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Complete Heartland Daily Newsletter - Grains and Cattle 6/15


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I was day-dreaming today, how the commodities could be participating in the runaway upside recovery in stocks and bond values (back to the opening year highs in some cases). Too bad we cant digitize corn, soybeans and other commodities to be stored on computers. Because thats basically the difference of why commodities cant enjoy this money infused recovery that the financial instruments are experiencing. The Fed is buying up bonds with their fiat digitized invented money, and it is stored essentially on computers. The public is taking their resources as well with this last round of invented cash from the government, and throwing it into stocks. All of the stocks and bonds are stored on computers. (If you ask for the physical certificate, they will charge you money for the fancy paper its printed on and deliver to you. Otherwise, everybody takes digital ownership.)

Unfortunately for commodities, they cant be digitized and stored on a computer. Somebody has to buy them and keep them in shape. That is why in a nutshell, commodities cant enjoy what the financial instruments have always enjoyed now for 20 years. That day will change, when the US dollar gets crushed by all this mismanagement and finds itself in the low 80s, then all of a sudden, our commodities will find interest. Then all those worthless dollars will be needed in larger sums to pay for commodities. Someday in a future lock-down, people are going to realize that food is more critical than digitized assets. If they go hungry because even supermarkets have to close, they will know the worth of food and wont even need their expensive toilet paper. There, that was my daydream that will become somebody elses nightmare someday.

So I went off on this rant just to prove a point. Yes, weve seen a price rally in grains since the late April low, but it has been timid and nothing to the extent of the sheer size of value lost since the beginning of the year. The reality is, in two weeks were going to see the USDA probably pumping up acreage on beans, and maybe not retreating corn acreage by much, (lost North Dakota acreage being replaced by some other state that had better planting conditions), and were going to see record yields in July without a drought. We are so set for corn yields of 182 BPA and beans at 53 BPA that the bears will enjoy crushing our commodity values into August once the weather has proven optimal. For this reason, we had to start something and put a floor on new crop prices to stop any further bleeding if the spring low fails. Hence, our suggestion to cover 50% of new-crop corn and bean production with reasonably priced options that have deteriorated over the last six weeks.

The NOPA crush was out today at 169.584 million bushels, which missed the 173.071 trade expectation. It was still a record for May, and 4% above the 2018 high and was the sixth consecutive month for crush record. The market did not get too excited about the data when it was released, as it is still wondering if China is looking for more soybeans today. This morning it was announced that China took 390,000 tons of new crop beans that help the market recover from overnight losses.

Parts of Manitoba and Saskatchewan are becoming dry despite some reason light showers, which is what Eastern Montana and Western North Dakota are experiencing. The dryness in those areas are starting to throw support to spring wheat on the spreads against the other two wheat exchanges. With higher temperatures on the way in the coming week, concerns that the optimum spring wheat supply potential is being trimmed.

US Weather overall is leaning negative with more widespread showers across the Central and Eastern Midwest by the end of this week, leaving only about 15% of key growing areas still dry by late June. With the weather improving across China, Australia, and the EU, only some stress is noted in northeastern Ukraine and Central Russia. Commodity Weather Group shows notably warmer weather next week for the Midwest with rain showers. Ideal for the growing Midwestern crop.

The US dollar is slowly showing signs of breaking down due to the abuse of the digitized printing presses. But its going to take a considerable amount of time to find the US dollar sharply lower to affect commodity prices. It will take the US dollar in the low 80s to have an impact on our sales prices, and that could be well into the fall or new year. For now, the technical rally that grains have found since the end of April could begin to give up. Wheat has a chance of finding stability with world valuations appearing to have bottomed, but corn and beans could be looking at more increasing new crop carry outs as we go forward in two-week increments.

Spec trade: cashed in Long a August crude oil $33 put for a $600 gain

Hedge update: Purchasing the September short-dated new crop corn 340 put for $0.15, or the December 340 corn put for $0.20. The short date is more economical for larger production sizes that need to be protected. 50% hedge.

Purchase the September short-dated new crop 870 bean put for $0.22 on a 50% hedge.

Both strike prices have experienced premium burn over the last month and 1/2 rally, and by mid-June it's hard to ascertain if we can hold up until July 4 or break into the fourth. Hence we are moving forward to getting some kind of floor underneath. If weather turns weird in 30 days plus, were wide open to capture gains. If we grow record bean and corn yields, we could be looking at sub 8.00 new crop beans and corn under 3.00.

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Beans

China has been slowly and incrementally buying soybeans. In the last 11 trading days, they have purchased over 3 MMTs of beans, and pulled it all off without having beans jumped more than $0.40. They're getting this done now before the end of the second quarter, as they are subject to review of the Phase 1 trade deal in July. The US trade representative gets to look back at what they've done since the signing of the agreement, and they have to show something of an effort.

