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Morning Market Review for June 27, 2019

Wheat steps into spotlight. (Comments are updated by 7:30 a.m. Central Time.)

Overnight trend:
Corn:
Steady
Soybeans:  Steady to up 1
Wheat: Up 7 to 8

Delivery squeeze sends shorts to sidelines

Grain futures are mixed this morning. While corn and soybeans hold firm ahead of key USDA acreage reports Friday, wheat jumped higher again as shorts scramble to liquidate positions before first notice day on July contracts tomorrow.

Weather remains on traders’ radar, quite literally. Storms moving across the northern Plains this morning will be followed by a brief heat wave taking temperatures above 100 in some parts of Nebraska and South Dakota this weekend. Another system is due next week but heaviest accumulations should be north of I-80 in the northern tier of states over the next week. Official 6 to 10 and 8 to 14-day forecasts out yesterday show warm and wet conditions over much of the country though the latest updates from the ensemble model this morning with have cooler temperatures making a comeback.

Growers posting Feedback From The Field Wednesday remain concerned about development of late-planted crops.

“Crops way behind. Poor stands. A lot of corn 6 inches or less and it's almost the 4th of July,” said a producer in western Minnesota.

How is your farm faring this year? Click this link to tell us what’s happening in your area and check the interactive map we update regularly.

Stock markets posted gains in Asia before weakening in Europe, while U.S. index futures are mixed as Wall Street waits for the meeting between President Trump and President Xi of China at the G-20 summit Saturday. Hope for progress may be tempered by the realization details of an agreement to end tariffs may take months to write.

In the meantime, the dollar and Treasuries are firm while gold gave back a little more of its recent rally but stayed above $1,400 an ounce. Crude oil futures pulled back below $59 a barrel, following a big gain yesterday. Crude oil inventories last week plunged by 12.8 million barrels on record exports, lower imports and falling U.S. production as more rigs were taken out of production on the recent price drop.

Corn prices are little changed as the overnight session winds down, holding to narrow ranges. December futures posted an inside day after breaking through the support line off May and June lows yesterday.

The headline number tomorrow should be USDA’s updated acreage estimate, which should come in around 87 million. While that is down nearly 6 million from March intentions, it could disappoint those who expect more. Further reduction as possible down the road that could take another 4 million off the harvested total.

USDA’s quarterly stocks report isn’t garnering much attention, with the biggest question mark spring feed usage, a number that’s typically hard to peg. Traders will be watching for signs of demand rationing, though prices stayed low for most of the quarter.

Signs of rationing are already showing up in export demand. Old crop export sales last week likely continued to fall well below the 26.6 million bushels needed every week through August to reach USDA’s forecast for the 2018 crop, as buyers shift purchases to South American originations.

Disruptions to the transportation system only compound buyers’ anxiety about lower supplies in the year ahead. But the upper Mississippi is back in business with two-way traffic allowed after the St. Louis harbor reopened. Restrictions on many parts of the river system could keep movement tortuous however.

Other demand also remains soft. Wednesday’s report on ethanol production showed output down as stocks fell for the fifth straight week. But ethanol price retreated even though they enjoy a blending advantage as gasoline demand dropped. Plants pushed basis a little yesterday, though some bids in the export market weakened.

The preliminary report from the CBOT showed daily futures volume up 2% to 545,558 while open interest fell 25,440 on only light fund profit taking as traders continue to liquidate July contracts ahead of first notice day Friday. Some 1,030 contracts remain registered for delivery along the Illinois River, where basis is tightening but still 2 to 5 cents below the board.

Options volume jumped 25% yesterday to 146,584, 54% of it calls with more new interest in the December $5.70 call and out-of-the-money March puts. Implied volatility in at-the-money December options fell more than 1% to 28.97%.

Overseas markets are mixed. September futures in China fell 2.4 cents to $7.165 but November Paris futures in morning trade gained 1.4 cents to $5.158 after adjustments for volumes and currencies on a dry forecast for the next week.

