Rose on Grain – CME Grains Move Lower on Week; China Trade Accord, Phase Two Talks in Jeopardy?

April 5, 2020 6:16 pm
Published by

Louis W. Rose IV

Corn:

 CME May corn futures lost 15¼ cents on the week to finish at 330¾.  Last weekend our proprietary model (timely predictions available in our complete weekly report) called for a finish on the week that was to be near unchanged to lower Vs the previous Friday’s settlement, which proved correct.

The corn market finished lower on less than impressive US export data (and the expectation for an eventual downgrade to the official USDA estimate thereof), strengthening US currency and a much larger than expected projection of US planted area from USDA.  The potential cease fire in the Russia – Saudi crude price war seemingly did little to support CME corn.

Net export sales were lower Vs the previous sales period while shipments were higher at approximately 42M and 50M bu, respectively.  Both sales and shipments were ahead of the weekly pace required to match the USDA’s export projection.  The US is 73% committed and 42% shipped Vs the USDA’s revised target.

Domestically, weather conditions most corn producing regions are expected to improve somewhat, but showers are still expected to occur; significant rainfall is expected across some southern areas. In its annual Planting Intentions report, USDA projected 2020 planted area 3M acres above the market’s pre-report consensus at 97M acres.  Many are skeptical, and we are in this camp, especially considering southern acreage is all but certain to be smaller than projected.

Internationally, early season condition of Brazil’s safrinha crop is reportedly mostly strong, despite this season’s delay in sowing.  The price retreat in CME futures has made US corn very competitive with that for export from Ukraine.

CFTC Commitments of Traders data for the week ending Mar 31 (futures only) showed that the trade significantly reduced their aggregate net short position against all active contracts Vs the previous assay period at approximately 720M bu.  Large specs reduced their aggregate net short position to less than 500M bu.

For an in-depth analysis of CFCT data see our weekly CFTC analysis and commentary.

For this week, the weekly technical analysis for and money flow into the May contract remains bearish, with the market remaining oversold.  Developments surrounding the Wuhan virus pandemic and US export data will likely be focal points for the coming week.

Soybeans:

 CME May soybeans lost 27¼ cents on the week, finishing at 857¼.  Last weekend our proprietary model called for a finish on the week that was to be near unchanged to higher Vs the previous Friday’s settlement, which proved to be incorrect.

CME soybeans were lower last week on Argentina’s resumption of soymeal exports, continued weakness in US export data, strengthening US currency and, perhaps, increased producer selling.  A lower than expected planted area projection by USDA and lower private estimates of South American production seemed to do little to support CME futures.

Net export sales were slightly higher Vs the previous assay period while shipments were off at approximately 35M and 17M bu, respectively.  Sales were ahead of the average weekly pace required to match the USDA’s export projection while shipments were again well off the pace requirement.  The US is 74% committed and 64% shipped Vs the USDA target.

Domestically, as with corn, weather conditions across the southern US and the Mid-west over the coming week are expected to improve, at least somewhat.  In its annual Planting Intentions report, USDA projected 2020 planted area modestly below the market’s pre-report consensus at 83.5M acres.  We, and may other, expect the final figure to be larger Vs USDA’s projection.

Internationally, it is now reasonable to suspect both the finalized Phase One accord and planned Phase Two trade talks, scheduled to begin in May, are in jeopardy.  Suspicion of China’s lack of transparency regarding its understanding of the Wuhan virus during Jan and Feb has resulted in vociferous calls, to date mostly from the US, for sanctions against the central kingdom, including notions of demanding a waiver of much of the US debt that China has purchased.  It seems certain that another breakdown in US – China trade relations would be further detrimental to the cotton market.

CFTC Commitments of Traders data for the week ending Mar 31 (futures only) showed that the trade increased their aggregate net short position against all active contracts to approximately 930M bu while large specs flipped their aggregate net short position to a net long of almost 115M bu.

For this week, the weekly technical analysis for and money flow into the May contract remains bearish. As with corn, developments surrounding the Wuhan virus pandemic and US export data will likely be focal points for traders for the coming week.

CME Wheat:

 CME SRW May futures lost 22 cents to settle at 549¼.  Last weekend our proprietary model called for a finish on the week that was to be near unchanged to lower Vs the previous Friday’s settlement, which proved to be correct.

CME SRW futures moved lower last week mostly, it seems, on a noticeable weakening in US export data, strengthening US currency and the market’s significantly technically overbought condition.

Net all wheat sales and shipments were notably lower Vs the previous sales period at approximately 3M and 11M bu, respectively.  Both sales and shipments were off the average weekly pace required to meet the USDA’s export projection.  The US is 91% committed and 73% shipped Vs the USDA’s revised projection.

Domestically, the condition of the winter wheat crop remains generally good – and continues to improve across states already reporting crop conditions to USDA.  US area committed to wheat production was estimated at a record low of 44.7M acres.  Still, both domestic and world balance sheets remain far from tight.

Internationally, dry conditions have set in across portions of the region and are expected to endure for some time, which has led to some support of CME contracts.  Further Russia has limited it’s wheat exports through June.

CFTC Commitments of Traders data for the week ending Mar 31 (futures only) showed that the trade modestly increased their aggregate net short position against all active contracts to approximately 453M bu.  Large specs increased their aggregate net long of almost 184M bu.

For this week, the weekly technical analysis for the May contract is supportive while money flow is bearish.  It again looks as if CME wheat is likely to find staunch resistance near recent market highs, which now seems to constitute a “double top” on the charts.

Have a great week and stay safe regarding the Wuhan pandemic!

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    This post was written by Louis Rose