Mixed price action dominated the grain markets this week. Corn finished the week with modest gains, while soybeans closed the week in the red despite making a 2 ½ month high ahead of Wednesday’s open, and wheat was well…whea – closing the week as the biggest loser settling 24 ½ cents lower. Price action in the holiday-shortened week ahead will largely hinge on South American weather. With January soybeans trading as if rains have already materialized in Mato Grosso and Safrinha, if heat and dryness persist through the weekend, it could be a bullish tailwind for the grains.
Even though it may not have felt like it, December corn managed to close the week modestly higher – settling at 467, up 3 cents. Price action was largely mixed this week, and Thursday saw a significant reverberation of the corn:ratio back to 2.869 after being 7 cents away from surpassing the historically significant 3:1. After making a contract low on Monday, bulls regained control of the market, and sent the contract 13 ¼ cents higher, as evidenced by the weekly settlement, we consolidated for the remainder of the week. Options expiration comes after Thanksgiving, on Friday, and the 480 strike has the most open interest for both calls and puts – it would not be surprising to see prices gravitate toward 480 in the coming week, so look for prices to try and push through our 472-476 pivot pocket. Managed funds built on their net-short position, which totals 163,486 contracts. Broken down, that is 153,860 long positions compared to 317,346 short positions.
With the way that the January soybean contract finished the week, you would’ve thought that the parched areas of Brazil had already received rain. After making a 2 ½ month high trading up to 1398 on Wednesday, the market gave back 57 ¾ cents to settle the week at 1340 ¼ and filled the gap from the beginning of the week. For the week, the contract was down a modest 7 ¼ cents, but it certainly felt a little worse after such steep losses over the final two days of trading. South American weather will have the most impact on soybeans compared to the rest of the grain complex. So, if the forecasted rains fail to materialize over the weekend, bulls could regain control and retest 1400 in very short order. Moreover, soybeans have enjoyed a historic week of export sales, which is further proof of concern regarding the health of the South American crop. But both sides must be considered – if supple rains do come, bulls will likely have to defend 3-star support between 1323 and 1327. Managed funds are still holding a modestly bullish posture, building on their net-long position this week, which now totals 87,913 contracts. In total, that is 122,174 long positions compared to just 34,261 short positions.
December wheat was the biggest loser of the grain contracts this week – closing lower 4 of the 5 trading days and shedding 24 ½ cents to ultimately settle at 550 ¾. Weaker than anticipated exports for the week were likely a contributing factor to the week’s losses. But, it was nonetheless surprising to see the contract move lower even after the Buenos Aires Grain Exchange lowered their estimated wheat production to 14.7 MMT from 15.4 MMT (USDA’s latest estimate per the November WASDE is 15.0 MMT). The question becomes – what will it take? Managed money funds net-short position swelled to 89,271 contracts – 82,559 longs vs. 171,870 short positions. What’s notable is that the growth in the net-short position is from long-liquidation, and that short interest (open short positions) has also declined. So, where’s the bottom?
Cattle on Feed Report
Last month’s Cattle on Feed report accelerated the sell off across both the feeder and live cattle contracts. When placements came in above expectations, it left longs running from the exits. Fortunately, this month’s report offered reprieve. This afternoon’s cattle on feed report showed cattle on feed at 102%, which was right in-line with the average analyst estimate. Placements were reported at 104% that compares to the expectations of 107%. Lastly, marketings came in at 97% versus estimates of 98.1%. With robust analyst expectations ahead of the report, the figures therein were favorable for cattle bulls. Next week’s shortened holiday-week has the potential to bring some fireworks, but the tone should be established as early as Monday’s open.
Matthew Bresnahan, Market Strategist