Suffices to say that Thursday’s WASDE report didn’t provide the spark to ignite short-covering in the grain complex. There were no real surprises in this month’s WASDE, and the USDA remains more optimistic than the trade in regards to the Brazilian soybean crop. Moreover, global soybean ending stocks are now estimated at record highs. Funds remain aggressively short, but have yet to be provided a reason to cover open short positions. It remains a game of chicken between managed money funds and farms in a race to see who will budge first as farm sales, particularly in corn, remain well behind historically average pace.
Corn:
The domestic corn balance sheet was left almost completely unchanged in Thursday’s WASDE report with the exception of a modest reduction in FSI use, which was slashed 10 mil bu to 6,780 mil bu – bringing total use down to 14,555 mil bu, and ending stocks up to 2,172 mil bu. The dark cloud hanging over corn prices remains the ending stocks number – which is up 59.7% from last year. On the bright side, export performance remains strong. This week’s sales totaled 1.219 million tonnes, and year over year sales are up nearly 27%. At this point, if a short-covering rally materializes, it will likely be led by corn and/or wheat. We saw the March contract make another new low on Friday, trading down to 428 ¼ before ultimately settling at 429. Unsurprisingly, managed money funds added another 17,000 contracts to their net-short position which now totals 297,744 contracts. Broken down, that is 168,825 long positions compared to 466,569 short positions. Markets can remain in oversold territory for a long time – before we can anticipate heavy short-covering, we’ll need to defend the most recent lows.
Soybeans:
While there are at least a few positives for corn and wheat, the same can’t be said for soybeans. Demand is, at best, paltry and this week’s export sales came in below average trade estimates again totaling just 341k tonnes, and are down 19% year over year. To add insult to injury, the USDA once again called the trade’s bluff by reporting Brazilian soybean estimates at 156 million tonnes in Thursday’s report compared to the average trade estimate of 153.27 million tonnes. Sadly, the buck doesn’t stop there – with the Chinese economy buckling by the day, the demand outlook remains bleak. If the USDA is correct in their assessment of the South American soybean crop, it would leave global ending stocks at record highs of 116 million metric tonnes. Record global carryout with a bleak demand outlook opens the door for March soybeans to ultimately test the May 31st lows of 1146 in the short-term. Managed money funds were aggressive in adding approximately 28k contracts to their net-short position this week, which now totals 130,300 contracts. Compared to corn, it feels like the net-short position in soybeans has much more room to grow considering the fundamental situation. For the week, March beans were down just 5 cents – settling at 1183 ½, but scored a new low on Wednesday trading down to 1179 ¼. For the soybean optimistics, the technicals do provide a little bit of hope as bullish divergence is readily apparent on the standard 14-day RSI.
Wheat:
May wheat futures managed to defend the 600 handle yet again as the consolidation in that contract continues. Chicago SRW wheat futures are the only wheat futures that aren’t inverted between the March and May contracts, which some may consider bullish. Export performance has been formidable, with this week’s sales totaling 378k tonnes. Year over year sales are modestly higher, 6% to be specific. The most “bullish” line item change in Thursday’s USDA report was likely the modest downward adjustment in global wheat ending stocks to 259.4 million tonnes, compared to 260 million tonnes last month. March and May Chicago wheat are the proverbial shining star of the grain complex currently. They’ve managed to defend contract lows since late November, and the volume profile is trending more bullish while the market consolidates – that is an encouraging recipe for a short-covering rally. Managed funds are bracing in wheat futures, with their net-short position of 66,738 contracts nearly unchanged from last week.
