Grain Market Overview April 20
April 20, 2016Grain Market Overview April 27
April 27, 2016Commodity Market News April 25
Summary
Producers in Argentina had been expecting a bumper Soybean crop until several weeks ago. The weather during the 2015-16 growing season was nearly perfect and appeared that record Soybean crop yields were at hand for much of the region as the crop was approaching maturity. Then came the rain and it kept coming for several weeks. As a result, widespread areas eastern and northern Argentina suffered damaging floods. Some of the hardest hit area reportedly has as much as 60% of the farmland under water. Last week the Buenos Aires Grain Exchange (BAGE) reduced their estimates for the Argentine Soybean crop 4 million tons to 56 million tons down from 60 million tons which is almost 8% below last year's production. The BAGE estimates the Soybean harvest at 16% compared to 46% at the same time last year making for the slowest Soybean harvest in Argentina over the last 10 years.
Crude Oil futures are approaching what we believe is a critical timeline. When Crude Oil prices plunge consumers enjoy the lower prices at the pump but there are other players that do not benefit from such moves. The potential for defaults in the high-yield bond market increase and the Oil and Gas companies are feeling the pinch. Banks have been hopeful that the recent rise in Crude Oil futures would continue as they prepare themselves for what is looking to be a barrage of bankruptcies in the industry. Historically when companies in the industry fail the banks have been able to remain solvent because of the assets of said companies were strong. With current prices at record lows they are not afforded that luxury at this time. Not only is there strain domestically but the Middle East is feeling the pain as well. The Saudi Arabian government is projected to have an $87 Billion budget deficit for the 2016 fiscal year.
The US Dollar held its own last week. It tested the lows from the previous week and managed to finish the week in positive territory. It is however still hovering on an oversold position on the weekly chart and the daily chart is overbought. This points to continued sideways to lower movement this week.
The CME Group raised the margin requirements last week for Corn and Soybean futures. The margin requirements for Soybean were raised on Friday, April 22, 2016 and the margin requirement for Corn will be raised starting today, April 25, 2016. These margin adjustments undoubted were part of the catalyst that made for some of the wild price action that grain markets experienced last week.
Corn
The May Corn contract lost 6.75 cents on the week and the December contract lost 7.25 cents. The Corn planting progress came in at 13% complete. Managed money positions in Corn is now at 12.7% for long positions and 14.7% for short positions. These levels are in line with typical fund position levels which may lead to prices trading in a range bound fashion over the coming months. We continue to believe that overhead resistance at 420 is a potential extreme for the December contract. Indications US Corn making its way to Brazil continues to circulate and fund managers are at least positioned to capitalize on potential upside price action in the event that weather conditions shift the supply narrative away from the current bearish view.
May 2016 Corn Charts
May Corn moved up just past 400 and we saw a massive run down from there. Last week we shared that momentum could carry prices slightly higher but that the 387 and 400 levels should prove to be formidable. Prices made a high of 402 only to shoot down to 370.50 shortly thereafter. Our forecast was for prices to not get much higher than 405 before coming off the board. We continue to see resistance at the 405-406 range. Downside support is at 366.50 and below that level is 347.50. The shaded vertical regions on the chart at right can sometimes prove to be a trend window as reflected in the last time the chart marched into that window.
December 2016 Corn Charts
In the past we have gone to great lengths to share with you the value of what happens when markets reach a natural cycle terminal point. The high last week was 409. We suggested that the 360 degree mark overhead at 406.75 would be the level that truly defines make or break this contract. The high to low range from that high was 29 cents over two days. We reached the minimum price objective of 395.75 and now we are looking to the projected cycle time line of April 26th as a potential energy marker where a price pivot can occur. That energy factor can occur either side of the 26th.
The red horizontal line overhead resistance level in the next chart is 410. The point of control sits at 391 with 1 standard deviation on either side measuring at 404 and 378. Already in early trading to start the week prices gapped down then went to 377.75 before finding support one level below the point of control. At these point of control levels we believe that clusters of orders can often reside there. Once the price action is able to punch through them quick moves to the next level can happen as there vacuum of volume is present in between those levels.
Soybeans
In spite of wild ride last week May and November Beans finished the week in positive territory finishing up 31 cents and 16.50 cents respectively. The rally in Soybean was reportedly caused by funds loading up on long positions in the Soybean market. The anticipation is that there will probably be some serious weather related damage to the Soybean crop. The USDA is not scheduled to start reporting Soybean planting progress until this week. According to the COT report, managed money only holds 5.5% of the short positions in Soybean. This is the lowest value in 8 1/2 months while at the same time they hold 20% of all long Soybean positions.
The high that was made last week was on point with our projected resistance levels. A move that makes a margin new high this week would not come entirely as a surprise but we are still looking for a decline over the next week or so followed by one more advance that makes what could be a final top leading into the summer months. The managed money has taken a stake in the long side ahead of the planting season that could very well end up being arbitraged out if they are wrong. They seem to believe that the crop will be bad. This notion must be weighed against the current supply and demand narrative that favors weaker prices.
May 2016 Soybean Charts
The high last week was only 0.75 cent past the projected 1034 price objective mentioned last week. The trajectory of the volatility bands are sloped up in a very steep fashion so even though price fell violently from resistance our cycles were looking for a top to happen early to mid-May followed by a decline for about 7 to 10 days with a final rally into the middle of June. What that means for us then is that price could turn back up this week or next week with a marginal break of 1034. Since 1st notice day is this Friday, this contract could come under some rollover pressure.
Last week the two standard deviations levels above our point of control was at 978.25. The high on Tuesday of last week was 978. Last week was a perfect example of what happens when prices break through one of those key levels. Once it broke through the vacuum allowed for a massive run to the upside. As anticipated the 978 level was very important. This week the top end of the point of control is 1004 and it looks to serve as reasonable support this week. Below it price could run down to 911.50.
Grain Market Overview October 11
Read more