Free Commentary

By: Dan Hueber –

Grain and soy markets are generally lethargic as we begin this week and gauging from the fact that grains are under minor pressure and soy a touch firmer, we could assume the trade believes that the sunny skies that many of us in the Midwest enjoyed over the weekend will quickly translate into solid planting progress in the days ahead.  Of course, I say that fully aware of the old adage concerning what happens when we assume things. We shall see where the USDA tells us we stand at this afternoon.

It would appear that the excitement and attention in the commodity world has shifted to a couple of different faces, with one, in particular, experiencing what appears to be a panic advance; cotton.  Looking only at the domestic figures on the USDA report issued last week one would not have anticipated any type of fireworks, and initially, that was the fashion in which the market reacted.  The government had increased exports estimates once again on the report, boosting the projection for the sixth time in as many months by a cumulative 20.8%.  Accordingly, ending stocks have been reduced during these past several months has been reduced 1.7 million bales or around 25%.  Do recognize that the market had responded throughout this period as we have rallied from the 71-cent level back at the end of last year to 80-cents (12.7%) but since the beginning of March, the 80-cent mark was acting like an impenetrable ceiling, at least until last week that is.  Even though the USDA projects that domestic ending stocks will rebound to 5 million bales for the upcoming year, they paint a different story for the world stocks, and this appears to be the straw that broke the camel’s back, or in this case, maybe I should say, frayed the final thread.  World ending stock are projected to drop another 2.38 million bales to 87.14 million, making the third year in a row of decreasing inventory, down right at 22% from the peak inventories in 2014/15 and to the lowest level recorded since 2011/12.   The ensuing action not only recorded an outside higher reversal week, violating the 80-cent resistance like a knife through hot butter but we gapped higher this week, potentially setting up a gap-n-go situation.  Now, I should not the chickens before the eggs hatch as we need to remain patient for a few weeks to determine if this is a break-away move but if that turns out to be the case, we would have long-term upside targets around 110.  I suspect it would require some type of weather snafu to make that kind of a run, but for most of us, this has begun as anything but and normal beginning for a growing season and the pumps appear to be primed for excitement.  While there is certainly no assurance that the excitement in cotton is any kind of precursor of what will be in store for other ag commodities this year but as I have said, previously, I believe the overall commodity cycle has turned higher.  So far, different sectors appear to be taking turns leading the charge, and I think it is only a matter of time before the grain and soy markets have their day in the sun, no pun intended.