Special Market Update
Grain Market Commentary
Monday, June 4, 2018
By Risk Management, The Andersons
Corn market is down 10.75c (CN) on Monday as it appears we are fully in a weather driven market at the moment. July ’18 corn gapped lower to start this week’s trade amidst good short term weather and technical selling. The market quickly tested lows not seen since late April and this support level failed to hold. The next key support level is the 200 day moving average at 3.82250. The next crop progress report is out this afternoon at 4pm EST.
It appears the market today may be pricing in another high G/E rating, and we don’t see this afternoon’s report being much of a market mover this early in the growing season. Overall, the market seems to be lacking any strong direction and is just trading the news that is available (i.e. short term weather and trade). There are many unknowns that will continue to become increasingly important as the growing season progresses; a potential trade war with Mexico and Canada amidst NAFTA renegotiations could potentially continue to pressure the market. If an agreement is found, as Mexico is the number one importer of U.S. corn.
Long term weather into the summer months could make things very interesting for U.S supply and demand, especially as the 2018/19 balance sheet already feels somewhat tight. Any weather threat deeper into the growing season could definitely spark a rally and allow some selling opportunities. Both these variables will be working in conjunction with the acreage report out on June 29th, with many predicting an increase in corn acres, tightness could be quickly erased. Overall, until some of these variables become known, we see the market continuing the choppy trade we have seen the past couple of months as it looks for direction.
July 18 beans are down 19.50c with new crop beans down 18.250c. The same good weather pressuring the corn market is weighing on the soybean market, as well as technical selling in the funds. The soybean market also gapped lower to start the week, as the 200 day moving average failed to hold support.
SN8 has stayed fairly true to the downtrend channel that started back in early March. The big story continues to be demand concerns over a potential trade war with China. China had returned to buying U.S. soybeans amidst serious logistical issues in South America. However, it now appears that again buyers do not want to get stuck importing U.S. beans should things escalate while they are in transit across the Pacific, and end up in a pinch having to reroute their cargos. The same unknown fundamental variables mentioned above will drive the soybean market as well.
2018/19 Stocks to Use % is currently at 9.4%, however this is using a year over year increase in soybean exports. Should an agreement with China not be met and the proposed tariffs realized, bearish fundamental issues can be seen. Choppy sideways trade seems likely with eyes on the June 29th acreage report. A “battle for acres” between corn and soybeans seems likely, and it will be interesting to see what the give and take is between those two commodities.
Wheat futures also down heavily to start the week. July Chicago Wheat is down 18.0c and KC July down 19.250c. Today marks the 4th day out of 5 that the market has been down coming off the peak last Tuesday which was a high not seen since July of 2017. The market is now approaching key trendline support at around $5.04, the trend has held the last two times it was testing since this uptrend channel first formed in late March. So the next few trading sessions will be important as this support will be tested again.
The funds were projected to have gone long in wheat last week, however it will be interesting to see with this downtick in prices how much of that recently established long will be liquidated to start the week. U.S. prices had been uncompetitive for some time and this was negatively affected exports. This was exasperated by a steady rise in U.S. dollar strength. It will be interesting to see if last week’s reversal in the dollar will help alleviate some of the stress on exports.
The global weather issues that had been driving the market seem to have subsided for now, and U.S. weather looks friendly as we approach the beginning of winter wheat harvest in southern states such as Kansas and Oklahoma. Overall, we see the wheat market following the established trend as we continue to watch U.S. and world weather in key growing areas.