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Morning Market Review for Aug. 23, 2019

New China tariffs turn mood sour. (Comments are updated by 7:30 a.m. Central Time.)

Opening Calls:
Corn: Down 1 to 2
Soybeans:  Down 1 to 2
Wheat: Steady 

Questions about supply face uncertain demand

Grain futures traded in quiet fashion through most of the overnight session until China announced new tariffs on new goods effective Sept. 1. That derailed an attempt by soybeans to rally and also sent stock index futures lower.

The storm that brought rain to much of the Corn Belt this week continues to plow south, bringing much cooler temperatures behind it into next week. The next system due looks again ready to batter parts of the Plains that have been wet all summer over the next week, while dry areas could be missed. The official 6 to 10 and 8 to 14-day forecasts out yesterday remains cool and the latest updates from the ensemble models show a drier trend as well. European models are also drier but not as cool.

Growers posting Feedback From The Field this week continue to report yields 20% to 25% below USDA’s Aug. 12 estimates. Corn yields ranged from 75 to 200 bushels per acre, with soybeans running 25 to 65 bpa.

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Financial markets are also wavering, trying to hold at least until 9 a.m. CDT, when Federal Reserve Chairman Jerome Powell begins a highly anticipated speech at the Kansas City Fed’s annual conference in Jackson Hole, WY. Investors are hoping for clarity on the central bank’s policy, though a few more traders believe the Fed could hold rates steady at its next meeting despite calls from President Trump for it to aggressively cut. Several Fed governors this week said they see no reason for another cut yet.

Stocks turned lower on the news out of China, following higher trade in Asia and Europe to end the week. The dollar is firm, holding near 2019 highs, while other safe havens including gold and Treasuries ease. Crude oil is steady after losing a bid Thursday to move back above $56 a barrel

Corn prices are lower as December tries to hold the bottom of its trading range since the market was hammered by USDA’s Aug. 12 production forecast. With the agency’s next update still three weeks away the market may do well just to avoid a break to May’s contract lows.

Demand remains challenged by abundant world supply, which is luring buyers to Brazil and other competitors. Export sales last week included 4.7 million bushels of old crop and 11.9 million new, continuing the falloff in business. There is uncertainty whether 2018 crop exports will meet USDA’s forecast. Shipments last week were way behind the rate needed to reach that goal for 2.1 billion bushels. And total commitments – sales and shipments – are also behind. But official Census data is running ahead of the inspections total, so there’s still a chance the forecast could be met.

New crop bookings of corn, meanwhile, are the lowest in 14 year though early sales aren’t a reliable indicator of how final sales will turn out.

Corn basis firmed around a half cent yesterday, with a little strength at the Gulf flowing up river and ethanol plants also pushing bids to obtain feedstocks from farmers holding out for a rally. More ethanol plants have announced production cutbacks this summer, pressured by ongoing weak margins in the industry caused by stagnant demand.

The preliminary report from the CBOT showed daily futures volume down 18% yesterday to 335,185 while open interest was up 6,507 with a little buying from funds noted.

Options volume rose 3% to 90,452, 56% of it calls with much of the interest in short-term protection as September hovers above the $3.60 strike into expiration today. Implied volatility in at-the-money December options fell to 20.67%.

Overseas markets are stronger today. September futures in China were up 3.8 cent today $6.649, recovering from breaks to new contract lows this week. November Paris futures in afternoon trade gained around a half cent to $4.642 after adjustments for volumes and currencies with crop ratings improving slightly after hot weather hurt prospects earlier in the summer.

Bottom line: Stability is the best hope now once selling from the USDA report subsides. Without clear damage to yields the size of the 2019 crop won’t be known for months, leaving the market to fester. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Soybeans turned lower on the latest news out of China, after struggling to hold on to overnight gains after a rally Thursday was stopped when futures reversed lower after a test of chart resistance. Uncertainty about yields – which is par for the course in August – remains tempered by questions about demand due to the ongoing trade war with China.

Yesterday’s export sales tally included good news of sorts. China didn’t cancel large volumes of old crop purchased as a goodwill gesture during the brief lull in the trade war this summer, and buyers there picked up another cargo of new crop. China still has 87 million bushels of outstanding 2018 crop deals on the books as the marketing year winds down, with other buyers holding tickets for another 78 million bushels. Even if all those purchases are cancelled or rolled to new crop, the total for the marketing year is likely to reach USDA’s forecast because official Census exports are running 5% ahead of inspections.

Sales of 2019 crop soybeans were good again last week at 29.1 million bushels. But the total so far is the lowest in 12 years with just two weeks left until the start of the marketing year. New crop sales ahead of the start to the marketing year are a decent indicator of how final exports of soybeans turn out historically, though the connection has been thrown off by the trade war.

The preliminary report from the CBOT showed daily futures volume 43% higher Thursday at 168,639 with a little new fund selling helping to add 13,735 to open interest. Options volume rose 26% but remains thin at 28,588, 56% of it calls as traders added near-the-money November puts and calls. Implied volatility in November at-the-money options fell to 15.22%.

Vegetable oil markets in Asia ended mixed today. September soybean oil futures in China reversed lower to close at 38.874 cents per pound while September palm oil futures in Malaysia settled a little higher at 23.92 cents.

Oilseed markets internationally are stronger. September soybean futures in China gained 7 cents to $13.084, November rapeseed futures in Paris are up cents to $9.541 and November Winnipeg canola overnight edged less than a penny higher to $7.714 after adjustments for volumes and currencies.

Bottom line: Soybeans got friendly news from USDA on acreage but not enough to change the landscape unless yields suffer too. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Wheat prices are mostly a little higher in quiet trade. Winter wheat contracts are trying to break out of July-August downtrends while Minneapolis attempts to hold yesterday’s contract low into September delivery at the end of next week.

Export sales last week of 2019 wheat topped expectations at 21.9 million bushels and are off to a good start. Shipments are a little slow but that’s likely due to harvest delays that kept wheat from hitting the export pipeline. Shipments picked up this week, a sign wheat is moving again.

The preliminary report from the CBOT showed daily volume down 6% at 94,151 while light fund short covering helped take 55 lots off open interest. Options volume more than doubled to 37,703, 51% of it calls with new interest noted in the July $4.70 and $7.60 calls and $4 and $3.60 puts. Implied volatility in December at-the-money options slipped to 21.59%.

Volume in HRW increased 20% to 70,418 on open interest that was up 1,266.

Overseas markets are mixed. January futures for Eastern Australian Wheat settled 3.7 cents lower at $5.928 while December futures in Paris wheat afternoon trade held steady at $5.133 after adjustments for currencies and volumes.

Bottom line: Wheat must prove export demand will offset a larger crop, which won’t be easy in a bearish grain market. For more details on the outlook, see the Wheat Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.


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Pivots082319.jpg

Investopedia says a pivot point is a technical analysis indicator, or calculations, used to determine the overall trend of the market over different time frames. The pivot point itself is simply the average of the high, low and closing prices rom the previous trading day. On the subsequent day, trading above the pivot point is thought to indicate ongoing bullish sentiment, while trading below the pivot point indicates bearish sentiment.
Senior Editor Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association. And you can follow Farm Futures throughout the day on Twitter at www.twitter.com/farmfutures, and be sure to like or follow the new Farm Futures Facebook page.
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