Play Turner’s Take Podcast Episode 217

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In this podcast we go over the money flow into commodities, the big crops coming from South America, possible Chinese ag buying starting Feb 15, and why the WASDE could be bullish as the USDA factors in trade deal demand. Click here to take a listen to this week’s Turner’s Take Podcast!

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Macro Markets

President Trump was acquitted in the Senate for both articles of impeachment.  The State Of the Union was surprisingly well received (don’t shoot the messenger if you don’t like Trump)  Taking politics out of the equation, the speech was market friendly.  US stocks are rallying as Wuhan Coronavirus fears are subsiding.  We are also seeing Index funds building long positions in the commodity markets.  Index funds have been liquidating since 2010.  It looks like we have reached the nadir and money flow is trending positive again.

SOYBEANS

Brazilian production is estimated at 123 million mt.  That is up from 115 last year and a record.  Brazil soybeans 15 to 20 cents below US Gulf which is to be expected for this time of year.  Spot soybeans have support in the $8.60s and $8.70s.  I think soybeans are oversold but we need a catalyst to go higher.

China will be able to buy soybeans (and corn and beef) starting Feb 15. Soybean basis is strong after the futures have sold off 70+ cents.  Central IL basis is 10 to 20 under in places we were 50 to 60 under last year. I am hearing similar basis moves year-over-year in Iowa.  Farmers should look to lock in basis and sell the next big rally.

I think the WASDE could be bullish for soybeans (see WASDE section below).  I think short dated soybean calls could be a good play heading into the report

Continuous Soybeans

CORN

We still see corn range bound.  China is auctioning off state reserves because their is a shortage of feed for livestock. US corn is the cheapest in the world right now.  China has to buy US ag productions as part of Phase One. They want to do it based on need and market price.  I expect China to be buying US corn starting Feb 15. It will not be a lot but it will be enough to rally the market 10 or 15 cents over two or three trading sessions.  I like being long old crop heading into the WASDE and the potential for China to buy some corn. If and when we get this rally I’ll take profit on old crop and sell new crop too.

Why sell new crop on a rally?  Because based on where Dec Corn and Nov Soybeans are I think we are at 95mm acres corn when the Ag Forum comes out with their estimates later this month. That means new crop carryout could be over 2.5 billion…minimum.  If corn rallies 10 to 15 cents then new crop is above $4.00 and we need to make sales.

This is the game plan going forward

A) Sell Dec 20 new crop on strong rallies (above $4)

B) Buy front month futures on steep decline and look to make a nickel or a dime (and keep those new crop hedges on!)

C) If you can store corn then roll Dec 20 to July 21 sometime in mid to late November.  We think the market will have about 30 cents of carry next harvest.

D) When you finally sell the cash old crop you should be price $4.30+ on the board and hopefully made some additional nickels and dimes along the way buying old crop on dips against new crop sales.