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Morning Market Review for Feb. 22, 2019

Tighter stocks support prices. (Comments are updated by 7:30 a.m. Central Time.)

Overnight trend:
Corn
: Up 1
Soybeans: Up 1 to 3
Wheat: Steady

Markets digest USDA forecasts, wait for trade and export news

Grain markets are mostly steady to a little higher this morning, holding on to Thursday’s rally as traders brace for a very active news day.

The data flow started early, when the government released its complete, updated supply and demand forecast for 2019 at the annual outlook conference in Washington. The numbers call for stocks of corn, soybeans and wheat to tighten modestly after a turbulent 2018 marketing year. Then at 7:30 CST updated export sales numbers are released with six weeks’ worth of data delayed by the government shutdown. Download the complete report with this link.

The outlook sessions take place amid what appears to be progress between China and the U.S. in developing a “memorandum of understanding” that could keep new tariffs from going into effect March 1 while a final deal is worked out. China appears to be ready to step up purchases of U.S. farm goods, though details are still lacking.

Stocks turned solidly higher in Europe following mixed trade in Asia, helping U.S. index futures recover Thursday’s losses. The dollar firmed as Brexit talks continue with the outcome of new negotiations very uncertain.

Any deal with China is likely to include purchases of U.S. energy products, which helped move crude oil above $57 overnight despite rising supplies and record production last week. Diesel inventories continue to tighten, taking wholesale Midwest benchmarks to $2 or more a gallon.

Corn prices are firm this morning, holding to an inside day higher. March rallied up to resistance at key moving average yesterday that come in around $3.785 today.

USDA’s updated supply and demand tables put the 2019 crop at 14.89 billion bushels on yields of 176 bushels per acre and planted acreage of 92 million. Strong demand, supported in part by low prices, would trim carryout slightly in the year ahead to 1.65 billion bushels though the average cash prices for the crop would go up only a nickel to $3.65.

Though USDA forecast exports would increase slightly to record levels, it made no change in demand for corn to make ethanol. Data out after the close on usage for ethanol out after the close today could show December usage of 468 million bushels, with the year-to-date total down from 2017, perhaps by as much as 3%.

Export sales for the six weeks ending Feb. 14 will be a huge number, perhaps around 225 million providing a better idea of demand moving into spring.

The preliminary report from the CBOT showed daily futures volume down 1% but still strong at 669,662 with active fund short covering helping to take 33,679 off open interest.

Options volume rose 26% to 148,237, 70% of it calls as traders added March $3.75 calls and liquidated $3.75 puts ahead of today’s expiration, which could influence trading today with 37,406 combined at-the-money options still open. Traders also added the December $3.50 put as implied volatility in at-the-money December options edged higher to 18.36%.

Overseas markets are a little better today. May futures in China ticked higher to $8.467 and June Paris futures in midday trade gained three-quarters of a cent to $5.007 after adjustments for volumes and currencies.

Bottom line:  USDA’s outlook estimates 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 a little higher today taking March futures back near its 200-day moving average. That resistance comes in at $9.125 today.

USDA put a positive spin on its soybean outlook today with acreage of 85 million and yields of 49.5 a little less than expected. Coupled with a 150-million bushel increase in exports, carrying would drop 165 million bushels $ 845 million, boosting average cash prices 20 cents to $8.80.

Export sales totals today for the last six weeks should provide new clues on Chinese demand, which is expected to rebound if a trade deal is hammered out. The total could approach 300 million bushels from Jan. 4-Feb. 14.

December crush out after the close is also expected to be strong, setting a record for the month at 182 million bushels.

Vegetable oil markets in Asia ended mixed today. May soybean oil futures in China gained a quarter-cent to 38.647 cents per pound and May palm oil futures in Malaysia edged lower at 25.06 cents.

Oilseed markets internationally were steady to lower. May soybean futures in China lost 3.3 cents to $13.85, May rapeseed futures in Paris midday trade are unchanged at $9.291 and Winnipeg canola overnight edged a quarter cent lower at $8.282 after adjustments for currencies and volumes.

The preliminary report from the CBOT showed daily futures volume up 37% to 394,146 as modest fund short covering helped take 20,751 off open interest.

Options volume was 9% higher at 65,978, as traders liquidated March $9.10 calls and $9 puts that expire today. Implied volatility in at-the-money November options fell to 15.95%.

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 steady to a little higher, holding nearby contracts at all three markets to inside days as futures try to heal from this week’s downturn.

USDA forecast a small reduction in ending stocks over the next year, taking carryout down to 944 million bushels. That would add a nickel to the average cash price for the crop, which would move to $5.20 on fairly steady demand and production.

Export sales for the six prior weeks could total 100 million bushels, not enough to make much of a difference to old crop projections, keeping the focus on new crop.

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 stronger today. March futures for Eastern Australian Wheat gained back another 3.9 cents of their setback to settle at $7.677 and May futures in Paris midday trade gained 1.5 cents to $5.983 after adjustments for volumes and currencies.

Volume in soft red winter wheat fell 30% yesterday to 178,349 while open interest was up just 402 after modest fund short covering.

Options volume fell 61% to 44,278, 56% of it calls. In adding to adding the July $5 and $5.60 calls, traders added March $4.90 calls and liquidated $4.90 puts ahead of today’s expiration. Implied volatility in at-the-money July options rose to 22.96%.

HRW volume fell 12% to 90,109 on open interest that was up 921.

Bottom line: USDA’s forecast for 2019 could help firm the market, but potential 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.

Pivots022219.jpg

 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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