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Morning Market Review for Nov. 20, 2019

The next several weeks—holiday doldrums, or holiday cheer? (Comments are updated by 7:30 a.m. Central Time.)

Editor's Note: Bryce Knorr has retired. Filling in until a new analyst is up to speed for the team is Duane Lowry, Ag View Solutions. You can learn more about Duane at the end of this story.

Overnight Trends:At 6:06, cst:
Dec Corn= 1 3/4 lower
Jan Soybeans= 2 1/2 higher
Dec KC Wheat= 2 1/4 lower
Dec Chicago Wheat= 2 3/4 lower
Crude Oil= up 34
Mini-Dow= down 87
Gold= down $0.70
Dollar Index= up 17

Weather during the next two weeks appears a bit more problematic for remaining harvest and fieldwork activity, as moisture events become a bit more frequent during the next two weeks. South American weather is seen as non-threatening, but we have seen early season weather offer strings of dry weather on a rotating basis from location to location, but the more important part of the growing season is still ahead. Weather has not been having much day-to-day connectivity with price action recently.

Global News:
Little market-moving news is visible.

Today’s Support/Resistance and Expectations:

*Expectations for Today> Overnight values are weaker, but still holding above Monday’s low. Yesterday’s price action was stabilizing. It would be nice if the overnight weakness is able to be rejected/reversed as the day unfolds. Friday and Monday’s flush were likely the culmination part of the recent corrective activity. Key longer-term support levels were reached yesterday. Short-term technical conditions are not conducive to building downside momentum. Any probing down here isn’t likely to go anywhere. Overall conditions point to short-covering and improving price action unfolding during the next several days.  

Today’s Support/Resistance and Expectations:


*Expectations for Today> Lots of overlapping trade in narrow ranges would be a good description of recent price action.
Take a step-back view here… Early morning values were first traded 7 days ago. Since that time, we have produced 2 lower settlements, 3 higher settlements, an unchanged session and currently today we are in positive territory. Yet, if you listen to the rhetoric and trader sentiment, you have little choice but to conclude that we have been down every day and experiencing nothing but trending lower action. To further offer perspective, overnight strength, which is quite minor, has values only 3 cents off the highest settlement of the past 7 trading sessions. This market is losing downside momentum and it is losing participation, while at the same time, trader discouragement and loss of hope is gaining traction. All this is taking place after corrective activity has accomplished targets and while technical conditions have reached a point where little strength is required to begin encouraging short-covering and new buying activity. Soyoil had been the complex’s upside leader and I pointed out Sunday night/Monday that a quick recovery there was very possible. Overnight soyoil values are now nearly 100 points off last week’s low. Soymeal, which posted an impressive settlement Friday, has found no follow-through to Monday’s weakness, suggesting that it may have little/no desire to probe below recent lows. Today’s trade will be interesting/important in terms of whether we should be focused on trader demoralization, or whether we should give weight to the ideas described above that the market is performing better than the discouragement by which it is surrounded. We remain very capable of seeing price action soon improve.

Today’s Support/Resistance and Expectations:


*Expectations for Today> Price action is constructive. The area of recent lows is likely to be well-supported. News is stale. Fundamental storylines are difficult to create. It is possible that we could revisit/probe a recent low, but technical conditions are not conducive for building downside energy. Overall conditions point to trending higher action unfolding in the weeks ahead, likely pushing above the October highs.

Overall Summary/Outlook:

Price action is trying to show changes and a lack of willingness to build downside energy here. Yet, trader sentiment has become very discouraged and many are walking away from the grain trade, fearing that we have already entered the holiday doldrums. It is true that often during the final weeks of the year we experience what must feel to a mouse to be in a sticky trap—an inability to move and/or where every attempt at a move only leads to more trouble. Such experiences in the past is why traders are quick to fear that such may again be the case during the next several weeks. It is a legitimate concern and one that shouldn’t be discarded easily.

However, we have already been in a correction mode for approximately a month. I am not so sure that we haven’t already accomplished much of the deleveraging that often accompanies the final few weeks of the year. Yet, soybean prices have given back only approximately half of the Sep/Oct rally event and the rest of the grain/soy complex seems to have correction processes that are quite mature by many standards of measurement.

Fundamental story-lines have gone from wide-ranging to narrow acceptance of USDA numbers, albeit some acceptance has just occurred out of complete discouragement through a sort of “throw-in-the-towel” type of acceptance, but not necessarily an intellectual acceptance of the USDA themes. We have seen a year where we lost 20 mil acres to prevent plant, with corn a major part of that storyline as it unfolded in real time, only to find out that we actually did plant virtually all the corn we intended. We have seen vast amounts of corn and soybean acreage planted after June 1st, only to find that the latest USDA yield projections suggest much less yield loss than history and university studies have told us would accompany such late planting. And, we have seen USDA barely adjust any of its Sep, Oct or Nov yield estimates, despite the unusual nature of the 2019 growing season. So, while the marketplace attempts to sort this all out in the price discovery process, we also were reminded that USDA can make adjustments at a later time, such as in October of 2019, when they adjusted the 2018 crop downward by 1 bpa, despite the fact that we tend to think of the Jan 2019 as the “final” statement on 2018 yield. To give some perspective to that 1 bpa year-later adjustment, it equates to approximately the same percentage as a 4 bpa adjustment to national corn yields. A 1 bushel adjustment to a crop that had a 1 bil bushel carryout doesn’t seem like a big deal, but a 4 bpa adjustment to a corn crop would suddenly produce a small carryout by recent historical standards. In a year where corn quality is seen by some to likely suggest more bushels will be required to be fed to accomplish the same animal weight gains, we may still have some interesting adjustments by USDA in their January production estimates.

I say all of this to suggest that maybe the correction process of the past month has taking the place of the several weeks of holiday doldrums that we tend to expect during the final weeks of the year. If that last sentence happened to be true, then what will be the theme of the next several weeks that finish out the year? Well, I suggest that it will be dominated by tight cash pipelines that struggle to inspire producers to move grain out of their recently sealed bins. We are likely to find that elevators and co-ops that have normally built large hedged inventories, have much, much smaller such positions this year. Therefore, cash buyers will need to find flat-price levels that will entice farmers to sell. With corn futures more than 30 cents off the October highs and soybean futures more than 40 cents off the October highs, amid a backdrop where many US producers have much fewer bushels to sell than they did in 2018, the cash buyers may find out that it will be much more difficult than they currently imagine to fill the cash pipeline when it is the farmer that will be called upon to carry a greater burden than is seasonally normal to keep the cash pipeline adequately supplied. When I think along these lines, I seriously question if we will actually experience the holiday doldrums this year. I am much more inclined to think the market will outperform such expectations and outperform current discouraged expectations.

Duane has been involved in ag business and the futures industry since 1978. From an assistant manager at a large Iowa cooperative to a floor trader and broker in Chicago, Duane has worked with producers and grain elevators to manage futures, basis and spread risk. Duane has been writing daily market commentary since 1987 and currently works directly with producers to market their grain, manage risk and optimize their crop insurance decisions. Duane’ deep experience with basis, spreads and market analysis sets him apart as a crop insurance agent and risk management consultant, helping him to optimize producer marketing decisions.


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