Farm Futures - Weekly Market Recap

Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
August 26, 2016

When it comes to soybeans at least, dull markets may not be all that bad. Volume was so low in beans for several of the dog days in August that wheat traded more contracts. But when the activity picked up, it wasn’t positive for prices.

The modest rebound in soybean futures came to a crashing halt during the last full week of trading for the month. As often happens, gains that took three weeks to build mostly were lost in just a week. The reasons were varied.

Weather appeared to be cooperating for the end of the growing season, boosting fears USDA’s forecast for a 4.1 billion-bushel crop was on target. Then near-daily USDA announcements of big sales suddenly came to a halt. U.S. soybeans remain the cheapest on the world market. But there were signs near-term demand from China slowed. Inventories at that country’s ports built while crush margins fell, a sign the processing industry there needed to take a breather on buying.

Selling was slow at first, then accelerated, feeding on itself. Price charts provided bearish signals for traders that it was time to move to the sidelines. November futures fell below its short-term trading range, then broke moving average support and the uptrending channel line for the rally. The 50-day moving average crossed over and went below the 100-day average. For some, that represented a “death cross,” another reason to flee.

Options trading also came into play. As the Aug. 26 expiration of September puts and calls approached the $10 strikes were in the crosshairs, triggering another reason for liquidation.

A final bearish influence came from outside markets. Soybeans moved in the same direction as crude oil and stock markets on many days. That association was positive as crude oil rallied and stock indexes hit all-time highs. But the tie turned into an anchor as worries spread about fallout from an increase in interest rates. That prospect became more likely following a speech by Janet Yellen, the head of the Federal Reserve, at the central bank’s annual symposium in Jackson Hole, Wyoming.

Soybeans could find some backbone soon, because demand still is strong. No supplies are registered for delivery against September futures, which start the delivery process Aug. 31. Basis continues to strengthen, with cash along the Illinois River, where deliveries focus, 20 cents or more above futures.

The next key date for the market is still several weeks away, with a holiday weekend looming that could limit volume again. USDA updates its supply and demand forecast Sept. 12, which seems like a lifetime away in the fast-moving bean market.

Corn prices stumbled into the final days of the 2015 crop marketing year, taking December futures to a new low close.

Corn supplies are more burdensome than soybeans, so the size of the crop is less of a concern to traders right now. Even yields that come in at the low end of expectations would generate record production, and enough to meet demand.

Even news that looked good wasn’t convincing. Sales of 2016 crop corn are near 20-year highs thanks to lower production in Brazil. But these early sales aren’t a good predictor of how final exports will turn out a year from now. They may only represent sales pulled forward, not new demand.

Lower prices do have one silver lining. The cost of ammonia fell to its lowest level in seven years, an indication growers aren’t planning another increase in corn acreage next year.

Soybeans are down, but maybe not out. Nearby futures held August lows on the late-month downturn, raising at least a few hopes the selling could burn out.

Our recent survey showed most growers took advantage of the spring and summer rally to book sales of new crop soybeans. That may limit their risk of losses on 2016 production. Growers are unlikely to get much, if any, ARC payment under USDA’s current price forecasts for new crop.  But good yields and sales at higher prices may be enough to turn a profit.

Storing soybeans at harvest has been a consistent money-maker over the past 15 years, according to our research. But those studies show futures perform as well as holding cash. That suggests growers who are tight on storage should consider moving soybeans on a basis contract to make room for corn.

Wheat prices plunged to their lowest level in a decade, with winter wheat contracts leading the way. Spring wheat futures held up better for a time, but even they succumbed eventually to the selling pressure.

The problem is too much supply and not enough demand. Many areas of the world suffered some challenges this year from weather, but there was no real widespread disaster that might have slashed supplies and gotten rid of burdensome inventories.

Wheat is grown round the world, and crops in progress now look good. Australia could harvest record production this year thanks to increasing rains. And storms provided good moisture for growers seeding wheat in the Black Sea region, which has become the supplier to much of the world.

End users in key importing countries like Egypt continue to have through with financing and bureaucracy, putting even more grain on the market. The result is a market still looking for a bottom.

Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.

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