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Morning Market Review for Dec. 6, 2018

Show me the money, China! (Comments are updated by 7:30 a.m. Central Time.)

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Overnight trade
Corn:
Down 1
Soybeans: Down 4 to 6
Wheat: Mixed

Traders want to see actions, not just talk on trade truce

Grain futures are mostly headed lower this morning, following weakness in most other markets. Lack of concrete action from China following last weekend’s trade talks have traders wondering if the agreement to halt escalation of tariffs was real or just happy talk.

Matters were complicated when an executive of a Chinese company accused of violating U.S. sanctions on Iran was arrested in Canada for extradition to the U.S. Money managers have also been chattering about the first “inversion” of the Treasury yield curve since the Great Recession more than a decade ago. Inversion takes place when shorter-dated Treasuries yield more than those with longer maturities and is a fairly reliable predictor of recessions historically. The five-yield Note carries a higher rate than the seven-year Treasury, and the spread between the long and short ends of the curve is down to less than 1% from 2.1% a year ago.

Stocks look ready for another sharply lower day today when Wall Street reopens following the National Day of Mourning for President George H. W. Bush. Crude oil is also down $2 a barrel, beset by ideas production cuts from OPEC and its allies later this week won’t be enough to stem the rising tide oil from the U.S. in the face of weakening global demand.

The government releases its latest data on inventories this morning at 10 a.m. CST. The separate survey by the American Petroleum Institute out Tuesday showed crude stock rising sharply despite analysts’ expectations for a decline. There’s a consensus, however, on rising diesel prices as agricultural use slows seasonally.

The malaise also spread to fertilizer markets. Urea swaps at the Gulf firmed yesterday after breaking $5 to $12 earlier in the week as contracts for December ammonia settled down more than $27 a ton at $295.

 

Corn prices are a little lower this morning, though March futures continues to hold Monday’s gap higher above key moving averages. The market is basically following soybeans as it waits for news about the size of the 2018 from USDA in January.

The agency updates its forecast of supply and demand Dec. 11 but that report typically features few changes and no new information on production. While I expect January’s ending stocks estimate to be lower, the estimate I gave wire services for December has carryout rising 25 million bushels due to weaker ethanol demand.

Today’s report on ethanol production will show how plants responded to margins that plunged last week due to weak fuel prices and higher corn costs.

Farmers trying to finish harvest and fall fieldwork in the major part of the growing region will have fairly dry conditions the outlook over the next week as storms bring heavy precipitation from the southeast Plains to the Southeast coast. The official 6 to 10 and 8 to 14-day forecasts out yesterday and the latest updates from the ensemble model this morning show a turn wetter outside of the northern Plains.

Overseas markets were fairly quiet today despite turmoil elsewhere. January futures in China gained 1.5 cents to $6.957 and March Paris futures in midday trade are unchanged at $5.086 after adjustments for currencies and volumes.

The preliminary report from the CBOT showed daily futures volume down 5% Wednesday to 240,794 with open interest falling 935 despite light new fund selling. Another 67 lots were registered for delivery yesterday along the Illinois River, bringing the total to 1,493 and were put out today along with the 2 other lots that have kicked around all week.

Options volume was off 11% yesterday to 55,293, 73% of it calls as traders added near-the-money calls that expire Friday and December 21. Implied volatility in March at-the-money rose to 15.87.

Bottom line:  Be on the lookout for basis pushes that could provide opportunities to move a few bushels for cash flow. Corn may be proving a cycle low but good futures rallies won’t come quickly. For more, see my Corn Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Soybeans are lower, giving back some of this week’s gains as the trading range for the week narrows. Traders want to see confirmation of new purchases by China. USDA was closed yesterday, so nothing moved on the agency’s daily wire, which comes out at 8 a.m. CST. The regular weekly export report is delayed until Friday, though that covers the period before the G20 summit.

USDA isn’t expected to many any significant changes to its U.S. balance sheet next week, though it could knock 10 million bushels off carryout due to stronger crush.

The preliminary report from the CBOT showed daily futures volume down 20% yesterday at 155,696, while open interest fell 1,723 on light fund short covering. Options volume was off 27% to 52,367, 64% of it calls as traders rolled up March puts and January and February calls. Implied volatility in January at-the-money options rose to 20.44.

Vegetable oil prices in Asia were mixed today. January soybean oil futures in China lost a third of a cent to 35.31 cents per pound while January palm oil futures in Malaysia reversed higher to 20.87 cents

Oilseed markets are lower. January soybean futures in China lost four cents to $12.911 to post a new contract low. February rapeseed futures in Paris midday trade are down 5.8 cents at $9.52 and  Winnipeg canola overnight gave back a penny to $8.18 after adjustments for currencies and volumes.

Bottom line: While fundamentals remain bearish due to historically burdensome world supplies, charts are taking a bullish turn that could keep prices rising. For more, see my Soybean Outlook. For specific recommendations and daily charts, subscribe to our free E-newsletter, Farm Futures Daily.

 

Wheat prices are mixed if fairly quiet trade. While winter wheat contracts continued their retreat on rising deliveries, spring wheat is firm on better export demand as deliveries dried up this week.

Egypt put out another tender for wheat yesterday, despite reports some sellers from previous deals had yet to be paid. U.S. soft red winter wheat was part of the last two tenders, though totals remain fairly modest. Taiwan also bought U.S. wheat overnight and Japan filled around 45% of its regular weekly tender with U.S. originations.

Overseas markets are mixed today. January futures for Eastern Australian Wheat edged a penny higher to $8.388 but March futures in Paris midday trade eased a penny to $6.239 after adjustments for currencies and volumes.

Volume in soft red winter wheat was 15% lower yesterday at 69,254 while open interest fell 877 despite light new fund selling. Another 140 lots were moved into position in Toledo yesterday and all were were put out today, the first deliveries in the cycle for December. There were also 82 deliveries today in Wichita while nothing was put out against Minneapolis December today. HRW volume rose 13% to 39,290 on open interest that was up 3,383.

SRW options volume fell 24% to just 14,896, 61% of it calls with new interest noted in the May $5.50 call. Implied volatility in at-the-money SRW March options fell to 20.64.

Bottom line: Wheat is struggling to break free for a rally that could be a selling opportunity. 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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