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Market Report

Thursday May 24th, 2018

July corn closed down 4 ¼ at $4.04 ¼ and December closed down 4 at $4.22 ½. July soybeans closed down 3 ½ at $10.35 ¾ and November closed down 1 ¼ at $10.47 ½.  July wheat closed down ¾ at $5.30 ¼ and September closed down ¾ at $5.47. Crude oil closed down $1.13 at $70.58.

Corn looked set for “more of the same” today, with futures reaching up to new highs overnight and trading firm early in the day. The markets began to buckle a little mid-day, however, which kicked off a quick break in the market. The corn market finished right on its lows, settling four cents lower on the day. Managed Money traders were viewed net sellers of about 15,000 corn today, which would take their net length back to recent highs of 210,000 combined futures and options. They may be looking to lighten up a little heading into the three day weekend. Weekly USDA Export sales were toward the high-end of expectations for corn. Net new sales of 854,300 metric tons for old crop (17/18) and 273,400 for new (18/19).

On the weather front, most of the “fireworks” are abroad, with concerns centered mostly in a couple of major world wheat producers. Brazil crops are still generally walking back, with estimates in the low 80′s versus high 80′s earlier this month.  Last weekend’s rains are ancient history with dryer conditions settling back in. The U.S. Midwest is entering a welcome warm-up phase that should help the final 20% of the crop get planted in a timely fashion, likely ahead of the Northern Plains May 31 “FPD” deadline. Despite better weather, Argentine farmers only managed to harvest 1% of their corn crop last week, taking the total to 35% complete.

The soybean market extended its rally to a new recovery high but was unable to hold the gains and reversed back to the downside.  The keys to the reversal were likely the poor spread action the awful weekly export sales report, and the lack of meal leadership. It will be interesting to see if the market will liquidate some of our new length heading into the holiday weekend. Bean export sales were downright ugly at -140 tmt old crop and just +7 tmt net new crop. The highlight of the weekly sales report is the cancellations of old crop beans from unknown (895) and China (53) but it is important to note that this was already picked up in the daily report and traded last week.  The negative new crop meal total of -43 tmt came on a cancellation by the Philippines. Speaking of China, a breakthrough in trade negotiations indicates a willingness to expand purchases of US ag products which, if finalized, will stabilize the downside risk to a certain degree in the market moving forward.  We may start to see the resumption of trade confirmations of Chinese by the USDA in the coming days/weeks but considering the healthy domestic and global supply situation the price of soybeans should not get out of control to the topside without a US weather issue. In terms of weather, we will end the month with a warming and drying trend across much of the corn belt with the exception of the plains where a wetter pattern sets up while the central to eastern belt goes the other direction as a ridge sets up. While there have been some areas that have seen significant rainfall during the month of May there are many others that have not been as wet so there is some concern building over a drying trend as we head into summer.

For much of the overnight, price action was quietly mixed, but around the time the European markets opened all of that would change. Matif wheat had a gap higher start to their session, which in turn provided a spark to trade here in the US. The IGC raising their 2018/19 global wheat production estimate by 3 MMT may have deflated the balloon a little, but trade still ended the night strong. During the first couple hours of the day session price action was choppy, first rallying to new highs, then breaking, then re-rallying to new highs once again by late morning. Shortly around the time Trump announced the cancellation of the US and North Korean meeting in June, price action across the entire grain complex started to turn. The rest of the session saw trade gradually weaken.

It would be unfair to say that the Trump announcement was the reason behind the grain markets reversal today, but it does beg to ask how much uncertainty does this bring back to the table now. Where does that leave the US relationship with China? Today, the grain markets appeared to be a bit nervous as they all came unglued and finished near the session’s lows in a somewhat wide trading range. But what does all this mean for the grain markets Friday? How much energy will the markets have left going into a three-day weekend, with these new longs feeling the strongest pressure to liquidate? For the second time in the past three days the volume of trade in Chicago wheat futures exceeded over 200,000 contracts. Today’s volume may have been a record. The wheat market’s reputation of carrying completely through, to the upside or to the down side, and make that good or bad trade has been downright awful lately. After today’s reversal type price action, it is easy to look at a chart and say here we go again.

Anna Kaverman

anna@mercerlandmark.com

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