Bottom line: Friday’s reports could disappoint but the story of the 2019 will take time to play out. The combination of lower acres and yields suggest potential for a futures rally from $5 to $5.50 But prices are at profitable levels even for producers with late planted corn. Start adding to new crop sales cautiously and protect basis with bear spreads on December 2019/July 2020. Get ready to sell remaining old crop corn after tomorrow’s report. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Soybeans are trying to hold onto modest gains following choppy two-sided trade overnight. November futures fought off an initial test of the support line off May and June lows as traders keep one eye on USDA reports and the other on trade talks with China.

USDA’s survey for Friday’s reports was done in the first two weeks of June, which can lead to large revisions in soybeans later. I look for a modest drop in soybean acreage from the 84.6 million intentions in March to 84 million now, with further reductions possible later.

Traders expect export sales fell last week though old crop business remains good as buyers appear to be favoring a bird in the hand. USDA Wednesday reported the sale of another 5.2 million bushels of old crop to unknown destinations under its daily reporting system for large purchases. But news out of the G-20 summit meeting between President Trump and President Xi of China could determine whether state-connected buyers take delivery on their large book of soybeans purchased earlier this year when the trade war briefly thawed.

Vegetable oil markets in Asia were mixed today. September soybean oil futures in China settled higher at 35.602 cents per pound but July palm oil futures in Malaysia tumbled again, losing more than a third of a cent to 20.20 cents on weak export fears.

Oilseed markets internationally were also mixed. September soybean futures in China lost 5.9 cents to $13.573, August rapeseed futures in Paris gained a half cent to $9.435 and July Winnipeg canola overnight was up 3.8 cents to $7.654 after adjustments for volumes and currencies.

The preliminary report from the CBOT showed futures volume down 18% yesterday to 317,761 while open interest was off 8,760 despite modest new fund selling as traders liquidate positions ahead of first notice day. Registrations fell by 174 withdrawn in Chicago, leaving the total available at 440 ahead though basis remains 25 to 30 below the board.

Options volume was also down 18% yesterday to 39,283, 55% of it calls with more new interest noted in August puts and calls ahead of Friday’s reports. Implied volatility in at-the-money November options decreased to 19.38%.

Bottom line: Soybeans will take a back seat to corn this year, but lost acres and lower yields could make for an interesting market. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Wheat prices are leading the market higher. While wheat isn’t expected to make big news in Friday’s reports, heavy liquidation of July contracts is squeezing shorts ahead of first notice day tomorrow, sending SRW to a 10-month high.

June 1 stocks are the final carryout from the 2018 crop, which should run around 1.1 billion bushels. Acreage could be down a little depending on spring wheat seedings, which were slowed by weather.

Traders expect sales last week picked up close to the 13.3 million bushels needed weekly through the rest of the marketing year to reach USDA’s forecast for the 2019 crop.

Only 9 lots are registered in Toledo where cash is 25 over the board. Though basis is weaker in Kansas, only five contracts are available for delivery there.

Volume in soft red winter wheat was up 24% Wednesday to 174,591 while light fund short covering helped take 11,501 off open interest as 21,599 July were still open today.

Options volume fell 9% to 30,027, 55% of it puts as traders added August puts, along with the December $7 call and $5.50 put. Implied volatility in December options fell to 23.38%

Volume in HRW was off 1% yesterday to 72,559 on open interest that dropped 3,021.

Overseas markets are higher. July futures for Eastern Australian Wheat settled another 6.7 cents higher today at $7.004 on forecasts for mostly dry weather over the next two weeks. December futures in Paris midday trade are up 2.9 cents to $5.84 after adjustments for currencies and volumes.

Bottom line: Too much rain is the biggest threat to the crop now, with problems starting to show up. 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.

062719USDACropReports.jpg

Pivots062719.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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