Rose on Grain – CME Grains Move Lower on the Week, US – China Trade Deal Looks Unlikely
Louis W. Rose IV
Corn:
CME Dec corn futures lost 15 cents on the week to finish at 409½. 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 higher, which proved to be incorrect.
CME futures continued to move lower on extended very weak US export business, continued slowing ethanol demand and (likely) further spec profit-taking. Improving weather conditions across major US producing regions and strength in US currency – despite a 0.25% Fed interest rate reduction – also weighed on prices.
Net export sales and shipments against 2018/19 were higher Vs the previous sales period but remained very disappointing at approximately 6M and 28M bu, respectively. Both sales and shipments were well off the average weekly pace required to match the USDA’s latest export projection. The US is 94% committed and 86% shipped Vs the USDA’s most recent target.
Domestically, showers are expected across most US producing regions this week, with rainfall totals mostly expected to be relatively heavy across some areas. Friends north of the Mason-Dixon line tell us that this season’s crop remains woefully behind schedule. Across most areas, the southern crop remains well off its average development pace, although we hear that corn in southern MS and LA has begun to be harvested. Speculation abounds regarding significant reductions in both projected USDA yield and planted area in the Aug WASDE report, but slowing ethanol demand and a likely debit to the 2018/19 export estimate (Aug WASDE) remain bearish factors.
The corn crop across the northern Mississippi River Delta ranges from very good to quite poor. We expected prevented plant acreage to increase significantly to notably on Aug 12 Vs the USDAs late June estimate.
Internationally, the safrinha harvest across South American yield reports continue to propel production estimates higher. Harvest pressure, particularly across Brazil, have rendered US stocks uncompetitive on the export market at recent market highs. A resurgence of the heat wave across the EU reportedly continues to do damage to the European crop, with a significant portion of the German crop now expected to be cut for silage.
CFTC Commitments of Traders data for the week ending July 30 (futures only) showed that the trade trimmed their aggregate net short position to around 2.4B bu while money firms reduced their aggregate net long position to around 530M bu.
For an in-depth analysis of CFCT data see our weekly CFTC analysis and commentary.
For this week, the standard technical analysis for the Dec contract is effectively neutral while money flow has turned bearish. Market participants will continue to monitor US weather and crop condition ratings and export and ethanol data while awaiting the USDA’s updated planted acreage estimate and WASDE report, scheduled for release on Aug 12. Some position paring should be expected ahead of the report next week.
Soybeans:
CME July soybean futures lost 32½ cents on the week, settling at 868½. Last weekend our proprietary models predicted a finish on the week that would be near unchanged to higher, which also proved to be correct.
CME futures moved lower on many of the same factors that affected the corn market, including weak export data. However, the intensifying trade spat with China had, of course, an amplified effect on CME soybean futures Vs small grains.
On Thursday, the US announced (via a Presidential tweet) that it will levy a 10% duty on an additional $300B worth of Chinese goods on Sept 1. A Presidential tweet storm on Tuesday, in which the President expressed his displeasure with China for not making good on its G20 promise to purchase “large” amounts of US agricultural goods, had a marked effect on CME futures. President Trump also issued a warning to China that a deal during his second term would require more concessions if, in fact, a deal could be reached.
The US could, potentially, up those tariffs to 25% if talks continue to be non-productive. However, China could also continue to dig in their heels – for a while longer, at least. Hence, a resolution agreement from US – China negotiations, which are scheduled to continue in early Sept in Washington, is looking less likely over the near-term.
Net export sales and shipments against 2018/19 were higher Vs the previous assay period, but remained very weak, at approximately 5M and 34M bu, respectively. Shipments were again off pace to reach the USDA’s export projection. The US is 105% committed and 88% shipped Vs the USDA’s target.
Domestically, development of the US crop remains well off its average pace with the overall condition of the crop off notably Vs 2018. Private firms continue to project US yield and production well below levels currently proffered by USDA. As with corn, the southern crop remains well off its average development pace. Crush demand reportedly continues to wane.
The corn crop across the northern Mississippi River Delta ranges from very poor to very good; second crop beans behind wheat, in general, exhibit the poorest condition. The USDAs updated estimate of planted area will likely be smaller Vs the late June estimate, but lost acreage should be less than that for either corn or cotton, as soybeans (and grain sorghum) are normally the crop of last report for the region.
Internationally, China continues to buy large quantities of soybeans from South America and representative from the nation were reportedly in Argentina for a tour of various facilities and to, perhaps, participate in trade negotiations. Crush margins remain under pressure across many world geographies, which is not a bullish factor.
CFTC Commitments of Traders data for the week ending July 30 (futures only) showed that the trade reduced its net short position to approximately 253M bu, while managed money firms increased their net short to approximately 276M bu. Potential for support via spec short covering remains in the market.
For this week, technical analysis for and money flow into the Nov contract have turned bearish. Market participants will continue to monitor US weather, crop condition and export sales while awaiting updated S&D projections to be put forth in the Aug WASDE report.
CME Wheat:
CME SRW July futures lost 5¼ cents last week, settling at 490¾. Last weekend our proprietary models predicted a finish on the week that would be near unchanged to lower, which proved to be correct.
CME SRW futures again moved in sympathy with CME corn, and was further hindered by slowing export sales and shipment data for the week ending July 25. Loose USDA balance sheets continue to weigh on the market as does harvest pressure from portions of the Black Sea region.
Net all wheat sales and shipments against 2019/20 were lower Vs the previous sales period at approximately 14M and 15M bu, respectively. Both sales and shipments were off the average weekly pace required to meet the USDA’s export projection.
Domestically, the US WW harvest remains behind its rolling 5-year average pace; SW development also remains well of its expected pace. However, both factors seem to be priced into the market.
Internationally, supply concerns persist across Australia, as well as other major world wheat geographies. Private estimates of Russian production continue to move lower, albeit modestly. The crop in Ukraine is thought to be nearly 90%, with production expected to be formidable.
CFTC weekly Commitments of Traders data for the week ending July 30 (futures only) showed that the trade increased its aggregate net short position to around 378M bu while managed money firms reduced their aggregate net long position to around 74M bu.
For this week, the standard technical analysis for the Dec contract is effectively neutral while money flow has turned bearish. Market participants will continue to monitor domestic and international weather conditions and weekly USDA export data ahead of the Au WASDE reports release.
Have a great weekend!
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This post was written by Louis Rose