Soybean Fundamental Support
As the old saying goes “Rising tides lift all boats” and we say that yesterday as the run-up in corn and wheat pulled the bean complex higher. Heavy rain and snow totals were the fuel for the rally. It is estimated that 10% of the bean crop had been planted, the question now is how many of these acres will have to be replanted. The good news for producers is there is plenty of time yet to get the crop in. We might even pick up acres if the weather doesn’t break fast as it will potentially force some corn acres into beans.
Fridays CFTC report showed that Managed Money continued to sell totaling 2,447 contracts from Tuesday to Tuesday. That marked 10 weeks in a row of fund sales. Their current position is net short by 48,275 contracts. We would anticipate that this position was lighted up today and will be watching Tuesday's open interest report to confirm this belief.
With the funds carrying a record short position the grains there is plenty fuel to push the market higher if the market can get them to liquidate. With both the domestic and world balance sheets looking bearish we continue to encourage traders / hedgers to take advantage of any bounce that might materialize as we anticipate more downward pressure. Our in-house pricing model projects the market to work its way down to an early-summer low of $8.84 basis the November before we see our traditional summer bounce. The near-term weather maps will be the lead indicator of what direction this market takes near term.
Corn Fundamental Support
Reaction was seen Monday from both the weekend rain event, which covered almost all growing areas along with at least moderate fund buying. Last weekend's rain system turned out to put down just as much rain as was in the forecast on Friday. While it is a little surprising that trade did not pre-buy the rain event as they normally do, we did see the trade reaction we expected yesterday.
Forecast maps going forward are somewhat mixed. As of noon on Monday, the one- to five-day still suggested active rainfall for southern Illinois, most of Indiana and into Ohio. At the same time, that map also suggested drying out for all areas north and west of that system. In the six- to10-day there was a suggestion for a turn to drier. We will have to see what each map update shows and expect trade to react quickly to each and every update.
Funds also covered some short positions on Monday. It was tough to tell just how much of today's bounce was weather related and how much was fund related but there is little doubt they helped out by covering some of their reported 196,257 short positions. Some support was also seen today from trade expecting planting would come in at 31% which is slowed down again with the five-year average being 36%.
Short term we are in full spring time weather market now. Let's expect trade to react to every map update just as they did today. Longer term the scale of the bounce will be determined by how much of short position is covered by funds. If they went as far as to become flat it would be possible to take out highs on the year so far, if it only lasts a day or two then short-term resistance in the high 370's might hold just as it did today.
- Bulls will be looking for planting to come in at any number under 36%, preferably under 31%
- Forecast maps are mixed right now, still showing a wet one- to five-day outlook for areas that recently saw the most active rains
- By far the most supportive factor for the bulls would be to see funds short covering the huge short 196,257 position
- Bears will want to see a clear forecast to offer the opportunity of a better outlook going forward despite the current wet conditions
- So far, the July corn first resistance of 379-1/2 has held, that is a short term level to sell against
- Bears should know that if 379-1/2 is taken out follow up resistance on charts will not be seen until the high 380s
Wheat Fundamental Support
Over the weekend, images and news of snow and excess rains flooded my inbox and cell phone. The most significant concern was the amount of heavy, wet snow. For those with winter wheat in the western plains and down through the Texas panhandle, found their wheat buried and lying flat. Most areas saw 0.50 - 1.50 inch of precipitation. Many areas saw six to 12 inches of snow instead of rain. Temperatures fell to the upper 20s to low 30s over the weekend.
In the coming days net drying will be seen in most areas. Temperatures will warm to average or above average by the weekend. With an improving weather pattern emerging in both the six- to 10- and 11- to 15-day forecasts, this rally may be limited to just a few days or fewer. This current rally will become a selling opportunity soon as we project to head into our pre-summer projected low of $4.07.
According to the National Agricultural Statistics Service (NASS) for the week ended April 23, the crop is 82% jointed, but ahead of the 5YA of 70%. NASS reported Kansas' wheat crop as 25% headed, ahead of 20% last year. For spring wheat planting we see an increase from 22% to now 33% complete. That would be under the 46% 5YA as of Sunday the 30th. Our estimate suggests a 9% increase over the previous week. That is under the 12% increase seen over the past five years (range 2% to 20%).
The Bulls dominated the trade today pushing KC Wheat to near trading limits. Some winter wheat damage could be seen on 20% acreage. We expect a 2% cut to winter wheat ratings. That would bring it from 54% last week to now 52% good to excellent. That would be closer to the five-year average of 47%.
The 80 government officials, grain traders, millers, and famers participating in the Wheat Quality Council Tour will have the opportunity to glance at the damage of the recent storms first hand. They will post updates on DTN and Twitter by using the #wheattour17. Scouts will be evaluating impact of disease (stem rust, mosaic virus, etc…), emergence issues, and other production problems this week.
DTN analyst, Todd Hultman, reported, “Here in the U.S., wheat production accounted for 8.4% of the world's total in 2016-17 and U.S. exports accounted for 15% of world exports. Kansas wheat production accounted for one-fifth of the U.S. total in 2016-17. But this year, USDA estimates wheat plantings will be down 12% in Kansas and down 8% for the entire U.S., so an even smaller world share is likely.” Ending stocks/use ratios of 52% are at 30 year highs. Help from adverse weather is needed unfortunately, to benefit a trend of prices nearing 11 year lows.
Last week’s COT report showed managed money funds building their net short positions at the CBOT. They added 20,201 to make them a record net short in wheat of 162,327 contracts. Continuing news of rain and production problems will be needed to push this market higher. Otherwise, we could be in the middle of some temporary short covering while the market waits for better news