Rose on Grain – CME Grains React Bearishly to WASDE, US – China Trade Progress Sparks Bullish Reversal
Louis W. Rose IV
CME Dec corn futures gained 13 cents on the week (26¼ over the last two weeks) to finish at 397¾. 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 was correct. However, we did not trade this bias due to the WASDE report’s release.
CME futures moved higher, mostly, on improved prospects for a trade accord between the US and China and inclement weather conditions that continue to hinder US harvest progress. The market reacted bearishly to a WASDE report that we viewed as neutral, at worst, and continued dismal US export data.
In its Oct WASDE report, USDA reduced its projection of domestic ending stocks 12% Vs Sept at 1.93B bu; world aggregate ending stocks were projected 1% lower at 11.9B bu. Carryout outside of China was projected 3% lower Vs Sept; China accounts for 35% of projected world ending stocks and these stocks are essentially unavailable for world trade.
Net export sales were lower Vs the previous sales period, and very disappointing, while shipments were up slightly at approximately 11M and 19M bu, respectively. Both sales and shipments remained well off the average weekly pace required to match the USDA’s revised export projection. The US is 21% committed and 4% shipped Vs the USDA target.
Domestically, rains and snow across major US producing regions continue to hinder crop maturity and harvest progress, which should ultimately result in lower estimated yield by USDA. Rain and showers this week are expected to be mostly light and confined to eastern portions of the upper Mid-west. However, significant snowfall is expected across western portions of the region, especially the Dakotas. Despite harvest being essentially complete across the south, I ran into some late field that have yet to be shelled across northeastern AR on Friday.
Internationally, cost of production figures out of Argentina continue to favor soybean sowing Vs corn ahead of planting season as droughty conditions continue to plague Brazil, Argentina and Paraguay. Conab has projected 2019/20 production off around 2% Vs 2018/19.
CFTC Commitments of Traders data for the week ending Oct 8 (futures only) showed that the trade increased their aggregate net short position to more than 1.12B bu while large specs reduced their aggregate net short position to less than 485M bu. Potential for upward movement, via spec short covering, remains in the market. However, significant covering has likely occurred since Oct 8.
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 has turned supportive to bullish while money flow remains less than supportive. Market participants will continue to monitor US weather, harvest progress, yield reports and US export and ethanol data. US – China trade headlines could also markedly affect CME corn futures.
CME Nov soybeans gained 19¾ cents to settle at 936. Last weekend our proprietary models predicted a finish on the week that would be near unchanged to lower, which proved to be just wrong, but we did not recommend trading this bias either ahead of or post the WASDE report’s release.
CME futures finished higher on positive notions regarding a US – China trade agreement; these notions were verified after the market’s close on Friday. As with corn, inclement weather and slow harvest progress helped CME futures to move higher as did another round of strong US export data.
In its Oct WASDE report, USDA slashed its domestic carryout projection 28% Vs Sept to 460M bu; it is important to note that when ending stocks are projected/estimated at less than 400M bu things can get dicey. Aggregate world carryout was projected 4% lower Vs Sept at around 3.5B bu.
Net export sales and shipments were higher Vs the previous assay period at approximately 77M and 38M bu, respectively. Both sales and shipments were ahead (sales particularly so) of the average weekly pace required to match the USDA’s export projection. The US is 34% committed and 8% shipped Vs the USDA target.
Domestically, weather concerns are essentially the same for beans as for corn, with this season’s harvest pace also well off the rolling 5-year average benchmark. Significant acreage remains unharvest across the southern states, especially the Mid-south, with little further progress expected until late this week, at the earliest. Weather across the Mid-west has kept maturation and harvest of the US crop well off its average pace.
Hot and dry conditions across South America (especially Brazil) continue to delay new crop sowing, even as Conab continues to project a large year-over-year production increase. Optimism regarding a trade accord between the US and China should be viewed, if not skeptically, then realistically. The annual target of $40B - $50B worth of US ag sales into China seems lofty (especially at current market prices) and there are likely caveats/conditions that could hinder such targets being realized.
CFTC Commitments of Traders data for the week ending Oct 8 (futures only) showed that the trade notably increased its net short position to approximately 916M bu, while managed money firms flipped reduced their net short to a small net long of around 22M bu.
For this week, the weekly technical analysis for and money flow into the Nov contract is bullish, with the market now moving into overbought territory. As with corn, market participants will continue to monitor US weather, harvest progress and yield reports and export sales data. However, news relating to US – China trade relations could prove to be an overwhelming factor over the near- to medium-term.
CME SRW Dec futures gained 17½ cents last week, settling at 508. Last weekend our proprietary models predicted a finish on the week that would be near unchanged to higher, which again proved to be correct. Still, as with corn and beans, we did not recommend trading this bias either ahead of or after the WASDE report’s release.
CME SRW futures again seemed to trade in sympathy with CME corn, both with respect to Thursday’s WASDE report and Friday’s euphoria regarding US – China trade relations.
In its Oct WASDE report, USDA increased its domestic carryout projection 3% Vs Sept to nearly 1.05B bu; world carryout was projected slightly higher at 10.58B bu. Both balance sheets remain burdensome.
Net all wheat sales were modestly higher Vs the previous sales period while shipments were off slightly at approximately 19M and 18M bu, respectively. Sales were ahead of the average weekly pace required to meet the USDA’s export projection while shipments were just off the pace requirement. The US is 52% committed and 35% shipped Vs the USDA’s revised projection.
Domestically, the WW sowing season will soon culminate, with progress currently remaining near the rolling 5-year average pace. Recent rains across the southern Plains and portions of the OH river valley will likely ultimately prove positive for seedling emergence and development.
Internationally, the drought Down Under continues to worsen, with further debits to official estimates of production likely forthcoming. Overall, the USDA’s aggregate world balance sheet remains burdensome and should apply drag to any would-be rallies.
CFTC weekly Commitments of Traders data for the week ending Oct 8 (futures only) showed that the trade trimmed its aggregate net short position to around 216M bu while managed money firms modestly reduced their net short to approximately 67M bu. Potential for a modest short covering may remain in the market.
For this week, the standard technical analysis for and money flow into the Dec contract are bullish, with the market now moving into overbought territory. Market participants will continue to monitor domestic and international weather conditions, weekly USDA export data and crop progress reports as the domestic WW planting season enters its last leg. At this point of the season, especially without fresh wheat-specific news, CME corn seems likely to continue to trade in sympathy with CME corn.
Have a great week!
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This post was written by Louis Rose