Stable Overnight Grains and Cotton Despite Dollar Strength

Posted on 03/09/2017 10:25 AM

Wheat: Tech Talk was updated yesterday. For the July SRW contract, Level 3 cycle lows occurred Dec. 2 and Dec. 17. The next low is due this week and no later. With the oversold five-day stochastic setting up for a positive divergence, it seems best to favor a short-term rebound. Short-term cycles are not as reliable when applied to open interest, but the forecast is that a Level 3 low occurred mid-December and a setback is due. This increases odds for a short covering rally. I drove through Missouri to south western Illinois and noticed flooding on wheat ground and more so for the latter state. In the news: Illinois raised the poor wheat condition category to 15% from 6% from weather. Posson's Profit Watch (PPW): 11/24: rolled to March SRW if not stopped out in October. Otherwise: bought March futures 11/24: at $4.94. May trade in and out along the way.

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Corn: July futures are of similar behavior as that of wheat. A Level 3 cycle upswing is due and the five-day stochastic is oversold. A buy signal for the indicator would be a sign of the turn as would trade above the five-day moving average near $3.69 1/4. Major resistance is the downtrending 40-day moving average near $3.81. In the news: an Argentine official estimated the 2015-16 crop to be 26 MMT, down 7.8 MMT for a drop of 23% from the prior year. PPW: 11/24: rolled to March -if not stopped out in October. Otherwise:11/24: bought March at $3.70. 12/28: Since this column is updated only in the morning, a backup strategy for this column will be an exit of reownership of an official Pro Farmer position intra-day. 11/24: Feed users should be at least 50% covered into summer.

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Soybeans: Rains in Brazil and weak outside markets were blamed for yesterday's decline in soybean futures. More rain is required in Mato Grosso, Brazil. Futures held up rather well given that prices violated the December low for the July contract and then closed slightly above as a sign of lack of followthrough. Open interest dropped during the recent decline in prices suggesting a lack of interest in selling short, but liquidation occurred. This may be a sign traders see beans trading between $8.00 and $9.00. Dec. 30 was the earliest for an intra-month Level 3 cycle low and it seemed strange for it to be a truncated bottom. So it was of no surprise to see yesterday's dip and odds are now rising at a fast pace for such a bottom to occur this week and no later. In fact, a higher close today may trigger a buy signal in the oversold five-day stochastic that is of a potential positive divergence pattern. Such a pattern is when an indicator refuses to move to a new low when price did just that. It is another form of an oversold condition. Support is yesterday's low and nearby resistance is the five-day moving average around $8.75 3/4, followed by the 40-day moving average near$8.85. In the news: An Argentine official pegged the soybean crop to be slightly smaller than the prior year. PPW: 10/21: long one unit March futures at $9.05 1/2. 12/31: sell stop on position at $8.66.

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Soymeal: Deserves a Level 3 cycle upswing. A higher close today is likely to trigger a buy signal for the oversold five-day stochastic. November crush was lower according to USDA, stocks of soymeal might have suggested firm domestic usage. A close above the five-day moving average would also be a sign to favor near-term bulls. July meal is worth $279.00 for this week and next. It currently trades near $273.00. PPW: 11/24: exited December positions at $285.30, bought July at $290.40. Although supplies might suggest there is little reason to be protected for 2016, I still believe meal is at a value and would favor at least 50% forward bought into summer. 12/16: Since this column is updated only in the morning, a backup strategy for this column will be an exit of reownership of an official Pro Farmer position intra-day.


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Cotton: A Level 3 cycle low is due late this week to early next. The five-day stochastic is swinging toward oversold, but with wide enough spread to consider the July contract will dip to the 100-day moving average near 63.73 cents. An upswing in the dollar and volatile outside markets may weigh on cotton. PPW: 12/18: Long July futures for a buyback on a stop at 65.00 cents. One can then risk to below a recent low. Consumers should continue to build a forward position.

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Cattle: Futures are due for an intermediate trend cycle high. As shown in Tech Talk price and time objectives were met, but there is room for both to extend. The five-week stochastic is overbought. Although a correction is due, a long-term business cycle bottom was likely placed in December. Nearby resistance for the June contract is the 100-day moving average near $128.92. The five-day stochastic is short the market from Dec. 29, but until yesterday's low at $125.67 1/2 is violated there is potential for the indicator to slipped in order to provide room for a final bounce and for a negative divergence. In the news: Ukraine slaps retaliatory meat embargo on Russia, Canadian beef exports resume in S. Korea. PPW: 12/28: With use of the continuation chart, I must call a three-year business cycle low in place for futures, but there is not evidence in beef prices at this time.

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Hogs: February futures found buyer interest near the 40-day moving average around $57.96. That level is now important support and violation may be a sign for return to the December low. June futures fell well below the 100-day moving average and the recovered. This may be a sign of strength, but the bearish five-day stochastic paid no attention to the recovery. In the news: Taiwan's election rages over U.S. pork. PPW: 10/8: Risk of a correction has returned. Use of put options would provide a floor price to guard against lower than expected futures into November. 12/1: Time for a retracement higher.

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Milk: 1/4: The standard continuation chart plunged last week, while the second contract version turned up last week. The five-week stochastic for the second contract continuation chart made a buy signal. The September C3 futures also achieved a buy signal for the five-week stochastic, while cheese made a year-end rebound. Although of risk of being early still, this month's low may have been a long-term three-year business cycle low. At least a Level 2 cycle low should be in place, suggesting a recovery this month. In the news: Texas/Mexico blizzard kills 30,000 dairy cows. PPW: 8/3: If concerned of supplies distorting cyclical behavior, then use put options to insure production value. One could sell calls as well and in order to create a range of price. A strategy known as collar.

