Grain Spreads:Month/Quarter End Coming

Due to big bean and corn crops seemingly coming on the horizon as harvest is underway in the Midwest, we have seen corn and bean prices jump prior to next weeks quarterly stocks report while wheat held steady into the weekend. In years past when we have seen burgeoning supply situations prior to harvest, we have seen funds pile on the short side of the market into the end of September. This year looked to be no different until the middle of this week as thoughts of a trade war with China amongst others seemed to abate. Equity markets screamed to all-time highs due to a potential ease there giving thoughts to saber-rattling. Funds short corn and beans took notice in my view and short covered. As a result we saw corn bounce 15 cents from the weekly lows and beans finish 35 cents higher from the weekly low. Wheat gained 9 cents with eyes on potential global trouble spots in Australia and Russia.

Is this a head fake or not? Sure there are some reasons to be long here. Maybe its trader psychology that has specs and some funds reluctant to double up on existing short positions when corn trades below 345 and beans below 815. For beans we haven't seen prices this low since 2007. For corn, bulls will cite stocks/usage near historic lows while giving ending stock data that's lower than the last three years domestically. Bean bulls will argue that US beans have found their way to China via Argentina and possibly Brazil due to export switches and cancellations. The market in my view did react to the rumor of easing trade tensions and gave funds reasons to short cover some positions. If the next headlines from Washington are for ardent support of tariffs going forward, I'm not sure we trade higher into next week. We will see but I want to focus on the charts for direction. Calendar spreads for old crop/new crop bean, meal, and corn spreads didn't rally at all this week. It possibly tells us that this weeks rally came on short covering alone as bulls shunned the spreads. Not surprising given the crop carry-overs that are ample.

Trade the charts for corn and beans! Nov beans have weekly support at 840.2 next week. A close below and its 827 and then major support at 812. Resistance is up at 869.6, 888.4, and then major resistance at 893.4 For Dec Corn , support is at 351.6. A close under and its 342.2 and then 336. Resistance is 362. A close over and its 369.4. A close over there and its 376.2.

Bullish trade long-term for beans: buy the March 19 940 call. Sell the 1000 call and sell the 1040 call. Cost is 4.4 cents plus commissions and fees.

Bearish Trade: Buy the Jan bean 820 put. Sell 2 Dec bean 780 puts for 2 cents.

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