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Morning Market Review for Feb. 20, 2019

Futures try to hang on. (Comments are updated by 7:30 a.m. Central Time.)

Overnight trend:
 Up 2 to 3
Soybeans: Down 2
Wheat: Down 1 to 4

Weakness today could confirm bearish break

Grain markets are mixed this morning in their attempt to heal from yesterday’s bearish break on price charts. Potentially big market moving events Thursday and Friday could induce some caution if prices can hold today.

In addition to high-level trade talks with China that begin tomorrow, USDA convenes its annual outlook conference that features updates to forecasts for 2019 crops. British Prime Minister Theresa May heads to the continent trying to secure changes to the Brexit deal with the EU than can pass Parliament.

In the meantime, investors are waiting for release of minutes from the Fed’s last meeting, as it decided to reverse course on its pattern of slow but steady rate hikes as the economic picture clouded due to trade wars and the government shutdown. While markets in Asia and Europe mostly rallied overnight, stock index futures in the U.S. are a little lower, with safe haven buying again noted in the dollar, gold and Treasuries.

Crude oil fell back below $56, waiting for updated inventory data delayed until Thursday by the Presidents Day holiday. The CFTC continues to get caught up with reports delayed by the government shutdown. Money managers bought a net $1.4 billion in crude oil futures and options helping crude oil rally in the last week of January. Big speculators sold corn and wheat, according to Commitment of Traders data put out Tuesday. But these hedge funds aggressively bought soybeans and soybean oil, at least in January.

Corn prices are stronger, trying to bounce back from yesterday’s break below the support line drawn off November-February lows.

Farm Futures estimates for corn acreage and ending stocks in 2019 are on the low end of trade guesses. USDA typically updates its acreage guess Thursday, providing updated supply and demand forecasts on Friday of its outlook conference.

South Korean feed mills passed or delayed action on a couple of tenders for feed wheat and corn overnight. Export inspections reported Tuesday of 37.1 million bushels were in line with trade guesses but failed to reach the weekly rate forecast by USDA for the rest of the marketing year. Still, the year-to-date total is well above normal thanks to heavy early movement of corn. USDA updates export sales data on Friday delayed by the government shutdown, which could provide a clearer picture of demand.

The preliminary report from the CBOT showed daily futures volume up 14% yesterday to 511,813 on open interest that rose 18,065 on heavy new fund selling. Big speculators flipped short in corn at the end of January, according to Tuesday’s Commitments report, selling a net 37,100 contracts and likely doubling that bearish bet since.

Options volume more than doubled to 114,329, 65% of it calls with active new interest noted in the March $3.75 call and put that expire Friday, along with the December $4.5 and $6 calls. Implied volatility in at-the-money December options rose to 18.03%.

Overseas markets are a little better today. May futures in China edged slightly higher to $6.849 and June Paris futures in midday gained three-quarters of a cent to $5.019 after adjustments for volumes and currencies.

Bottom line:  USDA’s outlook acreage estimate should help the market begin a pivot to new crop. Corn looks too cheap to attract a lot of acres, the best case for a rally right now. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Soybeans are lower, fading an attempt overnight to rebound after breaking Tuesday below the trendline drawn off fall and winter lows.

The bearish turn comes as the next round of high-level trade talks with China get underway in Washington. China took the lead as the number one destination for U.S. soybeans last week, but still accounts for just 11% of U.S. business, compared to around 60% on average. China was again the largest destination, taking 14.9 million bushels.

Still, total inspections of 37.9 million bushels keep the U.S. at a large deficit to last year, so business must pick up noticeably in the second half of the marketing year to have a shot at USDA’s forecast for the crop.

Farm Futures estimate for 84.6 million planted acres this spring are on the low end of forecasts, but weaker demand could keep inventories bearish.

Vegetable oil markets in Asia softened today. May soybean oil futures in China slipped to 38.66 cents per pound and May palm oil futures in Malaysia were down nearly another quarter cent to 25.01 cents.

Oilseed markets internationally are mixed. May soybean futures in China rose 3.4 cents to $13.898, May rapeseed futures in Paris midday trade are down 4.5 cents to $9.297 and Winnipeg canola overnight fell 3.3 cents to $8.267 after adjustments for currencies and volumes.

Big speculators bought a net 21,978 contracts of soybeans and another 24,228 in oil, turning long again for the product at the end of January. These funds were light sellers of soybeans since the report data was gather, trimming about half of their purchases in oil while continuing to sell meal.

The preliminary report from the CBOT showed daily futures volume down 2% Tuesday to 230,462 with modest new fund selling adding only 2,758 to open interest. Big speculators bought a net 21,978 contracts of soybeans and another 24,228 in oil, turning long again for the product at the end of January according to updated Commitments. These funds stayed short overall in soybeans since the report data was gathered, trimming about half of their purchases in oil while continuing to sell meal.

Options volume was 86% higher yesterday at 60,455, 56% of it puts as traders liquidated March $9 puts added Friday. Those options expire Friday.

Implied volatility in at-the-money November options rose to 16.33%.

Bottom line: Fundamentals are improving but still bearish. Seasonal trends are starting to turn bullish but continue to price old crop inventory to take risk off the table because soybeans are profitable once Market Facilitation Program payments are added. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Wheat prices are lower, sending winter wheat contracts to new lows after an attempt to rebound failed overnight.

The latest break came after reports French wheat was the lowest offered in today’s tender by Egypt. Other export dealings are routine, with Japan hoping to split its regular weekly tender between the U.S. and Canada. Total export inspections last week of 13.1 million bushels fell to half the rate needed weekly through May to meet USDA’s forecast for the 2019 crop.

Overseas markets were weaker today. March futures for Eastern Australian Wheat are trading 21.4 cents lower at $7.635 on news Argentine wheat is replacing Australian supplies hurt by drought into Asia . May futures in Paris midday trade are off 2.4 cents to $5.978 but French wheat is still much cheaper than U.S. originations out of the Gulf to Egypt due to cheaper shipping.

More rain sweeping through the Ohio River Valley overnight will keep soft red winter wheat fields at risk for damage. Systems over the next week will keep the Southeast wet while bringing snow to the upper Mississippi River Valley. Moderate flooding is expected to continue on the river system until at least next week.

However, the official 6 to 10 and 8 to 14-day forecasts out yesterday and the latest updates from the ensemble model this morning continue to call for a drying trend though temperatures will stay below normal.

Volume in soft red winter wheat edged 1% higher Tuesday to 197,797 while fairly active new fund selling added 8,225 to open interest. Tuesday’s Commitments data from the last week of January showed big speculators selling wheat in all three markets at the end of January, and likely extending bearish bets since.

Options volume rose 46% yesterday to 78,183, 59% of it puts as traders liquidated the March $5 put and added the $5 call that expire Friday. Implied volatility in at-the-money July options rose nearly 1.5% to 21.82%

HRW volume dropped 5% to 86,913 on open interest that was up 5,321.

Bottom line: Prospects for lower than expected acreage in 2019 could help firm the market, but demand still looks modest. 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.



 Explanation of pivot points. 

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This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.
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