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Morning Market Review for July 23, 2018

Will funds start buying now? (Comments are updated by 7:30 a.m. Central Time.)

Overnight Trends:
Corn:
 Up 1
Soybeans: Steady to up 2
Wheat: Up 1 to 6

Short covering keeps rally hopes alive

Grain futures are posting modest gains this morning, trying to extend last week’s rally. Friday’s Commitment of Traders showed big speculators increasing bearish bets early last week before starting to buy back those positions, providing room for short covering gains.

Investors using index funds to gain access to commodities were already buying crop and livestock contracts, according to the CFTC tally, but money managers dumped crude oil until prices started to firm late in the week.

Financial markets remain uncertain following a weekend meeting of G-20 finance ministers. While concerns over the impact of tariffs on growth remain, new fears of currency wars emerged after a week of volatile trading. The dollar was choppy overseas today after mixed trade in stocks in Asia turned lower in Europe. Wall Street also could be headed for a pullback today, though crude oil is trying to hold a move above $69.

 

Corn prices are a little higher following choppy, two-sided trade overnight. July and December futures are trying to confirm a move to the first retracement of their summer selloff after breakout out of downtrends last week.

Corn basis was unchanged on average last week, though markets varied widely. The cash market weakened on parts of the river system as barge freight values rose, but buyers in feedlot areas strengthened. Basis at ethanol plants varied widely but was steady on average, as plant margins slipped under the weight or rising corn prices and a flat market for the biofuel.

Storms brought an inch or more of rain to 48% of the Corn Belt last week with the best chances for precipitation this week south of I-80. Official 6 to 10 and 8 to 14-day forecasts out yesterday and the

morning updates from the ensemble forecast show the drier pattern in the north shifting into the Central Corn Belt as below average temperatures continue.

Farmers reporting Feedback From The Field last week noted deterioration in both corn and soybeans, with even growers in good areas worried about conditions.

What’s happening in your fields? Let us know by clicking this link to enter your data and comments and check out the latest reports by scrolling down to our updated interactive map.

Overseas markets were mixed today. September futures in China fell to new contract lows today, losing 5.4 cents to $6.664. August futures in Paris in midday trade were up 4.5 cents to $5.23 after adjustments for currencies and volumes as France’s southwestern corn growing region looks dry for the next week.

Big speculators continued to extend their bearish bet against corn early last week, before starting to cover that short position later. 

The preliminary report from the CBOT showed daily futures volume down 6% Friday to 243,136 open interest was up 14,097 despite active fund short covering. Options volume was up 64% to 115,455, 75% of it calls as traders added out-of-the-money December calls and rolled up September and December puts. Implied volatility in the at-the-money December options eased to 20.38.

Bottom line: Demand is encouraging but the market may have to see USDA’s August production forecast before finally confirming a bottom. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans are trying to hold a little higher this morning following a choppy overnight session. August futures are trying to hold on to their rally support line while November battles to move above the line drawn off June and July highs on its chart.

Soybean basis weakened last week on the rebound in futures, with bids down in the export pipeline and at processors despite strong demand. Board crush margins weakened on the rally but remain very attractive.

Vegetable oil markets in Asiawere lower today. September soybean oil futures in China edged lower to 36.91 cents per pound after making a new low while September palm oil futures in Malaysia lost a third of a cent to 24.14 cents.

Oilseed markets internationally were also mixed. September futures in China lost 8.6 cents to $14.057 after posting a new contract low, August rapeseed futures in Paris in midday trade were up three-quarters of a cent to $9.573 and November futures Winnipeg canola overnight were 2.6 cents higher at $8.492 after adjustments for volumes and currencies.

Big speculators sold the soy complex last week, especially in oil, where they extended their bearish bet to an all-time record. The preliminary report from the CBOT showed daily futures volume only up slight to 127,902 on Friday, while open interest gained 7,914 despite light fund short covering. 

Options volume was 35% higher at 61,535, 53% of it calls with new interest noted in the November $7 and $8 puts. Implied volatility in November at-the-money options rose to 21.21. 

Bottom line: Expect only a modest short covering bounce from weather for now. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices are higher, paced by gains in spring wheat. Minneapolis is testing the first retracement objective from its selloff from last summer’s highs, supported by a drier forecast for the northern Plains and droughts in Australia and northern Europe.

Basis for soft red winter wheat strengthened last week on parts of the river system, but hard wheat bids weakened on the futures rebound.

Overseas markets were higher today. January futures for Eastern Australian Wheat moved to a new contract high, gaining 3 cents to $7.055 while December futures in Paris midday trade are up 2.5 cents to $6.201 after adjustments for volumes and currencies.

Big speculators sold winter wheat last week and large traders extended their bearish bet again Minneapolis to all all-time short position.

Volume in soft red winter wheat was up 52% Friday at 138,530 while modest fund short covering cut 3,679 off open interest. Options volume was 58% higher at 48,474, 60% of it calls with new interest noted in the $6 December and July 2019 calls. implied volatility in at-the-money September options fell to 29.80.

Volume in HRW futures increased by 28% to 48,150 on open interest that rose 2,186. 

Bottom line: Wheat is trying to prove it’s time to start a post-harvest rally. 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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