Grain Market Overview 2/3
February 3, 2016Grain Market Overview 2/10
February 10, 2016Commodity Market News 2/8
Summary
For much of 2016 it has been news and headlines from China that have been moving the markets quite a bit. China will be on holiday all week for its New Year celebrations. Therefore, we expect that economic news coming from that region will be sparse and limited.
The February USDA Supply and Demand report is scheduled for release on Tuesday, February 9th at noon ET. Currently, trade expectations are looking for a slight increase in Corn, Soybean and Wheat ending stocks. Current trade expectations are for US Corn carryover to rise 7 million bushels, domestic Soybean ending stocks to increase 5 million bushels and US Wheat carryover to jump by 6 million bushels versus January. The items of importance for this report will likely be global production and carryover projections.
We don’t anticipate that this report will be a market mover but the risk at hand for producers is if the response to the report is bearish regardless of the sentiment or tone of the report. This is a key month for farmers taking out revenue insurance on their crops. We are entering the February spring crop insurance discovery period. The USDA calculates a base price for revenue insurance based on the average February settlement of December Corn futures and November soybean futures. Similar to putting on a “Put Option” on your crop, the higher the spring insurance price, the better the "strike price" for your crop insurance. The response to Tuesday's reports along with the price action through this month should be very important to producers.
The US Markets as a whole were under pressure last week. Grain, Energy and Equity markets were all down for the week. The US Dollar Index was also down. The only perceived safe-haven was the Bond market. From December 9th through January 29th the US Dollar Index ranged from 97.190 to 99.829. In just the 1st four trading days of February it gave it all back and more. Key level for the US Dollar Index this week is 95.50. Closing below 95.50 would suggest a minimum price move to 94.45 that possibly reaches 93.00.
The weakness in the US Dollar was not enough to counter the selloff in the grain markets. In fact March futures contracts could very well be under a bit more pressure this week with Commodity Index funds moving nearby long contracts to deferred months. Open interest has already been dwindling with March delivery only weeks away.
Corn
Corn harvest begins in Argentina and Brazil this Month. For the first time this growing season, the weather in Argentina has captured the attention of the market. January was dryer than normal across most of the country and it has led to the development of soil moisture deficits. The Corn crop has the potential for being impacted by the dry weather more so than the Soybean crop. Weather maps are indicating light to moderate rain in northeast Argentina this week where Corn is ready for harvest.
Last week March Corn lost 6 ¼ cents (1.68%). Meanwhile, December Corn lost 4 cents (1.02%). Both of them posted a higher high and higher low on the weekly charts but they ended the week on the lower end of the week’s trading range which suggests continued weakness this week.
March 2016 Corn Charts
March Corn made a high print of 373 ¾ and the highest close of the week was 372 ½. We did not get a close above 373 which would have suggested a minimum price objective of 390. Instead the contract moved up into our February 1st timeline and made a high on February 2nd then proceeded to decline from there. The technical work on the charts shows that we have resistance at 371 (360 degree termination zone) that coincides with 370 ¾ Zone 1 low (1 standard dev. below the point of control). If the USDA WASDE report leads to downside movement we are projecting the price action to move down to about 353 ¾ followed by a bounce near 368 ¼ which ends with a sideways move as the contract comes off the board. Fast forward to the deferred contracts and we believe that the next important time line lands near March 17th.
December 2016 Corn Charts
Using the signature high from October 7th we were able to spin out some cycle dates that give us some guidance for potential turn dates. The 5th of December was a Saturday but the 4th ended up being a significant high. The next date on our radar is February 10th (the day after the WASDE report) followed by February 17th. Overhead resistance sits at 395 ¾ and downside support is all the way down at 377 ¾. The move Friday closed below one of our geometric support trend lines. We also applied a scaled box to the daily chart. The 1 x 2 angle up (highlighted in blue) operated as good support initially and has since become good support once price closed below it on December 22nd of last year. The point of control currently rests at 391.
Soybeans
In their February Crop Report, CONAB lowered their estimate of the 2015-16 Brazilian Soybean crop while increasing their estimate of the 2015-16 Corn crop. The 2015-16 Brazilian Soybean crop is now estimated at 100.9 million tons or 1.2 million tons less than last month which would still be a record if the aforementioned yield is met. The lower Soybean production estimate comes as a result of reduced expectations for the Soybean crop in the region of Mato Grosso. Hot and dry conditions in November and December impacted the early maturing Soybeans that were filling pods during that period. Brazil is harvesting a big crop and the current weather forecasts offer few threats to that effort.
March Beans traded in a 22 ¼ tick range for the week while the November contract had a 15 ¼ tick range. March Beans lost 14 ¾ cents (1.67%) on the week and November Bean lost 9 ¾ cents (1.09%). The larger decline in the nearby contract is consistent with funds rolling open interest to deferred months.
March 2016 Soybean Charts
On Monday, March Beans closed right on the downward sloping trend line but was only able to close above it once over the course of the week. The last three days of the week were rather weak for the contract and there was not much interest in carrying unnecessary risk over the weekend ahead of the WASDE report release. This contract is now at the lower end of its trading range and it poised to test the previous low of 852 if it is not able to turn around. The point of control is at 881 this week and one zone below is 858. There is the possibility that it trades between 881 and 858 this week before breaking out directionally.
November 2016 Soybean Charts
The 889 ¼ point of control offered too much resistance this week. The daily trading range for the November contract has been pretty tight and evenly paced over the last 3 ½ weeks. Fixed resistance at 893 has been formidable in conjunction with closing well below the 889.25 point of control. The ability to reach 915-917 is in doubt because the weakness that occurred last week.
It bears mentioning that this contract did a good job of tracing up along the red trend line in the scaled box then subsequently turned down when the trend line intersected the downward sloping green angle. It is not uncommon to witness a change in market direction at these natural trend line intersection points.
Wheat
Two more cargoes of South American feed Wheat are scheduled to unload at Wilmington NC on the February 7th and 14th. Egypt cancelled a couple of their tenders this past week amid concerns of offers that were not in line with their ergot specifications. Sellers have since been reticent to submit offers because of Egypt’s strict standards.
The real news of the week was export sale number that were a huge disappointment. Trade estimates were at 200-400 TMT with the actual number coming in at 66.2 TMT. On Tuesday the USDA will release the Global and US Supply and Demand numbers. Farm Futures are looking for the US ending stocks number to remain unchanged. The Bloomberg survey is calling for a slight increase.
July Wheat shed 14 ¾ cents (3.01%) last week testing the lows made the 2nd week of January.
July 2016 Wheat Charts
The July Wheat contract closed below 476 this week and is in jeopardy of breaching 469 ½ low made on January 7th. A break of that low could lead to a fast move down to the 450 to 440 area. We are not seeing much to indicate any substantive support for this contract.
March 2016 Crude Oil
It was a good thing that we were tempered in our optimism. Once Crude became overbought last week it found resistance at 34.33 then tumbled back down to 29.49 support. With an agreement between OPEC members and Russia to cut production started looking increasingly unlikely the energy market did not respond well. As long as 29.49 hold prices can still rise in the short term. Overhead resistance at the price range of 37.80 to 37.25 remains important. Below 28.10 we are looking at 24.50 as the next potential price objective/support level. Point of control is at 32.08.
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