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Morning Market Review for February 22, 2018

Where will soybean bull find fodder? (Comments are updated by 7:30 a.m. Central Time.)

Overnight Trends:
Corn:
 Steady
Soybeans: Down 5
Wheat: Steady to down 2

Maps hint at rain for Argentina as production estimates fall

Grain futures are steady to lower this morning following yesterday’s mixed close. Traders are waiting for USDA to update its acreage forecast for 2018 at the annual outlook conference in Washington that starts today.

U.S. stock index futures are also trying to edge higher after mostly moving lower in Asia and Europe today. Minutes from the last meeting of the Federal Reserve released Wednesday showed central bankers encouraged about the economy but wary of inflation, news that sent stock prices reversing lower yesterday.

Fears of higher interest rates kept movement in other commodities limited. Gold is lower and crude oil is easing a little ahead of this morning’s petroleum inventory report. While analysts surveyed by Reuters expected inventories to increase, the private survey by the American Petroleum Institute found a decline instead, along with tightening diesel supplies.

Urea swaps at the Gulf for March took another notch higher Wednesday, and suggest prices could be up around $13 over February following news of the latest tender by India due next week.

 

Corn prices are trying to hold after testing support again overnight. March futures is trying to avoid a break below the uptrending channel drawn off Jan. 12 USDA report lows.

USDA could lower its initial forecast of 2018 acreage put out in November a little, though a major shift is not expected in today’s estimate, which is just a statistical guess. The agency puts out its first survey of planting intentions March 30. 

South Korean feedmakers put out a couple of tenders overnight, looking for around 10.6 million bushels., but one passed on offers due to high prices. USDA’s regular weekly report is delayed until Friday due to the Presidents Day holiday.

Ethanol production data out this morning at 10 a.m. CST will show how plants responded to margins that improved again last week, thanks to mostly stronger DDGSs values supported by the rally in soybean meal. Inventories also tightened the prior week after plants cut output, keeping cash ethanol prices firm. 

The Rosario Grain Exchange in Argentina put the corn crop 157.5 million bushels below USDA’s Feb. 8 estimate. Our analysis of Vegetation Health Index maps put the decline at 100 million bushels less.

Overseas markets are quiet after reopening in China. May futures on the Dalian Exchange in China settled at $7.253, a couple pennies higher after the week off. March futures in Paris were less than a penny higher at $4.774 after adjustments for volumes and currencies. 

The preliminary report from the CBOT showed daily futures volume down 20% Wednesday but still strong with 564,001 contracts changing hands. Open interest rose 3,141 on light fund selling. Options volume was 24% lower at 46,707, 59% of it calls as traders dumped more than 10,000 May $4 and $3.75 calls.

Implied volatility fell nearly 4.5% Wednesday to 12.50. 

Bottom line: Supplies are big which should limit rally potential into spring unless farmers cut back acreage significantly. This is a selling opportunity to lighten up on a little old crop inventory. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans are lower this morning as a bid to work off opening lows stalled. March is holding to an inside day well within its steep uptrending channel after an outside day higher yesterday reached the best price since July. 

USDA could raise its forecast of 2018 acreage today because soybeans offer better profit prospects than corn. But most of the market’s focus remains on South America. The Rosario Grain Exchange put Argentina’s crop at 1.7 billion bushels, down 275 million bushels from USDA’s Feb. 8 estimate and in line with our forecast based on the latest Vegetation Health Index map.

Traders are also waiting to see what happens with Chinese demand after markets reopened there today. The government has delayed releases of customs data for January until tomorrow, though U.S. figures show sales and shipments to the world’s larger buyer are down 21% from the 2016 crop marketing year. 

Vegetable oil markets traded mixed. May soybean oil futures in China were at 40.376 cents per pound while May futures for palm oil in Malaysia edged slightly lower to 28.844 cents. 

Oilseed prices internationally were also mixed. May futures on the Dalian Exchange in China settled at 15.387, May rapeseed futures in Paris were off 1.4 cents to $9.857 and March canola futures in Winnipeg were 1.6 cents higher at $9.104. Note: International prices are converted to bushel or pound equivalents after conversions for currencies.

The preliminary report from the CBOT showed daily futures volume falling 23% Wednesday to 384,880 with open interest up 8,847 on moderately active new fund buying. Options volume was 31% lower at 91,664, 62% of it calls as traders liquidated in the money March calls that expire Friday. Implied volatility in options Wednesday fell another 3% to 18.95.

Bottom line: Soybeans look ready to roll on to challenge the next upside targets if  gains hold. But the key question now is whether China will start buying more aggressively, or hold off to signal displeasure with U.S. trade policies. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices are absorbing modest losses this morning, with winter wheat contracts taking out yesterday’s lows following bearish chart action this week. Minneapolis is trying to hold after another test of $6 Wednesday.

Storms over the next two weeks are expected to bring a little better moisture to the eastern Plains though areas of the southwest could remain dry. USDA should boost its estimate of spring wheat seedings this morning, though drought appears to be expanding on the northern Plains.

Overseas markets were stronger today. March futures for Eastern Australian Wheat settled 5.3 cents higher at $5.698 on hopes for increased exports of higher protein varieties. March futures in Paris morning trade were up a half cent to $5.394 after adjustments for volumes and currencies.

Preliminary volume in soft red winter wheat dropped 20% yesterday to 184,172 while open interest was down 6,097 despite light new fund selling. Options volume was down by more than half to 18,930, 57% of it calls as traders liquidated March puts that expire Friday but added the March $4.50 call. Implied volatility fell another 2.5% Wednesday to 22.83.

Volume in hard red winter fell 17% to 85,347 on open interest that was down 2,677.

Bottom line: Winter wheat is fighting to hold its turn higher that could provide pricing opportunities into March and April as the crop comes out of dormancy. 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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