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Morning Market Review for Nov. 22, 2019

Lethargic overnight trade continues. (Comments are updated by 7:30 a.m. Central Time.)

Liquidation pressures seem mature

Overnight Trends: At 6:07, cst:
Dec Corn= 1/4 lower
Jan Soybeans= 1 1/2 lower
Dec KC Wheat= 2 1/4 higher
Dec Chicago Wheat= 3 1/4 higher
Crude Oil= down 19
Mini-Dow= up 52
Gold= up $7.60
Dollar Index= down 1

*Where are we for the WEEK? (As of yesterday’s settlement.)
Dec Corn= down 2 3/4 cents
Dec KC Wheat= up 4 cents
Dec Chicago Wheat= up 6 1/4 cents
Jan Soybeans= down 17 1/4 cents
Jan Crude Oil= up $0.75
Dec Gold= down $4.90
Mini-Dow= down 205
US Dollar Index= up 3.

Harvest disruptions will keep the final harvest activity slow. Weather has not been having much day-to-day connectivity with price action.

Global News:
China’s President Xi Jinping said today he has a “positive attitude” towards the trade talks and that he wants a trade deal with the US. Xi said, “We want to work for a Phase 1 agreement on the basis of mutual respect and equality.” China’s lead negotiator announced yesterday that he invited US officials to Beijing for additional face-to-face talks, suggesting progress has been made.

China says it plans to restore its pork supply, in approximately one year, to levels of approximately 80% of the pre-African Swine Fever level. The number of breeding sows rose 0.6% in October from a month earlier, which was the first monthly increase since April 2019. Chinese scientists continue to work for a vaccine against ASF, but no institutions have yet applied for clinical trials.

China today revised its 2018 GDP upward by 2.1%, following an updated census. This will cause China to revise GDP growth projections, but they did not indicate when that might occur.

Today’s Support/Resistance and Expectations:

*Expectations for Today> Prices have consolidated much of this week, with overnight values down approximately 2 cents from last Friday. Short-term technical conditions are not conducive to building/sustaining downside momentum here. Do not trust/embrace near-term weakness. 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> Overnight values are back to the level where the Nov contract expired. Charts offer little visible support, but short-term technical indicators suggest an upside turnaround could/should soon occur. Liquidation pressures should be largely mature.


Today’s Support/Resistance and Expectations:


*Expectations for Today> Price action this week has been constructive, rejecting early week weakness and finding support and buying interest on intraday corrective weakness attempts. The area of recent lows is likely to be well-supported and may not be tested again. News is stale. Fundamental storylines are difficult to create. Overall conditions point to trending higher action unfolding in the weeks ahead, likely pushing above the October highs.

Overall Summary/Outlook:
Selling energy this week has largely been focused on soybeans, but liquidation pressures may be largely mature. Jan futures have now revisited the price zone where the Nov contract expired, which often provides support. Soymeal has stabilized. Soyoil seems reluctant to create more than a shallow correction, but this has been its personality since May. It remains possible that soyoil has a desire to remain the soy-complex’s upside leader and it may be poised to show that leadership immediately.

Export sales data yesterday was constructive, suggesting that global price structures and supply availability are shifting to offer the US some advantages. This should be the theme through at least February, which will provide fundamental support.

Technical conditions suggest little ability to build/sustain weakness from current levels. Overnight price ranges are pathetically narrow and unexciting. This week’s trade has absorbed a lot of bearish/nervous US/China trade discussions. Yet, both US and China sources continue to imply a more constructive narrative.

US cash grain markets remain only marginally supplied and buyers appear to have minimal ownership for this time of year. Elevators will exit the harvest season with an unusually small hedged ownership. This is due to a much slower US farmer sales pace and a some reluctance on the part of the elevator to establish a long basis ownership at such historically narrow harvest time basis levels. This means that the cash pipelines will have to rely much more on farmer sales during the next 60 days for supplies, rather than on hedged inventories.

**Here is why this discussion is important> If you are a grain elevator/co-op merchandiser and you have built a large hedged ownership position, you can be enticed to move some of that inventory on relatively small improvements in basis and especially if end-users offer you a push above their posted bid. That is your business and your business is to capture “cents” on those bushels above your costs. Thus, it is not difficult for end-users to secure their supply needs.

However, if you are a producer in the current landscape, you are facing fewer harvested bushels than last year and current prices are at the bottom side of prices you have been offered since you began planning for the 2019 season a year ago. More fresh in your mind is the fact that current prices are 35 cents off the October high in corn and nearly 60 cents off the October high for soybeans. As a producer, you do not make your livelihood on a few/several cent push in a basis bid. You make your livelihood on a combination of yield and price. As I just mentioned, prices are not attractive to the producer and yields are well off for most from not only last year, but largely off of their last 3-4 years of experience.

Now, if it was June or July, the producer might feel pressured to make sales. He/she might even feel pressured to makes sales if it was early April and they sought cash to pay for inputs. However, it is not even December yet and the marketing year has just begun. Add in the fact that producers are currently receiving some MFP payments and their urgency to make sales is much reduced. As for fall cash needs to pay rent etc, those transactions have probably already been absorbed by the marketplace.

Thus, I ask you… who will find it easier to make a sale to an end-user, a cash grain merchandiser that has no real emotional attachment to a bushel of grain and knows that in a short period of time he will buy some bushels again and get to merchandise those new bushels, or the producer who put everything he had into generating those bushels and will NOT have new bushels to sell for another year? The answer is obvious. So, if the cash pipeline must rely on the producer for supplies more than normal due to smaller hedged inventories in the elevators/co-ops’ hands, then the end user will need to be more aggressive with their bids and/or the marketplace will be forced to not only call upon basis to do the work, but spreads and futures may all have to strengthen in an effort to satisfy the end-user with supplies.

Overall conditions point to improving price trends during the next 90 days. Try not to be overly discouraged here. This is the time of year when discouragement is often a trap.

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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