Grain Spreads: Trade Wars, Weather, Headlines, WASDE

Sean Lusk General Commentary Leave a Comment

Rumors are swirling into the weekend that China and the US are close to announcing a near term trade deal. Equities have responded with a sizable rally. That sentiment is spilling over into grains and then livestock. The result is sizable short covering in Corn, Soybeans, Soy meal, and all Wheat classes. Question is do the grains extend this push, or do harvest supply side pressures emerge next week and send prices lower? That question may not be answered until we get through this weekends storms that are due to hit much of the Dakotas, Northern Illinois and Iowa, and large growing ares of Minnesota and Wisconsin. The storm could produce a foot of snow, 60 to 70 mph winds accompanied by overnight lows in the low 20’s and high teens in some areas. It wont be the same everywhere but with both corn and bean crops behind in maturity it gives thoughts to lower future production. Couple that with good news on the demand side with sizable AG buys from China, and that makes short covering an easy choice by funds who have been static short for sometime. Yesterdays WASDE report was bullish beans, bearish corn, and slightly bearish wheat in my view. Ending stocks for beans came in at 460 million bushels. This was lower than the average trade guess of 496 and is down to a level not seen in two crop years when ending stocks were at 438 for the 17/18 crop. Keep this in mind. Bean production could be a billion bushels less than last year. The USDA has production estimated at 3.55 billion bushels. Last year final production numbers came 4.42 billion bushels. In my view, if we see lower production this year due to weather hiccups, I could see Jan 20 beans trading up to 9.94. That level is a 50 percent retracement from the 2016 high and this years low. Jan 20 beans settled 950 today.

Corn’s numbers yesterday were bearish versus expectations, yet we made a new high for the week today at the close. Short Covering anyone? Managed money was still short over 100 K contracts into this week and into yesterdays report in my view. The WASDE numbers raised yield, lowered exports, and kept production the same from the September report. A bearish surprise for some. The result, they bought or short covered yesterday’s dip. This reaction in my view is the result of the aforementioned weather forecasts of widespread frost/freeze and potential buying out of Asia. I think the psychology in the trade regardless sees corn production getting smaller and not larger from the Oct report on out. However that doesn’t mean we will trade higher. If China walks away, or corn/wheat are left in the cold regarding future AG purchases, we could see 380 revisited quickly on the corn chart early next week. Lots of moving parts here.

Technicals as follows for next week. For Dec 19 corn. Resistance at 399.6 and then 4.05 and then 4.09. A close above and its 420 and then 429. Support is 393. A close under and its 379. Under 379 and its major support at 370/371. Beans have support at 923. A close under and its 910/908. Under here and its Katy bar the door to 882 -880. Resistance is 941. Over and its 965. Over 965 and its 971. A close over here and its 994. Chicago wheat has support now at 5.06/5,04. Under and its 487. Under 487, its 471.4 and then 462..4. Resistance is at 522.6. A close over here and its 545.2 and 550.

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