potential for rallies on the
horizon, as the seasonal dictates.

WHEAT: Bulls were walking on air into the weekend with the prospects of a lower global

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and US carryout on the horizon. Its been a while since I wrote that. I think its premature to
be a buyer given the delivery is on the horizon, but breaks back toward 4.00 in Dec 17
futures probably warrant some strategy to help you sell into if given the chance. Folks I talk
to in Kansas are not thrilled with the start of the season. Fund positions are still somewhat
longer than I would like to see before trying to buy. I would wait until closer to Dec before
buying a July call/call spread. With vol this low, you can get some cheap calls in the low-
mid 5s that can give you an upside celling to sell into. I expect KC to continue to run over
Chicago into delivery. Turner has a good trade rec on that if interested, buying March KC-
Selling Chicago at a penny.

John Payne
866.825.8561 Toll-Free
312.706.7620 Local
312.706.7520 Fax
jpayne@danielstrading.com

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