- The soybean market showed how important demand continues to be.
- Options traders had a ball in the corn market post-report.
- Filed under things we already knew: The US is not running out of wheat.
REVIEW
Well, that’s out of the way. Now we can get back to the business of watching markets to understand real supply and demand. Do you remember the line from City Slickers when the hardened cowboy (Jack Palance) tells uptight city slicker Mitch (Billy Crystal), “Do you know what the secret of life is? One thing. Just one thing.” My longtime friend and MarketWatch Market Reporter Myra Saefong usually asks me what one thing stood out to me about each report, and this time around it was easy.
Soybeans: No, it wasn’t the fact in its January WASDE numbers USDA cut Brazilian production by only 4 mmt, coming in at 157.0 mmt. It also didn’t matter that if realized this would still be Brazil’s second largest estimated crop[i]on record, the ripple effect being Brazil’s total supplies would also be second only to last year, but rather Brazil’s export estimate was left unchanged at 95.5 mmt. In fact, the Big 3 export table was left as it was from December with China still estimated to import 102.0 mmt and US still expected to export 47.76 mmt (1.755 bb). March soybeans (ZSH24) fell as much as 33.5 cents before rallying a bit on noncommercial short-covering. Does this prove soybean futures are not weather derivatives, as some have claimed? Meaning droughts aren’t real? Of course not. What it does show is the commercial side is comfortable with US supply and demand despite a smaller 2023 crop because demand has been destroyed by trade war. Soybeans are still a weather derivative, just caught in a bearish demand market.
Corn: As I talked about this morning, March corn (ZCH24) was in a short-term sideways range between $4.6250 and $4.5175. While indications were the contract could see a bullish breakout, putting the target up at $4.7325, it instead pulled off a bearish breakdown and hit its low of $4.41. Was there a major fundamental change in the market? No. But options traders who played the short-dated straddle heading into the report did well (theoretically). USDA’s WASDE numbers gave me the biggest laugh of the day, though. World ending stocks were increased by 10 mmt[ii], with 9.84 mmt of that credited to China. Right. USDA can’t figure out what domestic stocks will be and we are supposed to believe it has a clue about what’s in store in China. If you believe that, I’ve got a mountain villa in south-central Kansas to sell you.
Wheat: As expected, there wasn’t anything market-breaking in USDA’s plethora of wheat numbers. If I had to use one for show-and-tell, though, it would be the December 1 stocks figures for all wheat of 1.410 bb. This was up 7.5% from last December and the largest Dec 1 number since 2020. Was it a surprise? No. The CME’s Variable Storage Rate program[iii] doesn’t come into play if the US is running tight on wheat supplies. The response by March Chicago wheat (ZWH24) was to initially fall as much as 16.5 cents.
PREVIEW
It’s USDA’s Data Dump Day. Yes, it’s that time again. The annual dumping of USDA data is scheduled for noon (ET), a day that 99% of the industry looks forward to more than Christmas. As I’ve said in the past, when it comes to hype, USDA’s January report day is the equivalent of the Super Bowl, Daytona 500, and Kentucky Derby all rolled into one. It’s a day of mixed emotions for me, with my general thought being of an annual kidney stone that has to be passed. As Friday unfolds, we have to keep in mind one crucial fact: USDA reports are not about fundamentals, or transparency, or leveling the playing field for all. No, these reports are about generating trade volume. It’s why brokers are the loudest voices telling everyone how important this nonsense is. It brings to mind a quote from Warren Buffett, “What gives you opportunities is other people doing dumb things.” Now, just for fun, let’s take a look at what really matters.
Corn: King Corn will get more active once USDA dumps its load. The March issue is heading into Friday’s fracas with a 10.75-cent range between its previous 4-day high of $4.6250 and 4-day low of $4.5175. One of the simplest methods of technical analysis tells us a breakout, in either direction, puts targets at the breakout point plus the previous range. This creates a possible trading range between $4.7325 and $4.41 before the closing bell rings today. Thursday evening’s national average basis calculation came in at 25.5 cents under March futures as compared to last Friday’s figure of 27.0 cents under and the previous 5-year low weekly close for this week of 32.75 cents under March[iv]. Futures spreads were neutral at Thursday’s close and I’m expecting them to still be neutral when we head to Ceres (or its local equivalent) after the day is done. For the record, I’ll be looking at USDA’s latest demand guesses for US corn. Recall the December round of estimates kept feed (5.65 bb), ethanol (5.325 bb), and exports (6.74 bb) unchanged from the previous month. This sets the stage for today’s changes.
Soybeans: Heading into Friday’s session, futures spreads remain neutral-to-bullish with all eyes on the May-July after it closed within 0.25 cent of its low daily close of 8.25 cents carry Thursday. As for national average basis, the latest calculation came in at 54.5 cents under March futures, unchanged from last Friday’s final figure and below the previous 5-year average weekly close for this week of 44.5 cents under March[v]. While most of the yammering will be about USDA’s latest guess on Brazilian soybean production, as with corn, I’ll be watching for changes in demand for US supplies. Keep in mind total sales (total shipments plus unshipped sales) were running 17% behind the same week last year with USDA’s December guess on export demand down 12% from last year.
Wheat: A look back at Thursday’s session, when March Chicago closed 7.0 cents lower, shows total open interest in the market increased by 4,400 contracts, with March adding 1,500 contracts on its own. This again tells us funds were adding short futures positions ahead of today’s data dump. Why? I can think of a few reasons: First, the noncommercial side is not afraid of anything USDA might make up with its latest wheat numbers. Second, funds know few will be paying attention to wheat today anyway. Third, the SRW markets REAL fundamentals remain neutral (futures spreads)-to-bearish (basis). Given all that, though, the door is open to a round of short covering if corn and soybeans get carried away in post-report enthusiasm. The most interesting wheat number, at least to me, will be the latest CFTC Commitments of Traders report (legacy, futures only) noncommercial net-futures positions released later this afternoon[vi].
[i] Note the difference between “estimated crop” and “actual crop”. We never actually know the latter.
[ii] For the record, US ending stocks were increased by 0.79 mmt (31 mb)
[iii] This kicked in last September due to Chicago futures spreads covering more than 80% total cost of carry.
[iv] The previous 5-year average weekly close for this week is 13.75 cents under March corn futures.
[v] The previous 5-year low weekly close for this week is 80.5 cents under March soybean futures from 2019.
[vi] Recall last week’s updated showed funds continuing to hold net-short futures positions in all three wheat markets.
More Grain News from Barchart
- Wheat Market Fades through Thursday
- Corn Finishes Thursday Red
- Soybeans Firm up on Thursday
- Cocoa Prices Push Higher on Smaller Cocoa Supplies from the Ivory Coast
