Wheat: Down 1 to 2
Reports on exports and crush draw traders’ attention
Grain futures are mixed this morning after the market faded positive comments about a trade deal with China overnight. Traders are instead focusing on demand data out today because supply news won’t be updated until the Jan. 10 USDA report.
Farmers will have mostly dry conditions over the weekend before the next storm moves into the mid- and lower Mississippi River Valley next week. Official 6 to 10 and 8 to 14-day forecasts out yesterday show above normal precipitation returning to most areas along with above normal temperatures in the western half of the country. The latest updates from the ensemble model spread that warmer outlook to most of the U.S. ahead of Thanksgiving.
Forecasters first outlook for the El Nino cycle into summer 2020 shows a 55% chance the current neutral pattern will continue. El Nino summer tend to be associated with above normal yields while La Nina can produce droughts in the Midwest.
Growers posting Feedback From The Field so far in November report average yields a little above those put out by USDA last week, with corn at 169.6 bushels per acre and soybeans running 48.9 bpa.
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S&P 500 Index futures rallied to new record highs overnight on positive comments on trade negotiators by White House advisors, helping stocks move mostly higher in Asia before the tone turned more cautious in Europe. The dollar is firm but other safe havens like gold and Treasuries are weaker.
Crude oil futures failed to hold a rally back above $57 overnight. Inventories fell modestly last week on stronger exports despite record production in the U.S., even though the number of rigs in service fell to its lowest level in more than two-and-a-half years. Midwest diesel stocks tumbled 7.5% as refineries cut back production and farmers kept burning through fuel to harvest crops.
Corn prices are little changed as the overnight session winds down with December futures again trading a narrowing range of just a penny and a half. Demand news may shake that tree a bit today.
Corn export sales from last week could show improvement from the 19.2 million bushels done the prior period but are still expected to fall well below the weekly rate needed to reach USDA’s forecast for the 2019 crop.
Ethanol plants responded to margins that improved on average last week by increasing production but stocks still fell. Year-to-date production is down 4.7% from 2018. USDA cut its forecast for corn usage to make the biofuel Nov. 8 but had demand down just 1 million bushels from the 2018 crop marketing year. Corn basis was steady to higher at ethanol plants yesterday except in Indiana, where bids faded.
The preliminary report from the CBOT showed daily futures volume down 29% Thursday to 300,933
and 50,702 of that was done in the December-March spread as Goldman roll positioning by index funds ended. Open interest fell 14,510 on that liquidation and light fund short covering.
Options volume was off 26% to 44,401, with a few more puts trading than calls as traders continue to liquidate December puts that expire at the end of next week. Implied volatility in at-the-money December options increased to 15.38%.
Bottom line: The Nov. 8 USDA reports were the last chance in two months for an injection of bullish news. But strong basis in many areas is a marketing opportunity, because buyers are scrambling. 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 edge higher after January pulled back from a test of its 200-day moving average. November futures went off the board yesterday holding just above $9, which could become a target if the market can’t stabilize.
Demand news will take center stage again today, after USDA yesterday reported the sale of 4.7 million bushels to China under its daily reporting system for large purchases, finally confirming reports that surfaced earlier this week. Sales for the period ending Nov. 7 are expected to run around 40 million bushels; USDA has already reported the sale of 14.7 million bushels on its daily wire during that period.
Members of the National Oilseed Processors Association report crush today for October, with the average guess running 168 million bushels. That would keep the year-to-date total for the first two-months of the marketing year down around 4%. USDA cuts its forecast for crush Nov. 8 but is still up 13 million bushels from the 2018 marketing year.
The preliminary report from the CBOT showed daily futures volume dropping 18% Thursday to 149,319 while open interest was up 3,186 with light fund buying noted.
Options volume was off 3% to 40,806, 57% of it calls as traders added near-the-money January calls. Implied volatility in at-the-money January options eased to 11.34%.
Vegetable oil markets in Asia today continued to pull back from their recent explosive rally. January soybean oil futures in China settled at 40.712 cents per pound and January palm oil futures in Malaysia lost four-tenths of a cent to 28.09 cents.
January Winnipeg canola overnight dropped a penny to $7.901 after adjustments for currencies and volumes.
Bottom line: The full extent of Chinese demand is still unknown, making supply the best hope for rallies. But more news about that won’t be coming until January, which could leave the market drifting. 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 in all three markets, as futures fight weakness on price charts.
Soft red winter wheat broke below its recent wedge overnight while HRW drifted towards its support line off September and October lows. Minneapolis was unable to hold support at $5.15 yesterday and made a new two-month low on follow-through selling overnight.
Export demand remains focused on regular customers in Asia and the Americas. Taiwan bought 3.5 million bushels overnight, but the U.S. was again priced out of Egypt’s latest tender. The world’s leading importer bought 4.4 million bushels of wheat from Ukraine and 12.9 million from Russia yesterday. Total exports for last week out this morning are expected to be close to the 13.4 million bushels forecast by USDA for the marketing year.
The preliminary report from the CBOT showed SRW volume down 16% at 120,817 with 28,013 of that done in the December-March on the Goldman roll. Open interest fell 4,311 on that liquidation despite new selling from funds.
SRW options volume fell 25% to just 10,580, 61% of it calls with a little new interest noted in the January $5.50 call and $5 put. Implied volatility in December options fell to 17.89%
Volume in HRW wheat cropped 29% to 84,477 with 20,361 done in the December-March. Open interest fell 2,695.
Overseas markets are mixed today. January futures for Eastern Australian Wheat fell 3.7 cents to $6.308 and December wheat futures in Paris afternoon trade are unchanged at $5.328 after adjustments for currencies and volumes.
Bottom line: Look for opportunities in the cash market, because futures should stay sluggish until exports pick 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.