Funds were noted buyers across the board following the Christmas holiday as forecasts have turned hot and dry for the month of January in Brazil. After a three day holiday, funds bought approximately 7,000 contracts of Corn, 6500 contracts of beans, and almost 7000 contracts of wheat. In soy products, funds on 12/27 bought 4000 contracts of soy oil and 3100 contracts of soy meal. Longer term weather forecasts have South America turning drier particularly in the main Brazilian growing areas for much of January while only portions in southeast Brazil and northwest Argentina see any rain of consequence. While these forecasts could at anytime have the chance of reversing course over a small time period like a weekend time frame per say, it looks like funds may ignite another weather premium rally.
Trend following funds have a mass short position of over 100K contracts as of last week in wheat, while being short corn almost 60K contracts. Short covering alone in both corn and wheat close to a neutral position by trend following funds, could take the market outside of its current ranges to new highs. The market to benefit the most from a pricing standpoint should a weather premium occur is the soybeans. Despite, a burdensome domestic ending stocks number that could push over 500 million bushels on the January 12th crop report, the supply side is a “known” in the market.
Funds will always trade fear before fact and any major crop scare due to hot and dry weather during key yield development time in South America will have funds buying. Farmers in Central Brazil seeded their bean crop early this year making January the key month as far as future production is concerned.
Those looking for a trade idea may consider buying a March 2017 soybean 1080 call for 7.4 cents or better, or in cash value $375.00. The risk on the trade is the price paid for the options plus all commissions and fees. This is a defined risk play that maybe a little safer in my view than playing futures. March beans traded above 10.70 following the Thanksgiving holiday on Strong Chinese demand and Argentinean weather issues.
For those interested I hold a weekly grain webinar each Thursday at 3pm. It is free for anyone who wants to sign up and link for sign up is below. If you cannot attend live a recording will be sent to your email upon signup.