Rose on Grain

March 3, 2019 5:07 pm
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Corn:

CME May corn futures gave up 11½ cents on the week, settling at 373.  Last weekend our proprietary models (timely predictions published in our complete weekly report) predicted a finish on the week that would be near unchanged to lower, which resulted in a significant weekly gain.

CME corn futures traded lower on diving wheat futures, weak ethanol margins, poor domestic transportation logistics, slow producer selling and increasing estimates of safrinha production in Brazil and overall production estimates from Argentina.  A target insurance price (USDA-RMA) of approximately 400, base Dec may also have contributed to last week’s market weakness.

US net export sales and shipments for the week ending Feb 21 were approximately 49M and 30M bu, respectively.  Sales remained ahead of the average weekly pace required to match the USDA’s export expectation while shipments continued to fail to meet the pace requirement.

Domestically, it either is or will soon be time to plant corn across the southern US, and excessively wet to saturated soils could translate into lower than originally planned corn acreage.

Internationally, private estimates of safrinha production in Brazil are moving higher, as are public and private estimates of this season’s production in Argentina.  Brazil’s safrinha production is expected to be 21% higher Vs 2018.  Weather conditions across South America are expected to be mostly favorable for corn production this week.

CFTC weekly Commitments of Traders data for the week ending Feb 19 (futures only) showed that the trade mostly added shorts; managed money firms also mostly initiated shorts.  The reported aggregate trade position was approximately 900M bu net short while managed money entities held a net short position of around 518M bu.

For this week, the standard weekly technical analysis for and money flow into the May contract remain bearish.  Market participants will likely continue to closely watch South American weather and production estimates; however, it will likely be the weekly US export data release (Thursday) and the Mar WASDE report (Friday) that have the greatest effect on all CME grains and oilseeds this week.  Slow producer selling and the potential for spec short-covering could cause the market to spike over the near-term.

Soybeans:

CME May soybean futures gave up 12¼ cents last week, settling at 911½.  Last weekend our proprietary models predicted a finish on the week that would be near unchanged to higher, which proved to be incorrect.  However, we did outline the caveats of being long CME soybeans in last week’s report.

CME futures moved lower last week in sympathy with the grains, the continued lack of a formal trade accord with China, slow producer selling a reduced competitiveness of US stocks for export.  These factors are in addition to official S&D balance sheets that are far from constructive.

US net export sales and shipments for the week ending Feb 21 were approximately 81M and 83M bu, respectively.  Both sales and shipments were ahead of the pace required to meet the USDA’s latest export projection.

Internationally, private estimates of production in Brazil are stabilizing while both public and private estimates of Argentinian production are moving somewhat higher.  Brazilian offers at the Gulf were significantly lower than were US offers last week.

CFTC weekly Commitments of Traders data for the week ending Feb 19 (futures only) showed that the trade mostly covered short positions while managed money firms mostly added shorts.  The aggregate trade position was reduced to approximately 84M bu net short while managed money entities flipped their aggregate net long position to a net short of around 190M bu.

For this week, technical analysis for the May contract remains supportive while money flow remains bearish.  The market will, no doubt, continue to closely watch US-China trade talks and firming estimates of South American production.  However, it will likely be fresh USDA data and projections that have the greatest effect on this week’s trading action.  As with corn, slow producer selling and the potential for spec short-covering could cause market spikes over the near-term.  News regarding US-China trade negotiations could also have a significant effect on the week’s trading action.

CME Wheat:

CME SRW May futures lost 34½ cents on the week, settling at 457¼.  Last weekend our proprietary models, which have been quite good over the long-term, predicted a finish on the week that would be near unchanged to higher, which proved to be disappointingly incorrect.  CME SRW futures are now trading at a level at which we have long expected prices to find staunch support.

Trading action last week was framed by technical selling and stop orders on a break from the market’s long-term consolidation range.  Bearish USDA domestic and aggregate world S&D balance sheets continue to apply drag to CME futures.  Poor transportation logistics across the US and slow producer selling were also contributing factors to the market’s downward spiral.

Domestically, another round of arctic air poses a threat to the US winter wheat crop – especially across the Plains – while an increase in the variable storage rate is providing greater incentive to store wheat.

Internationally, prices for Russian stocks for exports have continued to move lower, which is yet another bearish factor for CME futures. However, US merchants now possess the ability to competitively offer domestic wheat against international tenders.

US all wheat net export sales and shipments for the week ending Feb 21 were approximately 18M and 24M bu, respectively.  Sales were again ahead of the weekly pace required to match the USDA’s projection while shipments continued to fall well short of the pace requirement.

CFTC weekly Commitments of Traders data for the week ending Feb 19 (SRW futures only) showed that the trade mostly initiated longs, trimming its aggregate net short position to approximately 229M bu.  Managed money firms mostly initiated shorts, increasing their aggregate net short position to approximately 238M bu.

For this week, the standard weekly technical analysis for and money flow into the Mar contract remain bearish, with the market now in an extremely oversold condition.  The market is currently trading at verifiable level of relatively strong support.  CME wheat futures may find some support this week on the market’s oversold condition, increased competitiveness of US stocks for export and the potential for spec short-covering.  However, we think that the Mar WASDE report is likely to show an increased to expected domestic carryout via a reduction in the USDA’s export projection.

Have a great week!

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This post was written by Louis Rose