World Perspectives
feed-grains

AM Outlook - Two Potential Plays

GOOD MORNING,

Prices for the soy complex are mixed, with beans lower, products trading both sides.   Oilshare is seeing some profit-taking on the back of lower palm and crude.   Grains are mixed with wheat higher to begin the session, but all turn positive by the end of the PM session.  

The September Quarterly Stocks report was bearish beans and corn, and friendly / bullish wheat.  The report was decidedly more bearish beans than corn, which could set off a buy corn/sell bean spread trade.  Since prices were on nice rallies into the Sep 30 report, the aftermath of a bearish report was a set-up for a buy -the-report, sell -the- fact trade.  The bean number was a surprise, and since that market was on a good rally and surprises offered the most bang for the buck, the unexpected rise in production resulted in a quick downside correction, forcing the market to ratchet lower to digest the new higher supply scenario.

beans:  production at 4.216 bln bu was above estimates, and ending stocks well above expectations.  Bean ratio could loosen from 3.9% to 5.7%.   China is on holiday next week but prices are better than they were before the report. Production was 80 mln higher which was a shock to the market.  Shocks provide the most bang for the buck, and markets must digest what they have been given.  Rule of thumb is that beans at 256 mln bu is in the realm of comfortable supply.  

corn:  stocks were above estimates on another surprise from the USDA.   75% of harvest is left and disease will be monitored to see if there is a drag on yields in Iowa, Illinois, Illinois and Indiana.   South American weather and Chinese buying patterns will determine if corn is in a value range.  Corn may sit while beans work a bit lower, which may spur on more buy corn/sell bean trade.  

wheat:  report was friendly with all wheat stocks, winter wheat, HRW, SRW, and white wheat all slightly below average expectations.   Supplies are tight and tenders remain very active.  USDA cut all wheat production by 51 mln bu vs. year ago and found enough June-to-Aug consumption to drop Sep 1 wheat stocks to 1.780 bln bu.  Drought in Minn. resulted in a cut to other spread wheat harvested acreage.   The Sep. 1 wheat stocks are the tightest since 2014/15.  Pullbacks should find support on the friendly numbers and friendly chart patterns.  

Mini-trends should continue, ie that of higher oilshare.  Vegoil demand is still good, as palm oil prices hit new ctr highs.  Demand from India is great ahead of their major festival season, and they are a top importer.  Veg oils are part of the cooking festivities.   

Buy corn/sell bean trade could emerge, as the report was more bearish beans than corn.  Yields are still coming in as varied for corn, while beans may have gotten through the season with good weather keeping yields in an uptrend.  

Buy wheat/sell corn could also emerge, as the Sep report was bullish wheat/neutral to bearish corn.

WEATHER

--US harvest continues but there are delays noted in central and western areas due to rains.  Maps turn back to below normal rains in the 6/10 day allowing for good advancements and better handle of yields and production.  Rains are reaching most of the plains in the next two weeks, recharging supplies for much of the winter wheat crop.

--SA weather is mostly unchanged but there are better chances for rain next week.  La Nina talk persists.  

ANNOUNCEMENTS

Brazil's Datagro forecast bean planted area up by 4.1% to 72.5 mln hectares vs. 2020 yr.  Total grain is forecast at 299.3 mmt vs. 256.2 mmt forecast this year.

Ukraine farmers have harvested 47.0 mmt of grain from 67% of its sowing area with the yield averaging 4.38 tons/hectare, the ag ministry announced today.  Volumes include 32 mmt of wheat, 9.6 mmt of barley, 1.9 mmt of corn, and other grains.  This is an all-time record.

OCTOBER DELIVERIES

Soyoil:  88  Bunge stops 81

CALLS

Calls are as follow:

beans:  2-3 lower

meal:  1.20-1.60 higher

soyoil:  40-50 pts lower

corn:  2 1/2 to 3 1/2 higher

wheat:  10-12 higher

What to look for today?  Impressive comeback in corn, which may keep beans supported above $12.50.

OUTSIDE MARKETS

The Dow up 110 pts. with crude oil trading to $74.23/barrel, and the US dollar down to 94.05.

TECH TALK

  • December corn could have played out its trading range yesterday with a low of $5.27 and a high of $5.48.  A good uptrend line has emerged on the chart, and despite the bearish reaction prices did not break it, which crossed today at $5.30.  The price action is a bit resilient, and a continuous trade above $5.25 suggests it is a low in a $5.25-$5.55 trading range.  
  • December wheat chart direction is strong with a new high this AM at $7.39 1/2.  The friendly report is prompting short-covering and perhaps new longs.  The low end of the trading range now moves up to $7.00 given its hold on a large break yesterday and the fact that the 100-day moving average crosses there.  Would look for the potential to move up to $7.45/$7.50 as the trading range is now higher than before.   
  • November beans put in an outside day closing lower yesterday, but more importantly could not get over the $13.00 level Thursday.   Trading ranges ratchet lower in lieu of the report.  Target low is $12.35-$12.40.  
  • December meal congested sideways from $335.00-$345.00, but the pattern has been to trend lower, head sideways before moving down again.  Chart congestion from $335.00-$345.00 now becomes a ceiling of resistance as the target low moves down to $320.00.  
  • The December soyoil chart remains constructive with prices in a 55c-60c trading range.   Oilshare resumes a strong trend higher as palm oil hits new highs and crude oil remains over $70/barrel.  Target high is 60c, and think we get there.  Pullbacks in soyoil should see support, with good support moving up to 5750c.  

DECEMBER MEAL

December meal trend has been steady to lower.  Periods of price congestion are followed by breaks to new lows.  Yesterday the pattern continued, as prices which had been from $338.00-$348.00 finally broke down on a bearish USDA report.  New lows beget new lows, but the market break-down to $328.00 does take price action to trendline support.  The down-trend is fairly weak, sitting under the 25 ADX needed for a strong trend.  Resistance now moves down to $340.00 as the market could eventually target $320.00.  Key resistance moves down to $337.00, but think we head back there for a new and adjusted range lower.  Other than a double low in place, there is no sign of reversal trade.  

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