Grain Market Overview May 4
May 4, 2016Grain Market Overview May 11
May 11, 2016Commodity Market News May 9
Summary
The Safrinha Corn Crop in Brazil accounts for about 2/3 of their Corn production. Recent adverse weather climate during the month of April continues to leave the country’s Corn crop under duress. The region most affected is the central part of the country. CONAB, Brazil’s National Supply Company, is expected to reduce their Safrinha Corn Crop estimates when their report is released this week.
Last week the BAGE, Buenos Aires Grain Exchange, reported that almost 8% of the Argentine Soybean acreage was damaged by flooding that was caused by heavy rainfall last month in April. The weather was more forgiving last week allowing Argentine farmers to make some progress in their harvesting of the Soybean crop. Last week they harvested 17% of the crop to bring the pace to 41% but that is still well behind the 68% pace from this time last year. The BAGE left their estimates for this week unchanged suggesting that they appropriately accounted for the flood damage in their previous report.
The effects of the Argentine president’s eliminating the export tax on Wheat and Corn have recently been materializing. Farmers are expected to increase their Wheat and Corn acreages for the upcoming growing season. Brazil on the other hand is reducing their Wheat acreage and replacing it with Safrinha Corn.
Politics continue to play big in South America. Recently, the Brazilian President, Dilma Rousseff, offered over 8 billion dollars of low interest loans to farmers. In an effort to gather support ahead of her impeachment vote these loans are targeted at the poorest small and medium sized farmers. Brazil’s interim lower house Chief Waldir Maranhao called for a new vote on the impeachment of President Dilma Rousseff which came as a big surprise to local markets. Maranhao said he annulled the lower house vote last citing procedural irregularities. It is not immediately clear whether the impeachment process can go ahead as planned or whether the Senate now needs to wait for a new vote in the Lower House.
Corn
July Corn dropped 14.25 cents (3.64%) last week finishing at 377.50. The December Contract lost 10.50 cents (2.66%) on the week finishing at 384.75. The supply narrative for domestic Corn continues to be bearish and it is more bearish than that of Soybean. Last week the Corn progress was listed at 45% which is 15% point ahead of the 5 year average. Corn planting progress estimates are in the range of 60-62% for this week which suggested that Corn is hitting the ground significantly earlier than normal. This too is bearish because early plantings often lead to a larger Crop size. Tomorrow's WASDE report should shed some insight on the planted acreage levels. If there is no reduction in the acres planted number we expect to see fund managers making a mad rush to the exits as they could very well find themselves on the wrong side of the next position holdings. If the estimated 93.6 million acres to be planted is correct we would be looking at an all-time record. This would also be consistent with our price action cycle projections calling for continued price pressure over the coming weeks to months. On the commitment of traders report the funds sold 6,000 contracts last week after buying a total of 280,000 contracts the previous 3 weeks. The softness in prices clearly gave them a bit of pause for concern.
July 2016 Corn Charts
The sideways to downward move for the July Corn contract has been consistent with our expectations. In the chart below we had key resistance at the 388.50 level from last week. One of the two key levels of resistance mentioned last week was 396 which ended up being 1 cent above last week's high. The next price threshold for this week is 369. A close below this level would not go over well for prices. You will notice in the recent price action that on the moves down are large ranging bars and the moves up are significantly smaller. Additionally, when we see the inability of more bars in the up direction to eclipse the damage done from fewer bars in the down direction that is a sign that the sellers are in control. Until that changes we are not comfortable recommending longs.
One standard deviation below the point of control is 389.75. This is the breaking level for July Corn last week and a close below 369 should send prices to 362.50 at a minimum. Last week we shared that if the contract closed below 390.50 last week that a minimum price objective of 362.50 is probable. It appears that we are well on our way there.
December 2016 Corn Charts
The December Corn contract moved up into the April 26th timeline traded sideways a bit and has since declined as anticipated. Last week's close of 384.75 was below the 385.75 level of significance that we were looking for. Our minimum price objective of 376 appears to be very probable and we are now looking at the next target of 366.50.
