March 10, 2017
It was a grind lower for corn, wheat, and soybeans this week due to profit taking and long liquidation ahead of the March 9th WASDE report from the USDA. Beans lost 31 cents for the week; Corn lost 16.6 cents while Wheat posted a 13 cent loss for the week. The monthly USDA report had corn ending stocks at 2.32 billion bushels unchanged from the month prior. U.S. feed use was lowered by 50 million bushels which was offset in ethanol usage of 50 million bushels. Exports were left unchanged. Brazil’s estimated corn production came in 91.5 million tonnes versus February’s 86.5 and 67 million tonnes last year. This could result in Brazil having an extra 965 million bushels to sell versus last year which makes them competitive on the world market and a bearish force for U.S. corn exports ahead. Argentina’ corn production was raised 1 million metric tons versus last month to 37.5 million tonnes. The combined South American production is now seen at 129 million tonnes, 33 million larger than last year. Converted to bushels it would equal almost 1.3 billion bushels. Therefore it is my view that U.S. exports should slow.
For Soybeans, the USDA raised ending stocks from 420 million bushels to 435 million which was above the average trade guess at 418.Brazilian bean production is projected to come in at a record large 108 million metric tons while Argentina looks to come in around 55 million metric tons. These are bearish supply side totals and combined with the market expecting an increase of 4 to 5 million more acres planted for beans in the U.S. this year, the path of least resistance looks lower. Managed money funds came in this week long over 100K contracts and without a major weather event ahead of the planting intentions report at month end, I look for more pressure to the downside. China has been absent from any sizable purchases in recent weeks and with record Brazilian crops coming online, rumors will emerge about unshipped sales and cancellations.
I’m starting to see a potential pullback in the reflation trade that began in earnest among asset managers across the board in the first quarter of 2017. We have started to see sizable liquidations in precious metals and energies along with the currency sector. I believe it’s only a matter of time that these fund managers liquidate sizable long positions in the soy complex as fundamentals will ultimately drive price. Demand has cooled while supplies keep growing. Without a major weather event I suspect this might happen in the next two to three weeks. Trend and Index following funds in my view like to “clean out the books” ahead of the uncertainties of planting and growing season. This year it could mean to liquidate profitable long positions. However they may wait for the all important planting intentions report on March 31st for confirmation of what is expected to show more acres form beans and a decrease for corn. In my view, look to sell rallies. Should we get one look to buy a July bean 980 put and sell 2 of the July bean 11.80 calls for even money.
Technical’s read like this for this week. For May soybeans support is down at 9.90 and with a close under 9.74 is next. Resistance is up at 10.35 and then 10.64. For May corn support comes in first at 3.57 and then 3.49. Resistance comes in at 3.78 and then 3.90. For May wheat support comes in at 4.33 and then 4.24. Resistance is up at 4.56 and then 4.70.
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Sean Lusk
Director Commercial Hedging Division
Walsh Trading
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