With China's current purchases and prior buys earlier in the spring, their buying has been less than desired. But, they can use Covid-19 as an excuse for being behind, after all, they did put in words in the Phase 1 deal that a pandemic of some sort was there get out of jail card for not adhering to greet purchases. They are also counting on beautiful growing conditions in July/August likely to buy heavily into a new crop price decline.

In spite of today's large purchase announcement, soybeans failed to breach the 873 value to extend gains. Maybe it occurs on Tuesday, but the market is stalling with weather looking okay. On the spreads, new crop beans slipped compared to old crop values, implying thereto resistance is just too much to crack in the 890-900 range.

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Corn

Corn stalled out last week at the major resistance point in the 332-335 range, and did a $0.10 retreat. We are running out of time to create an instance to get corn pushing through resistance and getting an exciting run going. Look for corn to start faltering after what has been a technically inspired rally, with lack of fundamental changes in supply and demand weighing on prices back to the lows.

Hedge update: Purchasing the September short-dated new crop corn 340 put for $0.15, or the December 340 corn put for $0.20. The short date is more economical for larger production sizes that need to be protected. 50% hedge.

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Wheat

Wheat prices on the winter wheat exchanges are in flounder mode with harvest underway. Seasonally Kansas City wheat doesn't bottom until the harvest is north of Hutchinson Kansas. As typically after 4 July.

Spring wheat is finding support on the dry Northwestern plains weather, but it'll be hard to make a run at 570 on the December Minneapolis wheat contract without Russian wheat values mounting some kind of rally.

We are targeting 570 December Minneapolis wheat as a hedge target.

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Cattle

Cash Cattle: 104-106 Live Corn Belt, 165-168 Dressed. Cargill paid 108 around noon today.

7 Day Feeder Index: 129.71, +0.19

1 Day Feeder Index: 135.78 on 1206 head.

Fed Cattle Exchange Auction: 1447 listed, 228 sold @ 105

Choice Beef: AM 238.60, -8.40

Select Beef: 227.46, -0.49

Packer Margins: +385.30 per head

CME Lean Hog Index: 51.93 as of June 5th, -1.42

USDA Pork Cutout Values: 68.44, -1.51

Live trade seasonal bias June: Firm early to down hard late month.

Beef trade seasonal bias June: Mixed to weaker as market rolls over.

Cattle futures for both live and feeder hit lows on the support values showed in the weekend newsletter. The 93.50 value for the August live cattle, and the 128.00-129.00 mounted immediate responses today when the cattle markets open lower into them.

Boxed beef values continue to decline, but that rate of descent is slowing. The 200-210 valuation per box beef is anticipated to be support. The mid $90 range is where the expectation for the cash flow is to come in by July when hopefully backed up numbers can be worked through. With this being said, it was classic for the cattle to bounce off of 93.50 this morning.

Look for resistance on the August cattle at 97.00 with major resistance at 99.00. More sideways trading will become the norm rather than trending. Feeder cattle will take their cues from the first quarter cattle pricing. And for now that also appears sideways.

Hog futures are expected to find support on the July contract near 50.00 and the August contract at 52.00-53.00.

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Gold

Gold futures overnight had another one of those sharply lower runs of down $30 before a recovery throughout the day session. It's an understatement to say gold is trend-less, but the highs continue to be at a lower stopping point. It will take a run through 1766 to create new excitement in gold. For now one can look at the gold chart as making a high last week near the 10th, and a further decline yet can be expected to near 1620-1630.

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Crude oil

Crude oil stalled out last week with the stock market losing its upward momentum, and oil inventories again starting to see builds again occurring when drawing is the norm this time year. Refinery capacity normally is picking up this time a year. Since that is not the case, oil has stalled out after achieving the gap area at 40.50 and going into retreat of six dollars into Sunday's overnight trade.

Look for the crude oil market to trade more sideways now with 40.50-41.00 be a major resistance. Downside projections on a setback are 32.00-33.00. The next cycle turn date is June 21, and could likely be a low.

Cashed in Long a August crude oil $33 put for $600 gain.

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NOTE: All trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.

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indicated by simulated historical tests of strategies, is not indicative of future results. Trading

advice is based on information taken from trades and statistical services and other sources that Heartland Investor Capital believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.

Copyright 2018 Heartland Investor Capital Management All rights reserved



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About the author


Eugene Graner is the founder and President of Heartland Investor Capital Management Inc. As a veteran commodity analyst, broker, and CTA that eats, sleeps, and breathes commodity futures, his priority is to bring clients the latest and most useful information of the markets along with uncannily accurate futures predictions. By balancing risk and reward, Eugene uses his proprietary trading strategies to develop the best possible trading approaches for his clients. He has 28 years of experience in the industry and his voice has been heard around the United States. He is heard on multiple radio stations throughout the day, also has been featured on CNN, Bloomberg, Wall Street Journal, and The New York Times, and is the go-to guy to for multiple TV network stations for interviews about market news weekly.
 
Contributing author since 1/3/2019 

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