Commodity Market News June 14

Grain Market Overview June 8
June 8, 2016
Grain Market Overview June 15
June 15, 2016
Grain Market Overview June 8
June 8, 2016
Grain Market Overview June 15
June 15, 2016

Commodity Market News June 14

Summary

The USDA WASDE report was released on Friday June 10th and one of the questions that often comes up is why the Agricultural futures price action did not move commensurate to the data that was released. More than ever before it is important to acknowledge that prices are derived from a function of “Supply and Demand” filtered through the lens of “Money Flow”. On January 20th of this year Crude Oil put in a capitulation low followed by a higher low on February 11th that retraced 78.6% (a Fibonacci harmonic retracement). The major bottom that formed has emerged to become the stake that has turned Money Flow in the CRB Index positive. The last big low that was made by the CRB Index in September last year was a key demarcation point for money flow sentiment. The Index was able to stabalize over that level in mid to late Februrary. In retrospect, we believe Managed Money began building their net position in early March. Crude Oil is a large component of the CRB Index. The strength in Crude is largely responsible for carrying the Index higher.

Research shows that there is a close correlation between Fund buying interest in the Grain Sector with that of the broader Commodity Sector buying. Because of that we must continue to pay attention to the trail of bread crumbs left behind by Managed Money. Additionally, It is important to note that Funds do not build or adjust positions based off of what is happening at the current time. Instead they take action based off of what they anticipate may happen. The CRB Index has clearly been moving up all year long but the filter through which we watch the markets that starts with Money Flow and technical analysis helps us to better understand and interpret the “Supply and Demand” narrative. We are currently in the midst of a transition year moving from El Nino to La Nina. The standing sentiment weather forecasts suggest that Managed Money is anticipating weather events this summer in the Midwest. Vulnerability to the Corn or Soybean crops will in all likelihood have a direct correlation to when and if La Nina impacts the US planting and growing regions this summer.

The first three days of this week are reserved for the Federal Reserve’s FOMC meetings. On Wednesday Yellen will take the mic but it will also be important to take note of the position of the other voting members. Rumor is circulating that the Fed may actually cut rates later in the year but that is shear speculation at this point. Our focus will now shift to the June 30th USDA Acreage and Stocks report. This report has a history of releasing surprise numbers. There is varying opinions in the trade regarding Soybean and Corn Acreage projections which is setting up as a potential turning point for the Grain markets.

Going forward the driving factor in price will in all likelihood be ending yields. What happens with the weather over the next few months is very important. Soybean is perhaps more inclined to having a tighter balance sheet than Corn if weather does prove to be a factor this summer.

Corn

US Planted Acres, Harvested Acres and Crop Yield were unchanged for both the old and new Corn Crop. Total Supply was up 5 million bushels for Old Crop and down 95 million bushels for the New Crop. Ending Stocks were reduced down to 1.708 billion bushels for the old crop (a change of -95 million bushels) meanwhile the new crop ending stocks shaved off 145 million bushels bringing it down to 2.008 billion bushels. Exports were up 100 million and 50 million respectively for the Old and New Crop.

CONAB reduced the Brazilian 2015-16 Corn crop to 77.5 MMT versus 81 MMT the previous month. The Argentine Corn crop remained unchanged at 27 MMT. CONAB estimated the Brazilian Corn crop below the USDA forecast coming in at 76.22 MMT. July Corn was up 4.76 cents last week (1.14%) and December Corn was up 11 cents (2.62%). We are looking for Corn to continue up to sideways through the end of the month. Once the top is in we are looking for a decline that moves down until August 1st.

Soybean

US Planted Acres, Harvested Acres and Crop Yield were unchanged for both the old and new Soybean Crop. Total supply was unchanged for the Old Crop but down 30 million bushels for the New Crop. Exports were up 20 million and 15 million respectively. Ending Stocks were down 30 million from 400 to 370 million for the Old Crop and down 45 million from 305 to 260 million bushels for the New Crop. The most important change in the WASDE report was perhaps a reduction of the Brazilian Soybean crop. The USDA estimated the Brazilian 2015-16 Soybean crop will be 97 Million Metric Tons (MMT) which is down 2 MMT from the previous report. The Argentine Soybean crop for 2015-16 was unchanged from last month. The Brazilian government’s CONAB reduced their forecast for their Soybean crop to 95.63 MMT below the USDA forecast.

The Soybean planting is 83% complete, well ahead of schedule. The CFTC COT report was very close to unchanged with funds holding very little short positions. The USDA Soybean crop condition for the top three categories Excellent, Good and Fair total is at 96%. July Beans was up 46.25 cents (4.09%) on the week and November Beans rose 77.50 cents (7.14%). Weather permitting Beans could put in a major top this week.

