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Morning Market Review for January 22, 2018

Soybeans try to extend counter-seasonal rally. (Comments are updated by 7:30 a.m. Central Time.)

Overnight Trends:
Corn:
 Up 1 to 2
Soybeans: Up 6 to 8
Wheat: Up 2 to 4

Chart tests loom as markets ponder government shutdown

Grain futures are higher this morning, led by a soybean market gaining traction on weather concerns and short covering. With most federal government offices expected to be closed today by the budget stalemate in Washington, USDA likely won’t issue its regular Export Inspections data at 10 a.m. CST. 

The shutdown could trigger some profit taking on Wall Street. Stocks traded mostly higher in Asia before locking in gains on European exchanges, but U.S. index futures point to a lower open in New York. 

The dollar is a bit weaker on the shutdown, supporting gold but crude oil is little changed. Money managers added nearly $2.7 billion to their record long position in crude last week, taking it to a new all-time high for a second straight week. But big speculators sold crops again, according to Friday’s Commitment of Traders, though short-covering rally helped turn that trend around later in the week.

 

Corn prices are following soybeans higher in a quiet overnight session that kept futures to a range of just a penny overnight. March is trying to confirm a move above the 50-day moving average while testing the top of the trading range for the past six weeks. 

South Korean feed mills bought around 10 million bushels last week, though the shipments could come from the U.S. or South America. Weekly export sales reported Friday surged to an impressive 74.4 million bushels, the second highest total of the marketing year. Basis also strengthened in the export pipeline last week as transportation costs eased, suggesting a pickup in shipments could also be on the horizon. Rains moving through the Midwest should help raise river levels as well, alleviating some concerns about low water. 

Overseas markets were mixed today. May futures on the Dalian Exchange in China lost 1.6 cents to $7.131 and March futures in Paris were up a like amount to $4.743 after adjustments for volumes and currencies.

Big speculators added 4,947 contracts to their net short position in corn as of Tuesday, but started buying after the Martin Luther King Jr. Day observance.

The preliminary report from the CBOT showed daily futures volume down 20% on Friday to 238,701 though open interest rose 11,563 despite light fund short covering. Options volume rose by a third to 75,552, 68% of it calls with new interest noted in the September $4 and $4.40 calls, as traders liquidated December $3.50 puts and added $4 calls. Implied volatility fell less than 1% to 11.30. 

Bottom line: Supplies are big and corn could struggle into February before the market starts to focus on acreage and the size of the Brazilian crop. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans are higher, with buying picking up in Europe after the market in Asia was soft. March futures are testing the 50% retracement of their selloff from December highs, with the next target another dime higher if gains can hold.

Dry weather is sparking more short covering after a dry weekend in Argentina. Maps for the next two weeks continue to limit rains to the northern part of the growing region with key central areas dry. Brazil could see additional storms delay the early harvest in the center-west as well.

Export sales last week improved to 56.2 million bushels, including 45.6 million bushels of old crop, easily beating the weekly rate forecast by USDA for the 2017 crop. Still, year-to-date commitments are below the government’s forecast. Average soybean basis eased last week as the rally on the board bought a few bushels.

Asian vegetable oil markets rallied today on hopes for a seasonal rally. May futures for palm oil in Malaysia gained a third of a cent to 28.62 cents per pound and May soybean oil futures in China moved higher to 40.531 cents. 

Oilseed prices internationally were mixed. May soybean futures in China lost 10.2 cents to $15.012, February rapeseed futures in Paris were up 3.5 cents to $9.626 and March canola futures in Winnipeg gained 1.3 cents to $9.032. Note: International prices are converted to bushel or pound equivalents after conversions for currencies. 

Big speculators sold the soy complex across the board last week, but started buying back some of those bearish bets after the Jan. 12 USDA reports. 

The preliminary report from the CBOT showed daily futures volume 47% higher Friday to 175,165 with modest fund short covering taking 4,377 off open interest. Options volume almost doubled to 86,873 contracts, 69% of them calls as traders rolled up March $10 calls and added February calls that expire on Friday. Implied volatility in options jumped 8.5% to 11.78.

Bottom line: Use this counter-seasonal rally to wrap of 2017 sales and get started on 2018. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices are posting modest gains today, getting a lift from the rally in beans and forecasts for more dry weather this week on the southern Plains. 

Export sales came in at only 7 million bushels, and 1.4 million of that was for delivery in the 2018 crop marketing year. Still basis for hard red winter wheat firmed in the export pipeline firmed, though spring wheat bids eased after USDA forecast lower exports of high protein grain.

Overseas markets also showed a positive tone today. March futures for Eastern Australian Wheat were up 6.5 cents to $5.663 and March futures in Paris morning trade gained a penny to $5.188 after adjustments for volumes and currencies.

Big speculators had a mixed record in wheat according to Friday’s Commitment of Traders, adding sales to their bearish bets in soft red winter wheat but covering some of their shorts in hard.

Preliminary volume in soft red winter wheat fell 20% to 68,268 with light new fund selling adding 2,508 to open interest. Options volume was down by a half to 19,622, 56% of it calls though new interest was noted in the May $4.10 put. Implied volatility fell nearly 5% to 15.79. 

Volume in hard red winter wheat winter wheat rose 17% to 37,996 on open interest that was up 3,917. 

Bottom line: Wheat typically loses ground after the January reports and appears to be following that trend this year. 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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