GRAIN MARKETS: Market bears back in charge?

Large speculators reverse seven-week trend.

August 29, 2017

3 Min Read
GRAIN MARKETS: Market bears back in charge?
Stock market background designCredit: FeelPic/iStock/Thinkstock

By Ben Potter

Large speculators just reversed a seven-week trend and are now increasing net short positions on corn futures. That’s bearish news – especially as short-term weather forecasts across the Corn Belt show little danger for grain crops as harvest edges closer and high global supplies that haven’t budged. The market responded by handing corn and wheat new contract lows.

Hurricane Harvey made landfall this weekend as a Category 4 hurricane. With dangerous winds now dissipated, the storm continues to create localized catastrophic flooding in south Texas and Louisiana. Later in the week, Harvey could dump ample rainfall in other areas of the South, Mid-South and Southeast U.S. Cotton futures, down about 5 cents per pound since June, are starting to recover – about half of U.S. acres are in Texas. Meantime, gas prices reached two-year highs.

Wall Street could see a quiet week ahead of the Labor Day holiday. Tax reform talks may hit the snooze button in the wake of Hurricane Harvey, and markets await the August employment report, which comes out this Friday. The strength of the job market and the rate of inflation are two major factors the Federal Reserve will consider before it makes additional interest rate hikes. The Dow dropped 28 points to close at 21,781.

Corn prices hit contract lows, with December 2017 prices tumbling another 2.5 cents to land at $3.51. Prices slipped at the open, then nearly fought their way back in midmorning trading before sliding again in time for the markets to close.

Rainfall this past week has a chance to spell some lingering drought concerns in Iowa and the Dakotas. The next updates to the U.S. Drought Monitor on August 31 will confirm how much of a dent that precipitation made.

USDA announced Monday morning that private exporters report export sales totaling 5.879 million bushels of corn for delivery to Mexico for the 2017/18 marketing year, which begins September 1. Weekly export inspections were 31.7 million bushels, ahead of last week’s 28.4 million bushels. The year-to-date total is currently 2,209 million bushels, ahead of year-to-date totals of 1,794 for 2016.

Preliminary volume estimates were 294,278 bushels, down almost 100,000 bushels from Friday.

Soybean prices lost some of its momentum it had been building over the past two weeks. November 2017 prices lost another 2.5 cents to close at $9.42. The U.S. continues to sit on an enormous crop, with 88.7 million acres nearing harvest – the most on record.

Arkansas and Missouri are both in talks to allow dicamba as a burndown product only, banning any usage after April 15. In Arkansas alone, there were at least 950 alleged cases of misuse complaints in 2017. Severe use restrictions could shy away farmers in these geographies from planting soybeans with the dicamba-tolerant trait or even shift toward other row crops for 2018.

In Brazil, trade estimates assume an increase in planted acres for the 2017/18 season. Estimates assume a 2% increase as Brazilian farmers reconsider areas previously planted to corn. However, assuming normal growing conditions for the region, production would come up 3% short from the record 2016/17 harvest.

Weekly export inspections were 26.3 million bushels, ahead of last week’s 24.6 million bushels. The year-to-date total is currently 2,097 million bushels, ahead of year-to-date totals of 1,855 million bushels for 2016.

Preliminary volume estimates were 126,297 bushels, up from Friday’s 106,856 bushels.

Wheat prices got hit the hardest of all of the grains Monday. December Chicago SRW prices fell 7.25 cents to close at $2.28. December 2017 KCBT Red Wheat fell 6.75 cents to close at $4.2550. And December 2017 MGEX Spring Wheat dropped 5 cents to close at $6.6425. It may be hard to find rally potential in the short term without other factors coming into play, given the currently oversold market and global supply glut.

Weekly export inspections were 24.6 million bushels, up from last week’s 21.8 million bushels and above the average trade guess of 18-23 million bushels.

Preliminary volume estimates finished at 117,705 bushels, an uptick from Friday’s total of 99,804 bushels.

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