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Morning Market Review for Jan. 21, 2020

Grain markets mixed following long weekend. (Comments are updated by 7:30 a.m. Central Time.)

Profit-taking finds corn and Kansas City wheat after holiday weekend

  • Corn down 2-3 cents
  • Soybeans down 5 cents, soyoil down $0.42, soybean meal up $0.1
  • Chicago wheat up 1-2 cents, Kansas City and Minneapolis down 1-3 cents

*Prices as of 6:30am CST.

Corn: March futures traded $0.0225 lower, falling to $3.87 overnight. May futures also shed $0.0225 to $3.93 as profit-taking ensued following a late futures rally last week. Cash prices ended the week slightly mixed around the Midwest. Futures price fluctuations made farmers hesitant to book sales as hopes for a rebound to price highs earlier in the week lingered over the market.

The CFTC’s Commitment of Traders report for the week ending January 14 was released last Friday. Speculators were net sellers of corn by 78,442 contracts. Despite the continued bearish sentiments for corn by money managers, long positions ticked higher by nearly 22,000 contracts.

The behemoth Brazilian soybean crop has already weighed down soybean futures prices, but a late harvest in the Mato Grosso region may reduce the available time for planting second crop corn. Only 1.8% of the Brazilian soybean crop has been harvested as of yesterday, compared to 6.1% at the same time last year. Increased chatter of delayed corn planting raises the likelihood of switching to crops like sorghum or sunflower to ensure a second harvest. Should this materialize, more readily available American corn would likely gain favorability on the world market.

Soybeans: March soybean futures were down $0.0525 to $9.245 prior to the opening bell as concerns over trade with China weighed on the market. Nearby soybean oil futures lost $0.42 to start the day at $32.93 while March soybean meal futures gained $0.10 overnight to $300.70/ton.

Soybean cash bids weakened $0.07-$0.10 at Iowa and Indiana processors last week, though an Iowa elevator strengthened $0.10 on Friday. Basis was largely unchanged elsewhere in the Midwest as midweek price declines disincentivized farmers to move their soybeans to market.

Friday’s Commitment of Traders report found money managers trimming short positions for the week ending January 14 to the tune of 3,659 positions. Speculators were net long on soybeans by 6,290 positions. Friday’s report may see a shift in trader sentiment following the fallout of the Phase 1 trade deal signing. Funds remained bullish on soybean oil, continuing on their record-setting pace over the last month. Money managers added over 3,000 short positions to their net selling position on soybean meal.

U.S. Agriculture Secretary Sonny Perdue announced Monday that aid to farmers would not be needed as in previous years thanks to the Phase 1 trade deal signing. In a speech to the American Farm Bureau in Austin, Texas on Monday, Perdue assured farmers that Chinese purchases would soon increase and that the resulting market conditions would eliminate the need for further farm aid.

Meanwhile, a Chinese commerce ministry official, Li Xingqian, announced in a news conference Tuesday that China would not change its import relationships with other countries following the signing of the Phase 1 trade deal with the U.S. last week. Li assured reporters that while China would operate within the rules of the World Trade Organization, he hoped the U.S. would facilitate market conditions that would make exports to China more lucrative. In last week’s signing ceremony at the White House, the U.S. and China agreed to a trade deal that would be based on market conditions.

Wheat:

Wheat contracts price changes

Wheat markets were mixed heading into Tuesday. Chicago soft wheat futures were on track to post gains Tuesday morning, while Kansas City and Minneapolis wheat futures lost ground on profit-taking. The ICE Dollar Index was down 0.10% and increasing international demand for soft wheat led the strengthening of Chicago wheat futures.

Cash wheat prices across the Plains were mostly unchanged last week. Farmer sales slowed after a strong rally early in the week came to a halt following the Phase 1 trade deal signing. Protein premiums on cash wheat delivered to or through Kansas City by rail weakened, as shown below:

protein content, basis range, change for wheat

Money managers remained bullish on Chicago and Kansas City wheat last week. Speculators increased their favorability of Chicago soft red winter wheat by 7,147 contracts for a total spread of 29,787 contracts to the benefit of a net long position. Traders added 4,166 long positions to the already bullish Kansas City hard red winter wheat futures. However, Minneapolis wheat could not shake the bears as they remained net sellers by 3,515 positions despite trimming 738 short positions from the previous week.

Strong international wheat demand drove European Union wheat prices to 18-month highs while the U.S. market was off yesterday. Reduced yield projections and tightening stocks added strength to the increasingly bullish market as March wheat futures on the Euronext Exchange traded at $5.89-$5.92/bu. Supply chain constraints continue to underpin high cash prices in France. As the South American wheat is shipped to Asia amidst the Australian drought and Black Sea export slowdown, European wheat is increasingly attractive on the global market. Soft wheat exports from Europe rose 71% from last year to 576.9 million bushels as a result.

Pakistan will import 1.1 million bushels of wheat following a flour shortage. Exports in 2019 topped 22 million bushels out of Pakistan, despite lower than normal production. The Pakistani government faces increased criticism for not reducing wheat exports amid tightened stocks and skyrocketing bread and flour prices.

Weather: Clear weather across the Midwest on Tuesday will come to a halt by Wednesday, when a winter storm system currently developing over the Central Rockies will push into the Central Plains and northeast into the Eastern Corn Belt by Wednesday morning. Snow will likely linger over the Upper Mississippi Valley through Friday according to NOAA's short range forecast.

Financials:  Asian markets led global stocks lower overnight following news of the rapid spread of a coronavirus outbreak in China. Confirmed cases of the pneumonialike virus tripled on Monday following four deaths due to the highly contagious disease. Chinese health officials are increasingly worried about the spread of the disease as travel picks up ahead of the Lunar New Year holiday. Concerns led Dow futures 66 points or 0.23% lower overnight.

Chinese fertilizer output rose 3.6% in 2019 from the previous year. Total 2019 production came in at 56.249 million tonnes following a 0.9% increase in December production from 2018 levels. China is a net exporter of nitrogen and phosphate fertilizers. An increase in output could signal lower chemical prices for farmers looking to book input prices ahead of the 2020 growing season.

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