The previous week saw a mixed bag of inputs with beans continuing to fight the good fight while corn and wheat continue to falter. Wheat is a massive dog losing to corn early before a late week revival eased pain for wheat length versus corn shorts but this feels short lived. The market got a few bullish inputs from the escalating situation in Argentina with planting at risk due to farmer discontent. This is a growing problem that deserves watching. Last week also saw massive amounts of rain with the NW corner of IL and the NE corner of IA inundated under 8-10". This is a minor issue right now but with no real "heat" hitting the region, root rot and SDS talk is popping up with more rains expected late this week. Last week we saw minimal trade with the market offering little in the way of real short term entry or exit opportunities. Winners were short wheat, short corn volatility while long SV volatility. Due to the U/X spread front end volatility is an interesting trade but a fading one due to time value.
The overnight session tried to start higher only to collapse ending near lows offering the day session good downside potential with the fundamental side quiet outside of month end today. The overnight culprit was a weak Chinese equity market. The market also has to deal with cool weather all over the Corn Belt to start the week with a good storm system moving through starting on Weds.
Macro factors continue to be a major factor with any major USD weakness helping crude and agriculture rally slightly...not to start the week but bulls are perpetually looking. Crude is a major factor with the market feeling a bit weak following the serious failure against 75 last week. Crude, if weak will allow all markets to falter as investors again look towards equities with bank stability looking better this week than last. Another factor to look at is sugar. With the massive price inflation in the past months we have to expect more acreage in Brazil versus possible bean or corn acres. Remember that with bean ending tocks so low we need a monster out of S. America to avoid a major crisis.
Looking to the week ahead, the short side is the name of the game. Be that short delta (futures and options) or volatility (options), short is the only path. The long term bean chart supports a bullish bias with a slight uptrend but give me an incentive right now. I want to be bullish but there is no real reason right now with frost a looming threat as we approach the middle of September. Weather lacks, demand persists and funds remain timid. This is the same story board from the previous month. To break the chop trend we need a real catalyst. This week just feels weak to lackluster with plenty of people out for the last breath of summer. We have a long weekend ahead of us with a few big players in NY sitting out until they get back from the break. Positions to look at are selling the pop in SV strangles (risk tolerant) buying SMZ volatility (conservative) short CZ volatility (risk tolerant) buying WZ/CZ below 160 (risky but holds a massive profit potential) and finally buying WZ calls (conservative play for a recovery).
Overall the market continues to lack direction and lacks a reason to find a new one. I like the short side as long as crude maintains a weak stance. Bulls need to watch weather and the situation in Argentina. Bears need to watch weather and the USD.
Past performance is not indicative of future results.
