Farm Futures - Weekly Market Recap
Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
May 20, 2016
We’ve all heard the joke about spring weather: Just wait five minutes and it’ll change. The same was true of factors dominating markets this spring. The forces driving prices higher and lower changed quickly.
Sometimes traders following price charts seemed to rule the day. Other times supply and demand fundamentals were in charge. But behind it all stood the flow of money in, and out, of commodities.
After falling out of favor for much of the past two years, hard assets set long-term lows this winter and started to recover. Low borrowing costs – and in some countries, negative interest rates – encouraged cheap money to find a new home.
Fears the Federal Reserve could end that party sooner than expected triggered selling when minutes from the central bank’s April meetings hinted another rate hike could come in June. Higher interest rates tend to attract money to a country’s currency, and a surge in the dollar was generally viewed as bad for commodities.
Those fears broke soybeans and crude oil, which showed a strong tendency to move in the same direction. But the sour mood didn’t last long. Led by soybean meal, which rallied to its highest price in almost 18 months, beans bounced back. Margins for processors are strong, in part because plants cut back production over the winter just when a smaller crop threaten product exports from Argentina.
Other news about demand also took an encouraging turn. Export sales of corn, soybeans and even wheat were better than expected. Problems with corn in Brazil and soybeans in Argentina may be turning some end users back to the U.S., as USDA forecast in its May 10 report. Wheat is just cheap, and lower prices appear to be stimulating some demand for higher quality supplies.
Weather was also an issue. Cold, wet conditions delayed planting and slowed emergence in some areas. But overall planting progress was about average. Forecasts for increased chances that La Nina conditions could develop this year were at least partially reinforced by summer outlooks that called for warmer temperatures over the much of the country. Rainfall would be average to above average, which could limit problems.
Mixed reviews. -- >>>
Price charts followed by technical traders gave mixed reviews. Corn was unable to take out April highs, but held 200-day moving averages. Soybeans were rangebound, but held onto chart supports from their April-May rallies. Even wheat charts had a few encouraging trends. Spring wheat held one-month lows while winter wheat futures stayed above contract lows.
If money flow, charts, weather and demand all align, the market may be headed higher this summer. All will tend to feed off each other, for better, or worse.
Corn prices shook off USDA’s bearish May 10 reports to rally on better demand and concerns about weather. Some growers even had a shot at $4 cash corn, and enough sold to weaken basis. Large supplies of old crop remain on farm and in town, which should shift the focus to growing season weather quickly in June.
The varied pace of planting this spring could spread out pollination, especially in the eastern Corn Belt, which also has the greatest potential for above average temperatures this summer. The best chances for rallies should come when that heat works into forecasts from late June through mid-July. December futures has a shot at reaching profitable levels, around $4.40 to $4.50, so plan now how you’ll deal with that opportunity, should it arrive.
Implied volatility is on the rise, increasing the costs of using options. Selling calls to buy puts may be one choice, but carries its own risks, including margin calls. Talk to elevators now to see if they offer mini-max contracts as an alternative.
Soybeans were choppy on price charts, and no wonder. Market movers all seemed to give conflicting signals.
Wet weather that delayed corn planting in some areas could boost soybean seedings. But longer term forecasts show chances for heat building into the end of summer and early fall, just when it could do the most damage to the crop.
Export business picked up. But new crop sales still lag behind, running at seven-year lows. While losses in Argentina could spur some business, growers in Brazil are planning more expansion for the crop they’ll plant this fall.
Rallies now boil down to weather in the U.S. over the next three, maybe four months. Be ready for some nervous times ahead.
Wheat exports were a pleasant surprise as the end of the 2015 marketing year drew closer. But overcoming large U.S. and global supplies still looks like an uphill climb.
Conditions for winter wheat remain good, with harvest already underway along the Texas Gulf Coast. Concerns about a developing drought on the northern Plains could lend support, though storms are set to move across that region into the end of May. Their coverage could be crucial.
Otherwise, growing regions around the world are mostly in good shape. That includes the key Black Sea region and Western Europe. Eastern Australia remains a little short of normal rainfall, but Western Australia appears in better shape, with more rains in the forecast ahead of seeding.
Bryce Knorr 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 www.FarmFutures.com 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.