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Market Report

Wednesday February 27th, 2019

May 19 corn closed down 2 ¼ at $3.73 ¾ and December 2019 closed down 1 ¾ at $3.94 ½. May beans closed down ¼ at $9.16 ¾ and November 19 closed up ½ at $9.49 ¼. May wheat closed down 1 ½ at $4.66 ¾ and July 19 closed down 2 at $4.73 ¼. Crude oil closed up $1.40 at $57.37.

The corn market kept the pressure on the bull, which is common on “position day” ahead of the delivery cycle. Futures finished the day lower, bouncing back a little late to close off the session’s lows. Markets attempted a bounce overnight, but the “up” board did not survive the first hour of trade. Managed Money funds were believed net sellers of another 20,000 corn today. This was the third consecutive day of such activity which by estimates would leave them net short roughly 110,000 futures and options.

One of the major emerging stories in our view in corn has been the dramatic repositioning of the corn market over the past month. As noted above, funds have decisively flipped to the “short” side of corn. Slowly at first, and more rapidly in recent days after being small net longs into late January. At the same time, the advent of the March delivery cycle has no doubt stimulated many smaller speculators and frustrated bull commercial players to “throw in the towel” on some length. The end result is a cleaner market positioning with some fuel underneath via the fund short. But what spark will ignite it?  Until then, we wait.

The weekly EIA report leaned neutral for ethanol, as expected.  Production rebounded +3.2% off the prior week’s very low level, which was more than the 1-2% increase trade was expecting. A 1.028 mil bbl/day rate would utilize 5.53 billion bushels of corn over a marketing year, which is slightly below the YTD average. USDA Sec Perdue testified to Congress today that the rule-making necessary to allow E-15 ethanol sales year-round may not be complete in time for summer driving season due to the gov’t shutdown. He also noted that if it is late, they “could compensate by declining to enforce the current summer-time ban.”  Not likely to inspire retailer confidence?

The markets will get their first “regular” up-to-date look at weekly sales tomorrow in a couple months. It is likely to find something close to 1 million metric tons of new corn business, but it would not surprise us to see it come in well under that mark. Competition has been fierce, and will not go away anytime soon, especially as we get closer to summer and South America’s “gut slot” corn export period. The recent futures break reawakened South Korea.

The soybean market was unable to hold its early gains and closed a tick lower up front and a couple ticks high in the new crop.  It was a very quiet trade and outside of the roll, trade volume was abysmal. While anticipation of export confirmations to China and the potential for a larger trade agreement with China continues to underpin futures, the lack of a confirm so far this week on the 10 mmt promised from last week and some hawkish testimony from US Trade Rep Lighthizer prevented beans from holding its attempt to bounce back out of technical support today.

Lighthizer’s comments in a nutshell were somewhat sobering to the trade bulls as he reiterated that there will be no deal made that fails to address the structural reforms and enforcement.  He also said that purchases of US goods alone were not enough to resolve the dispute. Keep in mind Lighthizer is the trade hawk/bad cop and don’t be surprised if Mnuchin or somebody else surfaces in the news at some point here with some more positive rhetoric to play the good cop as has been the pattern for months. With 1 day left in the month/calculation period for crop insurance, the avg. price of new crop beans this month has been $9.54 ¼ and corn $4.00 on the nose. The new crop bean/corn ration settled at a new high today of nearly 2.41%.

The overnight wheat rally was unable to carry into the day, and prices moved aimlessly lower throughout the session before settling slightly better in old crop, and slightly lower in new crop. Third time in the past two days that the markets tried to rally off what looked to be profit taking and maybe even some bargain hunters taking a shot at being long wheat at these suppressed prices, only to run into a brick wall of resistance and a market telling those that the break may not be over.

Yesterday’s commitment of trader’s report, which is now only a few weeks out from being current, showed managed money in Chicago wheat are only holding a short position of around 16,000 contracts. Even if you add in the selling of the past few weeks, they are nowhere close to their record short position, which comes in at over 162,000 contracts. If the funds want, they still have plenty of ammo (resources) to pound Chicago wheat prices down even further.

We have an export sales report in the morning. Last week’s culmination report of six weeks came in much larger than expected at 3.574 MMT, with an additional 244 TMT of new crop for a combined sales number of 3.819 MMT. Tomorrow’s data is for just one week, but it nevertheless will be an interesting report. It is impossible to tell if all the sales from a couple weeks ago made last week’s report. The Nigerian tender looked to be there as they were one of the bigger surprises last week. The two cargoes of SRW wheat to Egypt was there, as was the Korean business, but we also had a couple HRW wheat cargoes to Egypt that was not expected, so was that there in error? And what about all the Unknown business?

Anna Kaverman

anna@mercerlandmark.com

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