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Morning Market Review for Sept 18, 2018

Corn, soybeans search for bottom. (Comments are updated by 7:30 a.m. Central Time.)

Overnight Trends

Corn: Down 1
Soybeans: Down 2
Wheat: Up 5 to 6 

New contract lows bring buyers to market

Grain futures are mixed this morning following a quiet overnight session. While grain markets focused on world production and demand, investors shrugged off new U.S. tariffs on China.

The new sanctions on $200 billion of Chinese products excludes some consumer items and go into effect Sept. 24 in stages – 10% initially, rising to 25% at the end of the year. While China has vowed to retaliate, no official word yet has hit the wires on its new measures or the status of the attempt to restart trade talks between the two countries. 

Stocks moved higher in Asia and Europe, with Wall Street poised to recover some of yesterday’s losses. The dollar is firm but so is gold, while crude oil flirted with $70 overnight as sanctions on Iran are already reducing its exports.

 

Corn prices are trying to hold after December futures slipped to new contract lows late in the overnight session. The market couldn’t hold an attempt to firm in Asian trade before grinding lower, leaving next support at $3.45 if lows don’t hold.

Monday’s Crop Progress report provided the first glimpse of potential damage from Hurricane Florence, cutting ratings and taking around six bushels per acre off the state’s corn yield. That helped dent the nationwide crop rating slightly.

Crop development remains ahead of normal after a dry week in the Midwest. USDA said 54% of the crop is mature, 18% of normal, with 9% harvested, 3% above the five-year average. 

However, early harvest progress could grind to a halt in many areas over the next week. A system moving through the upper Mississippi River Valley this morning will be joined by another one later, part of a shift to wetter conditions that continue in the official 6 to 10 and 8 to 14-day forecasts out yesterday and the morning updates from the ensemble model.

Farmers reporting Feedback From The Field yesterday reported widely variable conditions. “Lots of completely dead corn here,” said a grower in Ohio hurt by too much rain. But in Kentucky another producer was expecting yields of 210 bushels per acre, noting “Early corn a little better than expected.” 

A farmer in southern Illinois had both results, saying “all the rain we needed, maybe more allowed crops to reach potential other than drowned out spots.” 

What’s happening in your fields? Let us know by clicking this link to enter your data and comments and check out the latest reports by scrolling down to our updated interactive map.

Export inspections last week were in line with expectations at 40.6 million bushels, though that was around 5 million less than the rate needed to reach USDA’s aggressive forecast for the 2018 crop. But demand got a setback from news ethanol plants were being shut in the face of weak margins caused by the lowest prices for the biofuel since the boom began.

Overseas markets were firm today. January futures in Chinagained a half cent to $6.982 and November Paris futures in midday trade are up 1.5 cents to $5.261 after adjustments for volumes and currencies. 

The preliminary report from the CBOT showed daily futures volume up 9% yesterday at 250,078 with active new fund selling adding 9,329 to open interest. Options volume was up 34% to 81,138, 56% of it calls as traders added December calls and rolled down December puts. Implied volatility in at-the-money December calls fell to 15.96.

Bottom line:The market may need time to absorb the shock of record yields. If demand holds up, the market could be poised for a modest post-harvest rally, and higher prices will be needed to convince farmers to expand production in 2019. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans are posting modest losses but that was enough to take November futures to new contract lows overnight after light gains in Asia failed to hold.

Crop ratings slipped overall nationwide last week as Hurricane Florence cut nearly 2 bushels per acre off our estimate of production in North Carolina. Coupled with a pullback in conditions noted in last week’s Vegetation Health Index maps it suggests yield estimates from USDA may have peaked for the season. 

USDA also said 53% of the crop was dropping leaves, compared to the five-year average of 36%, with 6% harvested, twice the normal rate.

USDA reported the sale of 8.85 million bushels to unknown destinations under its daily reporting system for large purchases. But export inspections last week fell to 28.8 million bushels, more than 10 million below the rate forecast by USDA for the 2018 crop. August crush reported by members of the National Oilseed Processors Association was also below trade guesses, but in line with USDA’s forecast for the 2017 crop. 

The preliminary report from the CBOT put daily futures volume down 7% Monday to 124,175 with light new fund selling adding 5,451 to open interest. Options volume rose 67% but was still tin at 45,141, 51% of it calls as traders added November $8 and $8.20 puts. Implied volatility in at-the-money November calls fell to 17.90. 

Vegetable oil prices in Asia were lower today. November palm oil futures in Malaysia lost nearly a half cent to 23.84 cents per pound and January soybean oil futures in China slipped to 38.639 cents.

Oilseed markets were mixed. January futures in China were up nearly a dime to $6.87, but November rapeseed futures in Paris midday trade are down 6.6 cents to $6.698 and November futures Winnipeg canola overnight fell 2.3 cents to $8.492 after adjustments for volumes and currencies.

Bottom line: Soybean supplies should start shrinking eventually unless the market begins to offer growers a profit. For now, start running the numbers to see if good yields, existing sales and “Sonny Money” is enough to secure a profit on 2018 production. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices are starting to gain a little traction as winter wheat contracts try to bounce back from Monday’s disappointing reversal lower. Minneapolis held up better, buoyed by droughts in northern Europe and Australia.

Harvest of spring wheat is all but complete at 97%, while winter wheat planted advanced to 13%, 1% behind the five-year average according to Monday’s Crop Progress report.

Egypt releases results of another tender today, with most of its purchases lately coming from Russia. Export inspections slipped to 14.9 million bushels, well below the rate forecast by USDA for the 2018 crop. Year-to-date inspections are down 30% while the government projects a 24% increase for the entire marking year.

Overseas markets were higher today. January futures for Eastern Australian Wheat jumped another 14.7 cents to post new contract highs, closing at $8.66 as forecasts remain dry over the next two weeks. December futures in Paris midday trade are up 2 cents to $6.333 after adjustments for volumes and currencies.

Volume in soft red winter wheat was 22% lower Monday at 122,435 while open interest rose only 1,101 despite modest new fund selling. HRW volume fell 23% to 32,354 on open interest that rose only 26 contracts.

SRW options volume was down 7% at 34,282, 74% of it calls as traders liquidated March $6 and $7 calls.Implied volatility in at-the-money December calls moved fell to 23.42. 

Bottom line:The logic for a wheat rally depends on global supply and demand. Without problems seeding the 2019 crop, rallies could become more difficult with larger than expected Russian production. 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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