Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
November 20, 2015

Markets that trade in narrow ranges may not be exciting. But they're better than the alternative, if the mood turns bearish.

Corn, soybeans and wheat all were range-bound after dropping in the wake of USDA's Nov. 10 reports. The reasons for this have mostly to do with the calendar.

USDA won't update its forecast of corn and soybean production until January, when its annual estimates are released, along with quarterly grain stocks and the first survey of 2016 winter wheat seedings. This is one of the biggest data dumps of the year. USDA's next monthly report, due Dec. 9, by contrast usually features only minor changes on the demand side.

The holidays are also beginning to slow down volatility, starting with Thanksgiving. With big speculators holding large bearish bets in all three crops, additional sellers may be harder to find in coming weeks as traders think about squaring positions and focusing on year-end activities.

The trading calendar also played a role in choppy trade. Nov. 20 marked the expiration of December options. Futures often tend to gravitate towards specific strike prices and stay there. Post-expiration trading could trigger a test of current ranges. If they hold it would provide further incentive for traders to do nothing.

The market also has its eyes on the horizon for Dec. 16. That's when the Open Market Committee at the Federal Reserve wraps up a two-day meeting on monetary policy. Bets in the market for Federal Funds futures show almost a 75% likelihood the central bank will raise interest rates for the first time since 2006. A few potential speed bumps stand in the way, including jobs data due Dec. 4. While the Fed has given strong signs it will raise rates, uncertainty about the moves' impact could also keep some traders on the sidelines.

Weather news could shake the market out of the doldrums, along with world events on a planet filled with trouble spots. Markets with thin volumes can suffer sudden shifts if stops get run that trigger automatic sales or purchases. High frequency trading computers could accelerate these moves.

But with bearish trends in place, farmers should hope sleepy markets continue.

Corn prices appear fairly valued based on currently supply and demand fundamentals. As a result changing prices will take either different fundamentals or a different attitude from big speculators.

With the northern hemisphere growing season ended, weather won't become a real factor until later in the winter and spring. Growers in Argentina may expand production whatever the outcome of Nov. 22 elections. Farmers in Brazil should plant less. Those fields are double cropped behind soybeans and planting delays could force some to consider alternatives rather than risk pollination during the driest time of their year-round growing season.

USDA's Jan. 12 reports could provide a surprise. Yield changes have run up to two or three bushels per acre in several recent years, enough to produce a reaction. Of course, yields could increase as well as decrease.

Major changes aren't likely from new renewable fuels standards due soon. Even with increased ethanol production this year, less corn could be used if plants switch to cheaper sorghum.

Soybeans can see rallies into January based on either strong demand or lower supplies out of South America. Neither looks likely right now, which has the market back on its heels.

It's been drier than normal in the key growing region of Mato Grosso in Brazil. But the area is still getting some showers. Other parts of South America are getting plenty of moisture – perhaps too much if heavy rains persist. But either prospect is not getting much traction now.

Chinese buying could be slowing as processor margins there fall. Overall purchases are down year-to-date, in line with USDA's forecast for weaker 2015 crop exports. U.S. crush appears good, but it's not enough of a boost to change the market's bearish dynamics. Growers should consider putting stops under the market to make some sales if futures can't hold, because seasonal trends favor lower prices into February.

Wheat prices continue to hover above lows, with most of the positive factors long-term in nature, providing little short-term support. Ukraine's crop emerged poorly after a dry summer and fall, and production could be 30% lower next year, enough to limit exports to minimal levels. Already there's talk about exports controls this year as a result. Australian production was also hurt, beset by dry weather during parts of the growing season, rains at harvest, and wild fires in Western Australia. Still, the country will have wheat to export in 2016.

U.S. winter wheat acreage looks like it could be 3.5% lower, with overall seedings down 3%. That could still result in a crop equal to 2015, keeping carryout at fairly burdensome levels.

With prices likely to stagnate at best over the winter, growers should consider starting to get rid of inventory, especially if basis is strong.

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