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Morning Market Review for November 21, 2017

Big harvest sits heavy on grain prices. (Comments are updated by 7:30 a.m. Central Time.)

Overnight trade:

Corn: Down 1

Soybeans: Down 1 to 2

Wheat: Mixed

As crop progress inches forward, prices inch downward 

Grain futures slipped overnight as markets contemplate record or near-record corn and soybean harvests. Monday’s USDA Crop Progress report, issued after that session closed, showed U.S. harvest rapidly nearing the finish line.

Farmers reporting Feedback From The Field  last week posted average yields that edged lower as rain hampered harvest in some areas. Corn yields are averaging 172.1 bushels per acre for November, 3.3 bpa lower than USDA’s Nov. 9 estimate. Soybeans are at 50.5 bpa, 1 bpa higher than USDA. Let us know what your yield estimates are by clicking the link. 

Foreign markets were flat to lower, mostly on stress over Germany possibly walking away from a three-party coalition in favor of more uncertain “fresh elections.” Energy prices were mixed but mostly higher overnight. Crude oil continues to trade over $56 per barrel. The dollar also firmed inconsequently overnight (+0.02%).

 

Corn prices continued to make small adjustments downward overnight. With nearly all the 2017 U.S. harvest complete, markets await to see just how large the crop will be. Earlier November estimates from USDA pegged average yields at 175.4 bpa, which would be the highest per-acre production on record.

USDA said 90% of the corn crop is harvested, down 5% from the five-year average. Harvest is ahead of normal only in Tennessee, with Wisconsin the further behind.

According to maps for the next week, the upper third of the U.S. is the most likely to get some light precipitation over the next five to seven days – with the exception of the Pacific Northwest, which could get a dump of more than 10” in some isolated locations. Areas including the eastern Corn Belt and upper Midwest will see less than 0.5”, meantime. 

Official 6- to 10 and 8- to 14-day forecasts out yesterday show wetter, warmer than normal weather will be likely during this time for the northern two-thirds of the country. The latest updates this morning reinforce this forecast. 

Export inspections last week of 24.9 million bushels were in line with trade guesses but fell well short of the weekly rate needed for the rest of the marketing year to reach USDA forecast for the 2017 crop. Year-to-date inspections are down 56%, while USDA forecasts only a 12% drop in total sales.

The preliminary report from the CBOT had futures volume

Funds were fairly active buyers on Monday, covering more of their big short position late.

123,040 of the volume in corn was done in the December-March spread as traders continue to liquidate the December ahead of first notice day next week.

Options volume was down moderately from Monday, with 72,738 contracts, which were slightly tilted in favor of calls (38,510) versus puts (34,228).

Implied volatility Monday slipped almost 2% to 14.07 ahead of December options expiration on Friday. 

Overseas markets were mixed, with January futures on the Dalian Exchange in China up just a fraction of a percentage, while March futures in Paris were fractionally lower (less than 0.25%).

Bottom line: Look for corn to complete its cycle low and begin to strengthen seasonally on tight farmer holding. But the upside looks limited due to large supplies. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans made another small round of downward price adjustments overnight, as healthy export demand couldn’t override Monday afternoon news of a U.S. harvest nearing completion without any major hang-ups.

Soybean harvest wrapped up across the northwest part of the growing region but remains slower than average in most eastern states. USDA put the average at 96%, 1% behind the five-year average.

Export inspections Monday were down only slightly to 78.3 million bushels, more than twice the rate needed every week through Aug. 31 to meet USDA’s forecast for the 2017 crop. Still, soybean trade in normally front-loaded in the first half of the year and total inspections so far are around 100 million bushels short of last year’s pace, even though USDA forecasts a 5% increase for the crop. 

Soybean oil futures in Chicago overnight were slightly higher (+0.16 to +0.17). January futures for palm oil in Malaysia were down slightly (less than 0.5%), and January soybean oil futures in China were flat.

January soybean futures in China were also flat to down slightly, with February rapeseed prices in Paris down fractionally. January canola in Winnipeg held on for small gains of around 0.2%. 

The preliminary report from the CBOT showed daily futures volume cooled moderately down to 141,367 contracts. Options totaled 35,861, split fairly evenly between calls (18,904) and puts (16,957). 

Light fund short covering was noted on the close Monday.

Implied volatility was another 3% Monday to 13.33.

Bottom line: Soybeans face a test now to see if funds will flee or double down on bullish bets. South American weather and Chinese demand remain key to getting prices back to profitable levels, but sales likely will have to be made with futures or HTAs due to weak basis, with put options another alternative. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices traded narrowly overnight, with mixed results. Chicago SRW prices were flat, Kansas City HRW prices were down slightly, and MGEX Spring Wheat prices were up slightly. Record global stocks continue to put a cap on potential gains. 

Wheat ratings slipped again last week, though the decline in potential yields was fairly small, just .15 of 1 bpa overall according to our models of production based on these condition reports. Projected yields ranged from 47 bpa to 50.3 depending on the model. Losses were noted across most of the central and southern Plains for hard red winter wheat, with yields for soft red winter wheat also slipping in the eastern Midwest.

Export inspections last week were disappointing at only 9.5 million bushels, at the low end of trade guesses and less than half the week rate needed to reach USDA’s forecast for the 2017 crop. Year-to-date inspections are down 7% while the agency predicts a 2% increase for the entire marketing year.

In overseas markets, January futures for Eastern Australian Wheat were flat, and March futures in Paris morning trade were down fractionally.

Funds were modest sellers of wheat yesterday,

Volume in soft red winter wheat rebounded slightly from Monday, with 157,734 contracts. Options volume landed at 22,002, tilted in favor of calls (12,669) versus puts (9,333)

Implied volatility eased another 1% to 17.82. 

Volume in hard red winter wheat bounced back to 52,721, with 11,677 of the volume was done in the December-March HRW spread. Open interest also landed 1,879 higher.

Bottom line: Can wheat mount a rally finally? Maybe, but limit risk to new crop now. 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.

 

Explanation of pivot points. 

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This information is not to be construed as an offer to sell or a solicitation or an offer to buy the commodities herein named. The factual information of this report has been obtained from sources believed to be reliable, but is not necessarily all-inclusive and is not guaranteed as to the accuracy, and is not to be construed as representation. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.
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