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Morning Market Review for Feb. 21, 2019

Headlines drive market moves in busy day. (Comments are updated by 7:30 a.m. Central Time.)

Overnight trend:
 Up 3 to 4
Soybeans: Up 3 to 5
Wheat: Up 2 to 7

Brexit, trade talks, Fed minutes and USDA estimates all in play today

Grain markets are higher this morning, enjoying a short-covering bounce as traders get ready for a series of stories emerging over the next two days that could provide more clarity about price potential in 2019.

While the ag world waits for USDA’s updated estimate of acreage, top negotiators from the U.S. and China sit down for two days of talks that could shape the outline of a deal to tamper the trade war between the two economic powers. Stories out overnight suggested the outline of what a deal could look like are starting to emerge, with any plan likely to include China buying lots of ag products and energy in a bid to reduce its trade surplus with the U.S.

Stocks traded mixed in Asia and Europe, and an overnight rally in U.S. index futures reversed lower as doubts mounted about Britain’s bid to secure a revised Brexit deal with the EU.

That selling came after minutes of the January meeting at the Federal Reserve released yesterday provided a few clues about the central bank’s thinking on interest rate hikes, suggesting no likely move to cut rates soon. But longer term rates could avoid significant hikes as they Fed said it would announce plans “before too long” on how it would stop selling securities purchased to keep rates low after the financial crisis. Selling Treasuries tends to lower the securities’ prices, which move in the opposite direction of interest rates. So, winding down sales would keep rates on the longer end of the yield curve from rising as much.

The dollar steadied on that news, softening other commodities a little, including gold. Crude oil is trying to hold a move over $57 yesterday. Updated data on petroleum inventories due out at 10 a.m. CST is expected to show higher crude oil stocks as U.S. drillers put more rigs into production last week. But diesel stocks may be down again, providing little relief for growers trying to buy fuel for spring after Midwest cash wholesale benchmarks rose some 3 cents a gallon Wednesday.

Corn prices are higher, building on Wednesday’s short covering rally. March futures held November lows on this week’s break but still faces a potential bearish crossover between key moving averages on the daily chart.

USDA is expected to kick off its annual outlook conference with a presentation on the ag economy that includes the agency’s updated forecast for 2019 acreage, with more supply and demand estimates out Friday. Farm Futures January survey put corn plantings at 90.3 million bushels, compared to the average trade guess of 91.7 million.

Friday will also feature a large dump of export sales data, getting the reports caught up from delays caused by the government shutdown. The weekly report, which normally comes out Thursday, is delayed this time by the Presidents Day holiday.

South Korean feed makers were in the market again overnight, buying corn and feed wheat. But these deals can be sourced from anywhere in the world and U.S. originations aren’t the cheapest currently.

Figures on ethanol production out this morning will show how plants responded to margins that continue to remain underwater but have strengthened modestly the last few weeks. Rising gasoline prices are putting ethanol at a discount that is starting to encourage blending.

The preliminary report from the CBOT showed daily futures volume up by a third Wednesday to 681,450 while light fund short covering took 6,040 off open interest.

Options volume was 4% higher yesterday at 117,843, 69% of it calls as traders liquidated the July $4 call and March $3.70 put while rolling up March $3.75 calls that expire tomorrow. Implied volatility in at-the-money December options rose to 18.31%.

Overseas markets are mixed. May futures in China edged lower to $6.85 but June Paris futures in midday trade rose 1.4 cents to $5.037 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 posting good gains this moving, moving March back above its 100-day moving average after the nearby rejected a break below the trendline off fall and winter lows.

Hopes for an end to the trade war with China helped provide support for short covering, as traders wait to see USDA’s estimate for 2019 acreage. Farm Futures estimate for 84.6 million planted acres this spring is on the low end of forecasts, which average 86.1 million.

Vegetable oil markets in Asia were mixed today. May soybean oil futures in China lost more than a third of a cent to 38.418 cents per pound while May palm oil futures in Malaysia ended higher at 25.18 cents.

Oilseed markets internationally were also mixed. May soybean futures in China lost three-quarters of a cent to $13.896, May rapeseed futures in Paris midday trade rose 1.3 cents to $9.28 and Winnipeg canola overnight was up 2.6 cents to $8.28 after adjustments for currencies and volumes.

The preliminary report from the CBOT showed daily futures volume up by a quarter yesterday to 287,418 while light fund short covering helped take 13,783 off open interest.

Options volume was a little lower at 60,259, 58% of it puts as traders liquidated March puts that expire tomorrow. Implied volatility in at-the-money November options fell to 16.01%.

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 trying to post double digit gains this morning after winter wheat contracts posted new contract lows Wednesday.

Farm Futures found all wheat acreage of 46.263 million in its recent survey, nearly 1 million below the average trade guess ahead of today’s outlook conference numbers. But most of the market’s focus this week has been on exports.

French wheat won half of Egypt’s latest tender for 13.2 million bushels, with Ukraine, Romania and Russia splitting the rest. U.S. wheat out of the Gulf was priced out of the deal and not even offered. Taiwan tendered for U.S. wheat overnight on the heels of Japan’s latest weekly deal, but sales remain mostly to regular customers for limited volumes as the steady grind lower encourages hand-to-mouth buying.

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.

Overseas markets are higher today. March futures for Eastern Australian Wheat finally found some traction after heavy selling, rising 3.9 cents to $7.618. May futures in Paris midday trade are up 3.9 cents to $6.03 after adjustments for volumes and currencies.

Volume in soft red winter wheat rose 28% Wednesday to 254,061 while open interest was up 10,588 on moderately active new fund selling.

Options volume was 44% higher at 112,738, 55% of it calls as traders added near-the-money March calls that expire tomorrow. Implied volatility in at-the-money July options rose more than 1% to 22.34%.

HRW volume increased by 18% to 102,751 on open interest that was up 6,121.

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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