Special Market Update

Corn

May corn (CK19) closed today at $3.7150. Down 1.75c. For the month of March, CK19 is up 0.75c after prices rallied last week from lows set on Monday. The main feature of the grain markets for the past few weeks has been the very aggressive selloff by the funds, which reached a record short as of Friday’s Commitment of Traders report at a net short of 258k contracts. Managed money funds getting this short prior to the U.S. planting season is highly unusual. It seems like traders had lost their patience with the range bound trade that had dominated the market for the past few months. Headlines have also recently had a more negative bias in regard to any potential trade agreement with China. President Trump said last week that there will be an announcement one way or the other in the next few weeks, but also commented last week that he is in “no rush” for a trade agreement, insisting that it must be the right deal. This is a far cry from the many headlines in the latter half of February that implied the two sides were very close to an agreement that would include significant purchases of corn.

The March WASDE report was more or less a non-event as was expected. The biggest changes to the U.S. balance sheet were cuts in ethanol and export demand, leading to a 100mil increase in ending stocks for the 2018/2019 crop year. Currently corn exports are lagging behind pace and a future cut by the USDA is seeming likely. The real potential market mover will be the planting intentions report out on the 29^th.  The consensus it seems is that corn acres will see an increase from the 89mil planted last year but just what that increase will be is anyone’s guess. I have seen estimates ranging from 90mil upwards to 94mil. 92-93mil acres seems like the most common estimates out there. It will be interesting with the devastating flooding in parts of the Midwest how delayed this planting season may be and if prevent plant acres become an issue.

Technically, the market appears to have hit some resistance today around the $3.75 mark, if the market can sustain move above 3.77 the next upward target I am looking at would be in the $3.85-87 range.  The market today seems very susceptible to a rally, especially if corn acres are a surprise on the lower end of estimates. This combined with any planting delays/weather premium built into the market, and the managed money funds deciding at any point to cover their large short position provides upside potential. The flip side of this argument is if acres surprise the market with a very large number, combined with any future cuts to demand could pressure the market. Either way, the March 29^th Prospective Plantings report will be something all market participants will have their eyes on.

Soybeans

May soybeans (SK19) closed today at $9.0575, down 3.5c. For the month of March, the May soybean contract is down 3.75c. Like corn, soybeans also benefitted from a nice 20c rally last week most likely due to short covering by the funds. There really isn’t a whole lot of fresh fundamental news in soybeans, the NOPA crush report last week pegged February crush at 154mil bushels, a significant drop from the January record of 171mil. However, this number is up year over year from 2018, and crush demand remains strong if not slightly understated by the USDA. South American harvest has more or less gone very smoothly, the March WASDE cut Brazilian production just slightly due to some weather issues, but overall harvest is ahead of schedule right as we enter the point of the marketing year where South America typically dominates world business for soybean exports. Otherwise, the market is still awaiting any news regarding trade with China, but as has been stated in previous articles, any agreement made at this point seems like it would have very little impact with South American beans entering the market and ending stocks already at 900mil bushels, a record by 300+ million.

Technically, the market tested support in the $8.90-95 range to start last week and prices held up nicely. Today the market tested the 20-day MA (blue line on the chart below) and was rejected. Perhaps moving forward, the $9.00 mark will serve as a psychological point of support for the move. The acreage report on the 29^th will be important for trying to gauge the longer-term outlook for the soybean market, but overall it just feels hard to get excited over an acreage cut with a carry out 2x larger year over year. Even with a 3-mil bushel decrease in soybean acres (85mil), and using the 2018/19 yield of 51.6 bpa, still gives us a production number of 4.386 billion bushels. If we do see an agreement with China and a return to more normal exports of say, 2.150 billion bushels, leaving everything else unchanged year over year still leaves us with around a 900mil bushels carry out for 2019/2020 as well. Obviously, there is a whole growing season’s worth of weather to determine the yield number and I understand that keeping all other demand factors equal may be a gross assumption but the supply issue in soybeans cannot be understated.