NTG Morning Comments www.nesvick.com - Wednesday, January 13, 2021
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
Weather
Rainfall in northern Brazil over the next two weeks
should average near normal. Rainfall in Week One
will be biggest while rainfall totals in Week Two will
probably be below normal. Temps near normal this
week but as conditions dry out we should see a return
of above normal temps. Southern Brazil will see near
to above normal rainfall over the next two weeks.
Limited rainfall over the next few days but rainfall will
increase starting this weekend and this should kick off
a stretch of active precipitation in the area.
Precipitation will diminish a bit towards the end of the
6-10 day period, but it won’t turn completely dry
either. No major heat is expected.
Rainfall in Argentina over the next two weeks will
average near to below normal. Dry weather today
and tomorrow with rains returning on Saturday. The
best amounts and coverage will favor northern
portions of the region. We should see dry weather
return next week and stick around for about a week
before the next chance for rainfall returns in the 11-
15 day period. We will probably see some heat pop
up at times during the dry stretch, but for now
nothing extreme is in the cards.
Some snow coming for portions of the Northern Plains
over the next few days. While snowfall totals aren’t
huge in all areas, it is expected to be windy and thus
there will likely be blizzard conditions in a lot of areas.
No significant precipitation in the Southern Plains for
the next week.
Crops
After yesterday’s report, the one big debate that everyone is having right now is - what is fair value for corn
now? The obvious answer is – who knows? But it is my job to try and pretend like I have answers, so here
goes…
I’ll present two very simple scatter charts this morning. This first one simply looks at the value of CH futures at
the end of January compared to the January stocks/use estimate from WASDE. The 2021 highlight takes the
price of CH at the time of writing and yesterday’s WASDE stocks/use. I think one could make the argument that
the level of CH is getting a little stretched here, though certainly isn’t extreme.
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
End-Jan March Corn Close vs. January WASDE Stocks/Use
800
2013
750
700 2011
2012
650
600
CH Price
2021
550
2008
500
2014
450 2007
2019 2020
2015 2009 2017 2018
2016
400 2010
350
R² = 0.681
300
4% 6% 8% 10% 12% 14% 16% 18%
Jan WASDE Stocks/Use
This second chart turns our attention to calendar spreads. CN-CZ has blown out to 70+ cents. This chart
compares the January WASDE stocks/use ratio vs the percentage of full-storage of the N/Z spread. We have to
use a percentage of full-storage due to the CME’s adjustment to the storage rate a few years ago. You can see
N/Z is currently sharply inverted, and one could make the argument that the spread is a bit over-valued at the
current inverse.
End-Jan Jul-Dec Spread % of Full Storage vs. January WASDE Stocks/Use (ex-2013)
150%
2009
100%
2001
2005
2018 2006
2015
2016 2002
2010 2017
2014
50% 2003 2019 2020
0% 20042008
% of Full Storage
-50%
2007
-100%
-150% 2021
-200%
-250%
2012
-300% 2011
-350%
-400% R² = 0.7341
0% 5% 10% 15% 20% 25%
WASDE Stocks/Use
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
Bottom line – despite the excitement of yesterday’s reports and the limit up move, I think one can argue that
current corn prices are about as high as we need to move at present. Taking it a step further, I think we can also
argue that the calendar spreads are a bit rich. I don’t know if I’d be in any rush to take a short positon in spot
corn here at the moment, but I’m also not sure I’d be especially eager to chase this rally further.
Livestock
Basis charts presented with little commentary this morning. Not much to say, they pretty much speak for
themselves. Exceptionally weak basis is obviously not supportive to the board here. The sharp rally in corn isn’t
helping cattle bulls’ cause either.
April Live Cattle Basis History
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
-$5.00
-$10.00
-$15.00
-$20.00
59 54 49 44 39 34 29 24 19 14 9 4
Weeks To Expiration
2014 2015 2016 2017 2018 2019 2020 2021
June Live Cattle Basis History
$30.00
$25.00
$20.00
$15.00
$10.00
$5.00
$0.00
($5.00)
($10.00)
($15.00)
52 47 42 37 32 27 22 17 12 7 2
Weeks Til Expiration
2015 2016 2017 2018 2019 2020 2021
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
Financials
Not sure if it means anything, but I found it interesting to see a reversal in Treasuries yesterday with the 10Y
yield breaking the seemingly relentless uptrend in place since the start of the year. Note the chart below.
