Grain Market Recap
Are the harvest lows in? After this week’s price action, it’s certainly fair to ask. Between a bullish USDA report, better-than-expected export sales across the board, and soybeans’ first higher weekly close in 6 weeks, grain bulls have a lot to hang their hat on. With geopolitical risk on the rise, volatility will likely permeate through all markets. But for the time being, things are starting to look up in the grain complex.
Don’t look now – but December corn has closed higher for four consecutive weeks. While the gains each of the last four weeks have been modest, the trajectory of prices is significant. Prices were moving sideways to lower early in the week, but Thursday’s bullish USDA report helped propel prices back into positive territory. One of the most significant “bullish surprises” was USDA estimating national average yields at just 173 BPA – below the average trade estimate of 173.5. As a result, U.S. production estimates were slashed 70 million bushels from last month to 15.064 billion bushels. It didn’t take long for the market to react – and December corn rallied 10 cents within 5 minutes of the report’s release, and ultimately closed 8 cents higher on Thursday. Moreover, export sales of 1,816,000 metric tons (71,429,742 bushels) were toward the upper end of the trade’s expectations. In spite of the swath of bullish fundamental data from Thursday, December corn walked back some of its gains, and closed Friday 2 ¾ cents lower at 493 ¼. For the week, December corn was up just 1 ¼ cents – but again – trajectory is what matters most for now, and bulls successfully defended the 489-491 pivot pocket. While we have not tested the elusive 3-star resistance pocket between 502 and 506 ½, one would expect the contract to test it very soon assuming corn maintains its current posture, and money flow continues its recent trend. Managed money funds continued to shrink their net-short position this week, by trimming nearly 30k contracts to hold a net-short of 112,691 contracts. Broken down, that is 286,547 short positions compared to 173,856 long positions.
Look at that! November soybeans had a higher weekly close for the first time in six weeks! November soybeans closed the week 14 ¼ cents higher, settling at 1280 ¼. The higher weekly close is due largely in part to the WASDE report. USDA made their 2nd largest downward adjustment to soybean production estimates in the last 9 years – cutting 40 million bushels off of last month’s estimate to just 4.104 billion bushels. USDA reported national average yields at just 49.6 BPA, down from 50.1 BPA last month. As a result, soybeans settled 39 cents higher on Thursday. Soybean export sales were also near the upper end of expectations, coming in at 808,500 metric tons (29,707,281). Soybeans also tacked on an additional 117,300 metric tons in a flash sale to unknown destinations on Friday morning for good measure. With the week’s close at 1280, we remain firmly entrenched in our 1280-1285 pivot pocket. However, halting a 6-week losing streak is a win. If we are close to bottoming out on the contract, expect soybeans to test the psychologically significant 3-star resistance pocket between 1300 and 1308 ½. If Bulls can chew through that, they’ll be faced with even more rigid, 4-star resistance between 1322 and 1328. Managed money funds remain aggressively neutral on soybeans, holding a net-long position of just 2,166 contracts – 66,420 longs versus 64,254 shorts.
December wheat also closed higher for the second week in a row, settling 11 ½ cents higher to close at 579 ¾. Thursday’s WASDE report was not necessarily friendly on the domestic supply estimates – increasing production estimates and ending stocks, but downward revisions to global supplies and ending stocks, and wheat’s performance on export sales helped push wheat prices higher. Specifically, USDA increased U.S. wheat production estimates by 55 million bushels to 670 million, but global production was cut 3.5 million metric tons to 1,051 million metric tons. Arguably the most important anecdote from the WASDE report for wheat was global ending stocks. USDA lowered global wheat stocks to just 258.1 million metric tons, which is the lowest level since 2015/16. China stepped in to purchase 181,000 metric tons of SRW wheat Friday morning, which is encouraging as the U.S. is again competitive for export business on the global market. With Friday’s close, we are much closer to testing 2-star resistance between 585 and 587 than we are to our 570 pivot point. Short covering on behalf of managed money funds could ultimately push the contract closer to 600, as funds still hold a net-short of 104,335 contracts. Broken down, that is 66,207 long positions compared to 170,542 short positions.