The point of control once again remained at 391. One standard deviation on either side is measuring at 403.50 and 378.75 We did not get a close below 378.25 last week but if it is in the cards for this week a move to 364 is thereby likely. Given the way that price is moving ahead of the WASDE report, the market might be bracing for some bearish news.
Soybeans
July Beans rose 5 cents (0.49%) last week which was its lowest weekly gain over the last 4 weeks. If it is able to close below last week's low of 1008.50 this week that would stand as confirmation that the near-term advance is exhausted. The November contract netted out a solid 14.25 cent (1.41%) with a weekly low of 997. Soybean was on steady upward mark for all of March and April. The commitment of traders report showed the funds continued to add to their longs buying up another 12,000 contracts last week situating them at a net long position of 157,000 contracts. Soybean export inspections did come in surprisingly low at 151k tons which was the lowest for the marking year to date. The planting progress is 8% complete with the five year average at 6% so the planting is moving along quite well. The USDA report that is scheduled for tomorrow could be a game changer. Our market cycle projections are calling for a tip this week followed by a decline for about 1-2 weeks followed by one final top in the middle of June before heading down into the summer months. So far the cycles seem to be operation well so will be on alert for tomorrow's report findings.
July 2016 Soybean Charts
On Thursday of last week July Beans traded below the 1028 to 1043.75 containment zone but returned to it on Friday. In early trading today it finds itself below it again and it appears that Beans may be a bit exhausted. Confirmation of weakness would become apparent if prices were to breach 999.25. In the event of a break down price support could very well manifest in the area of 957.50 to 967.00. After tomorrow's report the next important time line is May 23rd.
November 2016 Soybean Charts
The November contract has been moving inside of a tighter consolidative move. The daily close remained inside 360 and 90 degree support and resistance levels. The low of the week was 997 coming within 7 cents of what was anticipated support. The price level of 990 continues to be important support and trading below could put a scare in market participates that are net long.
Wheat
July Wheat was the recipient of quite the bashing last week. It dropped 24.75 cent (5.07%). From the very start the HRW Wheat Tour was showing very strong numbers. On the 1st day, the average yield came in at 47.2 bpa. Last year's day 1 figure was 34.3 bpa and the 5 year average is 41.2. Clearly eclipsing both numbers Wheat remained under pressure all week. The results from the 2nd day were even stronger at 49.3 bpa setting the stage for prices to move down as we had been suggesting at for weeks now.July 2016 Wheat Charts
The July Wheat contract had a 180 degree resistance level at the 487 (close to the point of control level of 482.50) last week and this ended up being the line in the sand demarcation threshold. Volatility based resistance was at 491 where the high of the week of 492.75 was held in check. It finished the week at 463.75 which was in line with our minimum price objective of 465.25. This week we are anticipating continued weakness with the next price target for support sitting at 445.
Crude Oil
The monopolistic merger on the part of Haliburton and Baker Hughes has apparently hit a brick wall. The justice department stepped in highlighting concerns that it had about the acquisition outlined in lawsuit that it filed against Value Act Capital, a hedge fund that had bought more than $2.5 billion in stock of Halliburton and Baker Hughes. Haliburton and Baker Hughes denied any false doing in joint statement.
Saudi Arabian Oil Minister of 20 years Ali al-Naimi, the architect of the 2014 switch in OPEC policy that's since decimated the energy market, companies and the entire economies in some countries, is leaving his post. Khalid Al-Falih, chairman of Saudi Arabian Oil Co., the state-owned producer, will replace him as minister of energy, industry and mineral resources.
The departure of al-Naimi, who for years could move markets just by uttering a few words (similar to what former Fed Chair Alan Greenspan did during his stent to the US markets), is the latest sign of how the country's young Deputy Crown Prince Mohammed bin Salman is stamping his authority over oil policy. Khalid Al-Falih, chairman of Saudi Arabian Oil Co., the state-owned producer, will replace him as minister of energy, industry and mineral resources. Al-Falih is known to be close to King Salman and to Prince Mohammed.
Grain Market Overview October 11
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