Admittedly, this might mean nothing. Yields are relatively steady at the time of writing this morning, and
breaking a line drawn on a chart doesn’t necessarily mean anything. Still, the smackdown in Bitcoin and now
some modest signs of life from Treasuries are possibly indicating to me that the rally in “risk” we’ve seen since
late last year might be starting to get stretched. Equity futures are only modestly lower so far this morning and
we’re still very close to the ATHs, so maybe I’m making something out of nothing. Thoughts appreciated.
FWIW, I think these recent articles suggesting the Fed is considering how to taper bond purchases are absolute
BS. They have no stomach for what it will take to taper – namely, a massive drawdown in equities.
On tap today we will get the CPI release. Inflation numbers will be in focus for the next several months, and
given the rally in commodity prices and the strong ISM readings, it is likely that CPI numbers will be strong. That
will once again bring up the idea of the Fed backing off from this support, but I expect the Fed to note the strong
CPI readings are “transitory” and I expect them to note the weak YOY base effects of the readings.
Also on tap today – another impeachment vote for President Trump. Trump is almost certain to become the
first US president to be impeached twice. Remember from our first discussion on this that the Senate will
actually hold the vote on whether to remove him, and with the old Republican-led Senate still in place that
seems highly unlikely.
Energy
The EIA released their monthly Short Term Energy Outlook yesterday afternoon. Here are a few highlights:
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
• EIA forecast crude oil production from OPEC will average 27.2 million b/d in 2021, up from an estimated
25.6 million b/d in 2020. Forecast growth in output reflects OPEC’s announced increases to production
targets and continuing rise in Libya’s production.
• EIA estimates global liquid fuels inventories rose at a rate of 6.5 million b/d in the first half of 2020
before declining at a rate of 2.4 million b/d in the second half of 2020. EIA forecasts global inventories
will continue to fall in the forecast, declining at a rate of 0.6 million b/d in 2021 and 0.5 million b/d in
2022.
• EIA estimates that US crude oil production fell from the 2019 record level of 12.2 million b/d to 11.3
million b/d in 2020. EIA expects that annual average production will fall to 11.1 million b/d in 2021
before rising to 11.5 million b/d in 2022.
• US liquid fuels consumption in 2020 averaged 18.1 million b/d, down 2.5 million b/d (12%) from 2019
consumption. EIA forecast US liquid fuels consumption will rise to 19.5 million b/d in 2021 and then to
20.5 million b/d in 2022 (almost equal to the 2019 level).
Today’s Calendar (all times Central)
• CPI – 7:30am
• EIA Petroleum Inventories – 9:30am
• Treasury Monthly Budget Statement – 1:00pm
Thanks for reading.
David Zelinski
dzelinski@nesvick.com
901-766-4684
Trillian IM: dzelinski@nesvick.com
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Wednesday, January 13, 2021
NTG Morning Comments
www.nesvick.com
DISCLAIMER:
This communication is a solicitation for entering into derivatives transactions. It is for clients, affiliates, and
associates of Nesvick Trading Group, LLC only. The information contained herein has been taken from trade and
statistical services and other sources we believe are reliable. Opinions expressed reflect judgments at this date
and are subject to change without notice. These materials represent the opinions and viewpoints of the
author and do not necessarily reflect the opinions or trading strategies of Nesvick Trading Group LLC and its
subsidiaries. Nesvick Trading Group, LLC does not guarantee that such information is accurate or complete and it
should not be relied upon as such.
Officers, employees, and affiliates of Nesvick Trading Group, LLC may or may not, from time to time, have long
or short positions in, and buy or sell, the securities and derivatives (for their own account or others), if any,
referred to in this commentary.
There is risk of loss in trading futures and options and it is not suitable for all investors. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RETURNS. Nesvick Trading Group LLC is not responsible for any
redistribution of this material by third parties or any trading decision taken by persons not intended to view this
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