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Stock market: Concerns of U.S. PMI and China growth weighed on stocks yesterday. 1/4: Sharply lower start for 2016 according to overnight index futures trade. And this despite improving PMIs around the world. U.S. December PMI is due.

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Economy: 1/4: Singapore's economy rose 5.7% for the fourth-quarter compared to the previous quarter. A Bloomberg survey had estimated 1% growth. Singapore is a major commodity trading hub. New manufacturing orders in Japan for December, matched the pace of October, which was a one-year high. The headline Nikkei PMI was unchanged from November. Official PMI for China for December came in at 49.7, which was in line with a poll by Reuters of expectations of economists. This was a minor uptick from the November pulse of that nation's manufacturing. South Korea's December PMI rose to above 50 (signals growth) for the first time in 10 months. Taiwan employment speeds to five-month high. New orders and manufacturing output increase for the first time in nine months. The euro-zone made solid progress in terms of manufacturing from increases in new orders, new export business and growth in production. Leaders were Italy at a 57-month high, France at 21-month high and Germany at a 4-month high. Greece posted a 19-month high for PMI within the euro-zone rating. Brazil's contraction continued, but at a slower pace. Evidence of a turn higher for the global economy was on the rise in December. Business cycles still call for growth in 2016. PPW: 11/3: I have called a three-year business cycle bottom for the global economy in terms of the JP Morgan Global PMI. Economies should grow into 2017. Watch for signs of an end to the commodities bear market since 2011.

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Interest Rates: 12/21: Stalling with realization the Fed will take its time on raising rates in 2016.

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Dollar: 1/5: The euro failed yesterday for a possible Level 3 cycle low that is still due, but with an intermediate cyclical low due early next month, the rolling over pattern is likely a sign of a corrective market.

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Energy: Oil: 1/4: Higher prices were seen overnight on Middle East tension, but eroded by morning. Level 1 and three-year cycle lows are due this month. 12/28: The spot chart violated a downtrend since the November high, but barely so. And the five-day stochastic is overbought with a Level 3 intra-month cycle low is due late this week to early next. Given bulls have found it difficult with no significant change in spot based fundamentals, I will go with the market retraces. But 2016 still has moderate bullish potential. Ethanol: 12/28: Leaning toward violation of a downtrend since early December. The five-day stochastic was long last week. Natural Gas: 12/28: Sizable recovery seen last week for the spot chart. The five-day stochastic is overbought. Resistance is around $2.256. PPW: 10/28: long July heating oil at $1.5433-risking 10 cents at first (stopped 12/2, long July crude oil (WTI) at $47.94-risking to $40.00 at first, stopped out 12/21. Spring/summer hedge. 12/7: will repurchase July heating at $1.4955 stop.

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Climate: 12/21: Since 1896, years ending in six were of higher prices by end of June compared to the close of the prior year for 92% of the time. Some of the up years were with higher yield and production, but the better of upside performance related to lower yield. Five-to-seven year climate and corn yield cycles offer a crop problem some time 2016-18. El Nino is the strongest in decades. Such events in 1972-73 and 1982-83 occurred ahead of adverse crop events. We should watch for signs of a return of La Nina starting in 2016, which could cause problems for U.S. production.

Education: 12/29: Stochastic indicator: During the 1940s and 1950s, George Lane was part of a group of researchers and educators of stock and commodity traders. He was instrumental in development of what is a well used indicator known as stochastic. In his own words, "As a result of all the hard work (the 14-hour, mostly by hand, no-pay days), we decided that the most reliable indicator was %D for '% of Deviation.' The basic premise of %D is that momentum leads price." I do not care for the fast version and so my analytical discussion will speak of the slow stochastic as -stochastic. The stochastic uses averages to smooth data and performance for a better looking fit to price trends. This form of indicator requires three input settings; %K periods, %K Averaging Periods and %D. Some charting programs will also allow for selecting the type of average for what is called "%D Method." I favor this indicator over others in that it often turns closer to bottoms and tops than other varieties or techniques. The indicator is range bound and when it is in the lower portion of the range the market is said to be oversold. If in the upper portion of the range, that market is assumed to be overbought. Oversold and overbought conditions suggest the trend of the market is reaching an extreme according to the time followed (settings), which in turn is an alert to watch for signs of a reversal otherwise known as a low (bottom) or high (top). Since the indicator shows two lines (%K and %D), some traders will use the crossing of the lines as a buy or sell signal. I find this indicator is useful in relation to cyclical patterns -trends. It can be applied to a variety of time frames such as daily, weekly and intra-day prices. At the Pro Farmer website, you can create a chart and add this indicator. Change settings for a best fit characteristic to meet your hedging/trading requirements. The concept behind the indicator is that "As prices move down, the close of the day has a tendency to crowd the lower portion of the daily range. Just before you get to the absolute price low, the market does not have as much push as it did. The closes no longer crowd the bottom of the daily range. Therefore, Stochastics turns up at or before the final price low." (Getting Started With Stochastics, by George C. Lane & Caire Lane, 1998, pg 2.) My stance on all indicators is that they are just an indication and should be used along side something that is of another perspective. An example would be, the fundamentals are bearish, so be cautious of buy signals and pay strict attention to sell signals. I find a weekly version of the stochastics makes for a fine backup, if I have been probing for a cyclical high, but the market starts down without me.

Twitter: rich_posson

 

 

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