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Morning Market Review for March 21, 2019

Watch out for the currents. (Comments are updated by 7:30 a.m. Central Time.)

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

Markets swirl as weather, trade and Fed in play

Grain futures are narrowly mixed this morning following two-sided trade overnight with a host of mounting worries mostly providing support. Weather remains a top concern due to flooding and the slow place of spring fieldwork, and uncertainty abounds in other markets too.

The health of the global economy was underscored in yesterday’s move by the Federal Reserve to hit the pause button on further interest rate increases this year. The central bank kept its short-term rate steady, while participants in the meeting forecast no more increases this year and only one quarter-point hike in 2020 until the outlook clears.

The Fed also said it would by the end of September stop reducing its stockpile of Treasuries purchased in the wake of the financial crisis to hold down longer-term interest rates.

While investors usually cheer lower interest rates, enthusiasm for the Fed’s more cautious tone wore off quickly yesterday, leaving stocks lower in the U.S. Markets traded mostly lower in Asia and Europe, where Brexit remains another unknown weighing on the world economy and U.S. indexes point to a lower open on Wall Street today.

The dollar index is firming today, after plunging yesterday to test its 200-day moving average yesterday after the Fed news. A weaker greenback is generally positive for commodities, but gold gained again today anyway on safe haven buying.

Crude oil pulled back from a test of $60 after receiving surprising news of its own yesterday. The government reported a much larger than expected drop in inventories last week due to strong exports and rising demand for gasoline and diesel. Midwest diesel benchmarks moved back above $2 a gallon on lower stocks as production in the region also fell.

Another storm is expected to move out of the southern Rockies into the weekend, bringing more flood risk from Nebraska to the Delta, lower Mississippi River and Ohio River Valley over the next week. The official 6 to 10 and 8 to 14-day forecasts out yesterday and the latest updates from the ensemble model this morning remain wet for most of the country with below average temperatures forecast into the start of April. While high water closes locks on the mid-Mississippi River, ice still clogs those further upstream, with 22 inches reported yesterday on Lake Pepin south of the Twin Cities.

Corn prices are a little higher this morning as the market tries to rally back after gains weakened around 5 a.m. CDT. May corn held to an uptrend off March lows, supported by slow progress with fieldwork and ideas acreage could be lower than previous estimates. Farm Futures reports results of its latest grower survey Friday morning at 7 a.m. CDT.

In the meantime, demand news could also swing sentiment. Export sales out this morning at 7:30 CDT are expected to top last week’s 33.3 million bushels of old and new crop purchases. But old crop shipments remain hampered by transportation problems affecting deliveries to the Gulf and PNW.

The outlook for ethanol is also mixed. Ethanol inventories rose near record levels last week despite small drop in production last week. But prices firmed, supported by the rally in crude oil and gasoline markets. The biofuel is trading at more than a 35% discount to gasoline, which should encourage blending.

The preliminary report from the CBOT showed daily futures volume down 32% yesterday to 186,789 while open interest fell 78 though a little new fund selling was noted. Options volume dropped 40% to 61,545, 70% of it calls as traders liquidated May calls and added May puts that expire in a month. Implied volatility in at-the-money December options dipped to 20.10%

Overseas markets are mixed. May futures in China fell 3.7 cents to $6.932 and June Paris futures in midday trade are up 1.4 cents to $4.902 after adjustments for volumes and currencies.

Bottom line:  Flooding should provide support to new crop futures with concerns about wet conditions adding to questions about profitability. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

Soybeans are higher today, helping May futures in its bid to reject a break below chart support. Trade could remain in focus today as U.S. negotiators get ready to head to China for talks next week. While President Trump said progress is being made, he also indicated U.S. tariffs could remain in place until China proves it’s meeting terms of a deal.

Export sales are expected to top 40 million bushels this week, though no new daily purchases by China have been posted recently. Demand from China is also an unknown, due the impact of high prices and African swine fever.

Vegetable oil markets in Asia were a little higher today. May soybean oil futures in China settled at 37.626 cents per pound and May palm oil futures in Malaysia ended at 23.87 cents.

Oilseed markets internationally are mixed. May soybean futures in China eased a half-cent to $13.716, May rapeseed futures in Paris midday trade are up 3.2 cents to $9.292, and Winnipeg canola overnight dropped 1.2 cents to $7.889 after adjustments for currencies and volumes.

The preliminary report from the CBOT showed daily futures volume 11% lower yesterday at 125,943 while open interest was up 1,872 despite light new fund short covering. Options volume was off 66% to jusdt 22,881, 55% of it puts as traders rolled up a few May puts. Implied volatility in at-the-money November options rose to 16.54%.

Bottom line: Fundamentals are improving but still bearish. Continue to price old crop inventory on bounces 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 a little lower today, giving back a little of yesterday’s short covering rally. Still, charts are looking a little more friending with SRW posting a new March high, HRW testing the top of its two-week range and Minneapolis near its 100-day moving average.

Prices got a lift yesterday from the sharply lower dollar and news Brazil could boost imports 27.5 million bushels due to preferential tariffs. Export sales are expected to top last week’s total of 12.7 million bushels though some of that will be new crop too.

Overseas markets are lower today. May futures for Eastern Australian Wheat settled down 4.9 cents at $7.371 and May futures in Paris midday trade are off 1.5 cents to $5.834 after adjustments for volumes and currencies.

Volume in soft red winter was up 5% yesterday to 92,547 while light fund short covering took 4,275 off open interest. Options volume was 8% higher at 26,304, 58% of it calls as traders added out-of-the-money May calls. Implied volatility in at-the-money July options fell to 24.62%.

HRW volume increased 26% to 52,962 on open interest that was 2,168 higher.

Bottom line: The February break to new contract lows was a very bearish sign for wheat, suggesting sales must be made on bounces to start clearing remaining inventory. 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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