All Wheat

Planted Acres & Harvested Acres were unchanged for both Wheat crops. Crop Yields were unchanged for the old and up 1.9 million bushels for the new Wheat crop. Total Supply was down 3 million bushels for the old crop and up 76 million bushels for the new corp. Old crop exports were down 5 million bushels and up 25 million bushels for the new crop. Ending Stock came in at 980 (up 2 million) for the old crop and 1.050 billion (up 21 million) for the new crop. Massive supply caused Wheat to drag after the report last week and it has been part of the reason why Corn has not rallied more in line with Soybeans strength.

July 2016 Corn Charts

The high last week came in a 439.25 before finishing the week at 431.25 in line with projected resistance which was in the range of 429 to 433.50. The contract may find difficulty getting much higher than 450 before coming off the board in just over a week. On Thursday of last week this contract saw its 2nd highest volume for the life of this contract, 2nd to the volume on April 22nd. This is perhaps indicative of spreads unwinding and contract rolls to the next contract. The key levels for this week are 450 overhead and 415.50 below. It is reasonable to see price trade inside this range this week.

The key price target/resistance price level from last week was 433.50 which was very close to the 432.75 point of control level. Price was not able to close above 433.50 last week so we will once again look to that price level at a precursor to being able to make it to 450. We also have volatility based resistance at 439.50.

December 2016 Corn Charts

The December contract was halted by volatility based resistance between 429.50 and 437.75. Additional overhead resistance at the 180 degree mark of 447 look to be the important level of the week. Price initially moved upon the release of the WASDE report but price gains were not sustained. As suggest last week the window of 447 to 450 looks to establish itself as a very important demarcation threshold. Below it look for continued weakness and above look for strength.

December Corn started the week in a stronger position. It finished the week above the 420 point of control and now the 1 level above sits at 453.50. If this contract is able to get some legs two potential terminal levels would be either 453.50 or 510. We are inclined to anticipate that this contract will have a bit of a challenge getting past 455. Below the point of control we have support at 386 for it’s 1st line defense.

July 2016 Soybean Charts

July Beans initial brush at the natural time and price resistance line has proven to be reliable resistance. Today that price level sits at about 1191.75. The USDA and CONAB reports have come and gone but prices have not been moving up as one would have expected in response to the report. The reality is that much of the premium may have already been priced in so it is important to look at the price action with the appropriate filter. Managed Money is very long but at the same time is capable to getting out and protecting profits very quickly. Key overhead resistance is at 1212.25 and 1230. Downside support is at 1043.75 then at 1110.

We were calling for a potential top in Beans to happen on Friday of last week or early this week. Price has been having a tough time today but that is not enough to confirm that a top is in. The big advance from last week has caused the point of control levels to re-align since the measurement takes into consideration volume at price each week. Downside support at 1113 is consistent with the 360 degree level at 1110 above.

November 2016 Soybean Charts

Resistance at 1187.75 (180 degree mark) is key to this contract getting traction higher. It is quite reasonable to anticipate that managed money is hedging their gains at the current levels. They know all too well that prices can go south on them very quickly especially given the backdrop of the supply and demand narrative. At the same time they also will want to participate in continued gains if price is able to keep rallying. A break of 1119 this week would indicate some near term weakness.

Resistance for the week is at 1185. The top range of the point of control is at 1153. Breaking below 1153 could point to a move down to 1042 at a minimum. We are still early in the week and the trade is still digesting the recent USDA report. As far as possible bull or bear scenarios are concerned, we believe that this contract will probably not get much lower than 850 to higher than 1250 prior to coming off the board.

July 2016 Wheat Charts

Last week we warned that the high that was made on April 21st was 518.50 would be a key spot to watch. The high came in at 524 with a close at 519.50. From there price has moved lower breaking back below 500. The supply narrative continues to be the key for Wheat and it has found some strength because the commodity complex has pulled it along. Serving as an alternative to Corn feed it has kept the Corn from really running like Soybeans. The levels to watch this week are 487 and 504.
As anticipated last week, the natural downward sloping resistance angle was in fact reasonable resistance upon its first approach. The secondary support and resistance levels for the week would fall at 514.50 and 482.50.

July 2016 Crude Oil

The rig count was up for the 2nd straight week but only for the 3rd time this year. Production interruptions in Nigeria from militants remain a threat but that has not been enough to push prices into positive territory early in the week. Crude is at key resistance so the technicals are winning the battle for now. As long as price holds above 47.50 or so we believe that price still stands to make a run up to about 56 if not on this contract then on the August contract prior to making a significant top.