Corn: Down 1 to 2
Soybeans: Up 1
Rally fades on mixed signals from China
Grain futures turned mixed overnight after a stronger open, with profit taking emerging on reports China wants more negotiations before signing an initial trade deal that includes purchases of more U.S. farm goods.
Last week’s blast of winter continues to reverberate through the market as well. Basis surged on the northern Plains for corn, soybeans and spring wheat as snow piled up while temperatures into the upper 20s spread east over northern and central Iowa this morning, ending the growing season in the northwest Midwest. USDA offices are closed for Columbus Day, delaying all reports this week, but giving crop raters longer to assess the impact of the cold snap.
A couple storms are expected to keep the much of the Corn Belt wet over the next week. Official 6 to 10 and 8 to 14-day forecasts out yesterday and the latest updates from the ensemble models show above normal precipitation sticking around outside the central and southern Plains.
Growers posting Feedback From The Field last week reported yields that weren’t all that different than USDA published in its recent production report. Growers put corn yields at 167 bushels per acre, 1.4 bpa below the government’s assessment. Farmers said soybeans averaged 48 bpa, 1.1 bushels per acre above USDA.
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After rallying in Asia on the heels of Friday’s gains on Wall Street, stock markets pulled back in Europe, with U.S. index futures pointing to a lower open today. Safe havens are back in play on the more cautious mood, with the dollar, gold and Treasuries all posting gains.
Lack of fresh violence between Saudi Arabia and Iran helped crude oil lose ground as well, with futures down more than $1 a barrel. Money managers dumped another $2.1 billion worth of futures and options early last week before the attack on the Iranian tanker spurred buying.
Friday’s Commitment of Traders also showed big speculators trimmed bearish bets against agriculture for the fourth straight week, heading to the sidelines before Oct. 10 USDA reports. But even after covering 37,525 net short positions they were still short a net 236,551 contracts. After three months of selling, investors owning commodities through index funds finally started buying again too.
Corn prices reversed lower overnight after hitting a two-month high at the 200-day moving average. Uncertainty about the size of the crop as well as demand continues to keep corn a follower for now.
Corn basis in the eastern Midwest remains much stronger than average, though bids weakened in some areas of the region last week thanks to faster harvest of smaller crops. But average basis firmed more than a penny, with strength seen on parts of the river system despite the slow pace of exports. The cost of shipping corn down the river to the Gulf fell by 1.5 cents, giving shippers more room to maneuver as they try to pry grain out of farmers’ hands.
Friday’s strong rally did bring some grain to ethanal plants. Weaker basis combined with increased revenues from stronger ethanol prices and DDGSs values helped boost operating margins again for an industry that is finally seeing a little light at the end of a long tunnel following the deal reached in Washington over biofuels.
Bearish speculators raced to buy back more of their short positions in corn early in the week, cutting bearish bets by 24,715 contracts. They sold again heavily after the USDA report, only to reverse course on Friday following hopes for a trade deal with China. These hedge funds likely are still short around 125,000 contracts now.
The preliminary report from the CBOT showed daily futures volume down 12% Friday but still brisk at 460,563 while open interest rose 618 after heavy fund short covering.
Options volume dropped 10% to 213,185, 60% of it calls as traders added November options for short-term protection in volatile markets as implied volatility in at-the-money December options jumped more than 2% to 21.10%.
Overseas markets are narrowly mixed today. January futures in China ended three-quarters of a cent higher at $6.602 and November Paris futures are off a penny at $4.614 after adjustments for volumes and currencies.
Bottom line: Corn will rise or fall based on the extent of damage from weather in this unusual growing season because demand remains sluggish. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.
Soybeans are battling to hold on to gains after topping out just 2.5 cents from June highs overnight. Back-to-back bullish reports from USDA and the tract pact reached last week with China continue to fuel expectations of tighter supplies in the year ahead.
New buying from the U.S. helped take September Chinese soybean imports to 301 million bushels, 1% more than a year ago according to customs data out over the weekend. Strength in the U.S. cash market was seen last week even before the trade deal emerged. Stronger bids in the export market at the Gulf and PNW helped firm average soybean basis despite mixed bids at processors. The rally in beans faded processor margins as they compete with exporters.
Smaller 2019 crops and Sept. 1 supplies means there’s more storage available across the U.S. My updated estimate shows just 92% of capacity could be filled – probably less, because the late harvest is draining 2018 carryout. While a few areas in the west will be above capacity, including Kansas and Nebraska, states impacted by this year’s weather should avoid ground piles, including all the Midwest states bordering Great Lakes.
Big speculators bought across the soy complex ahead of Thursday’s USDA reports and are likely near even after liquidating their short position in soybeans. The preliminary report from the CBOT showed daily futures volume up 16% at 396,288 on open interest up 15,572 on fund buying.
Options volume dropped 7% to 105,492, 62% of it calls as traders rolled up November options on the rally. Implied volatility in at-the-money November jumped more than 3% to 20.36%.
Vegetable oil markets in Asia turned sharply lower today. January soybean oil futures in China ended a quarter cent lower at 38.215 cents per pound while November palm oil futures in Malaysia gapped lower to close
Oilseed markets internationally are mixed. January soybean futures in China gained 3.2 cents to $13.158, but November rapeseed futures in Paris afternoon trade are a penny lower at $9.59 while November Winnipeg canola overnight was up almost a penny to $7.90 after adjustments for currencies and volumes.
Bottom line: Smaller production and stronger demand could take carryout below 400 million bushels in the year ahead, fueling gains into November. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.
Wheat prices are mixed this morning. While winter wheat contracts hit multi-month highs, Minneapolis ran into resistance at the line drawn off September and October highs as the market tries to evaluate the impact of last week’s blizzard.
Concerns about more damage to spring wheat strengthened basis across the northern Plains, but winter wheat bids eased. HRW was flat despite strength at the Texas Gulf, while SRW demand remains soft, though basis is stronger than average after problems in some areas with too much rain.
Big speculators added to bearish bets in winter wheat ahead of the USDA reports, but large traders continued to cover shorts in Minneapolis.
Overseas markets are lower today. January futures for Eastern Australian Wheat lost nearly a dime in after hours trade, falling to $6.544 while December wheat futures in Paris afternoon trade are a penny lower at $5.378 after adjustments for currencies and volumes
The preliminary report from the CBOT showed daily SRW volume 22% higher at 135,338 with open interest up 7,215 on modest fund short covering.
SRW options volume was 23% higher at 34,344, 53% of it calls as traders rolled up November calls and added November puts. Implied volatility in December at-the-money options rose more than 1% to 20.20%.
Volume in HRW wheat was 9% higher at 71,633 on open interest that rose 3,513.
Bottom line: Protein could be at a premium this year as snow flattens part of the crop in North Dakota and the Canadian Prairies. But wheat must prove export demand, which won’t be easy. 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.