CRITICAL TIME FOR GLOBAL CORN CROPS. WEATHER IS PRESENTLY NET BEARISH WHILE STILL FRIENDLY NATURAL GAS
JULY 5TH, 2021
On Friday, I sent yet another special update that I thought the weather for U.S. corn would not be bullish, heading deeper into July. I may have a video of, or updated, our BestWeather Spider later this week. I will discuss coffee and some other markets, later. Thank you for your patience.
IMPROVING NW CORN BELT WEATHER in the NEXT 10 DAYS, AND GOOD WEATHER IN UKRAINE, SHOULD BE BEARISH
I see the drought easing in the next 2 weeks over parts of the NW corn belt, heading into Minnesota and parts of South Dakota. This is a critical time of the year for the U.S. corn crop, and, without extreme heat. I see the potential for a moderate-to-major collapse in corn, and (possibly) soybean prices shortly.
Maps above show the above-normal rainfall right in the heart of the drought-stricken areas of Minnesota, NW Iowa, and parts of the Dakotas, in the next 10 days. This should put pressure on corn and soybeans this week, and ease some of this drought (for now)… you can see this from parts of Iowa and north and west.
Because of the drought areas above (red and orange)… if it were not for the rains in the next 2 weeks, the grain market would be off to the races. I was lucky enough to suggest a potential bullish USDA crop report. While strong demand (and other factors) may be bullish, soybeans, since summer is ahead of us, is to use any rally (which we may not have), to be short corn and soybeans in the next few weeks.
Cool weather (blue), in the heart of the corn belt, is critical for early pollination and could mean a pretty hefty sell-off in corn prices over the next week.
SPRING WHEAT DROUGHT TO SHOW SOME SHORT TERM IMPROVEMENT IN RAINFALL
Some rains will hit the spring wheat areas early this week. This should mean a potential sell-off in spring wheat (for now). after my bullish attitude the last few weeks. However, Tuesday afternoon’s crop report may be bullish, again showing more of a downgrade in the northern Plains spring wheat crop.
Notice the long MGE/short CBOT spread. I think it is a bit late to do this now. CBOT and KC wheat sold off late last week, due to harvest pressure in the U.S. soon, and also the big crops in Europe and Russia I have talked about for months.
Rains moving into the NW corn belt Monday night should pressure grain prices on Tuesday. This includes some spring wheat areas.
NATURAL GAS RALLYING ON BIG WESTERN HEAT AND OVERALL HOT SUMMER OUTLOOK
I will discuss this market more, later this week (or certainly, next week.) While I did recommend taking profits on the long September bull spreads in options, my overall bias has been bullish due to a hot summer. Hence, longer-term and the potential for a cold early winter if a weak La Nina comes back, I still like at least some position long the natural gas ETF (BOIL).
I was hoping for more of a sell-off on the short-term cool down in the Midwest, and rainy cool air in the south, to recommend a buy, but the market has gotten away to the upside.
Temps in the 90s, deeper in July, plus the drought out west, are causing a switch from hydropower to natural gas, have been the driving forces, as well as strong LNG exports. I look for $4.00 prices (later this summer or fall), the highest in years.
WEATHER WEALTH TRADE IDEAS
I like short Dec. corn for now, on good Midwest weather, in the next 10 days, or so, during early pollination.
I still like longer-term bullish natural gas and also some conservative short put option positions in coffee. I will update my forecast for Brazil coffee, again, in due time. Also, if I am right about dry September-October weather in Brazil, then the long December coffee $1.70-$2.00 call option spread may be a good thing to look at. In the short term, there are too many factors and false frost rumors for Brazil, early last week, to have a high confidence futures recommendation for the moment.
A wet July may affect the end of the coffee harvest in Central America, which normally persists through July. This may possibly be a bullish factor for coffee within a week, if rains are heavy enough.
Sugar prices look bullish on the charts and with higher crude oil prices and the Brazil drought
Soybeans, I like short September strangles as I mentioned last week (Short $13 puts and short $17 calls, if you do enough of them they can be worth quite a bit by expiration).. While I did advise some conservative long position ahead of the USDA planting report, which we got and it was bullish, I normally do not advise with crop reports, etc. While there is some potential for hot weather for the Midwest in about 2 weeks or so, the drought easing in the NW, for now, will probably prevent any rally and may even be a short-term selling opportunity for the next week.
If Tuesday’s crop condition report shows deterioration from too wet in the central belt last week and too dry in the far NW, I would expect the trade to use any rallies this week as short-term selling opportunities.
MOD-HIGH CONFIDENCE STILL, BUT WOULD NOT SELL IN THE HOLE IF YOU HAVE NOT BEEn SHORT
For cocoa, I have been bearish for a long time. Prices have fallen some $3,000-$5,000 a contract in the last few months on high world production,
CONFIDENCE LOWERED BEING LONG SPRING WHEAT FOR NOW. POTENTIALLY: BULLISH LATER
In wheat, the Russian dryness remains – but some rains in the northern plains may put pressure on spring wheat. I advised taking some profits late last week and keeping a small position on. It is possible that spring wheat prices could break 20-30 cents at some point, with the potential later for the dryness to return to the N. Plains deeper into July.
Some of you emailed me two weeks ago that you were long MGE spring wheat. As of this writing, you may have well over $2,000 or $3,000 a contract. Hence, with rains falling in some key spring wheat areas this week I want you to lock in this profit, for now, if you did not on my advice on some of it, last Friday on the rally.
It is possible that, within a week, some concern may mount for the soft-red wheat crop in the U.S. from too much rain, but the heavy rain events are still at least 5-7 days away.
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