DTN Plains, Prairies Opening Comments

DTN Plains, Prairies Opening Comments

GENERAL COMMENTS:

The new month has started with the traditional reactions to pent up strategies being acted upon. In this case, sharply higher energy markets are inspiring bargain hunting in the vegetable oil markets that had been beaten up to end August. In the case of soybean oil, the buying comes in time to keep bullish technical formations intact while canola had gotten carried away to the downside. Cumulative drone attacks on Russia’s energy infrastructure risking that country’s output is getting credit, even though it’s not breaking news by any stretch. What could be is the risk of frost for the Western Corn Belt for Thursday morning. That is being ignored by corn and soybean markets in overnight trade, as was a record dry August in parts of the Eastern Corn Belt, with some of Friday’s gains being given back on light rain expected across the Corn Belt Wednesday as a cold front passes. That should go in the too little, too late file but time will tell. Other unusual moves to start the month so far include a very strong U.S. dollar and weak treasury markets. 

OUTSIDE MARKETS:

Treasury markets are sharply lower, led by the 30-year bond as higher-than-expected inflation in the Eurozone stoked fears of increased inflation globally. The long bond has taken out all of the August lows now, looking like it is ready to test July and maybe even May lows. The U.S. 10-year note is at 4.29%.

The U.S. dollar is sharply higher to start the month, testing its 100-day moving average yet again. It’s unlikely it will keep challenging it without eventually breaking higher. That fact, and the 97.00 level supporting values for almost three months now suggest a resumption of the downtrend seen during the first half of the year may now be unlikely. The Sept U.S. dollar is .650 higher at 98.340.

Equity markets are weaker to start the month on profit taking with an appeals court ruling after the close Friday that Trump’s tariffs are illegal not helping. They can still be collected until the matter is resolved one way or another by the supreme court, which the market so far assumes will rule in the Trump administration’s favor.

Energy markets are sharply higher as discussed in the general comments. Damage to Russian oil infrastructure may be getting the credit, but the technical action likely deserves as much with sharp rallies off support levels and 100-day moving averages clearly attracting buying interest. October crude oil is $1.76 per barrel higher at $65.77.

The Sept Canadian dollar is down .00310 at $.72590 with the U.S. dollar strength. The Brazilian real is also down .00160 at .18140. December gold is up $36.80 per ounce, setting another record high and at $3552.90 now.

OILSEEDS:

Canola is starting the month higher following significant selling to end August, presumably by funds. In an ironic twist, the delayed CGC weekly grain statistics report for week 3 ending Sunday, Aug. 24, was released Friday amid the heavy selling. The irony was that commercial stocks were incredibly tight at just 603,000 mt. So tight that exports had to be curtailed for the second week in a row as producer deliveries dried up with the delayed harvest and lack of carryover stocks. Producer deliveries were only 105,600 mt on the week, taking the total for the first three weeks of the new crop year to 448,500 mt versus 1.048 mmt last year. Exports had to fall to 78,500 mt with ships waiting, bringing the year-to-date (YTD) total to 434,500 mt versus 829,900 mt last year. Domestic use has been able to stay much closer to last years pace at 595,400 mt YTD compared to 680,100 mt last year. The improved harvest weather that weighed on values to end last week surely improved the short-term supply situation but will do nothing to help resolve the limited supply amid strong demand long term. In the meantime, Friday’s Commitments of Traders (COT) report confirmed managed money traders had continued selling off their long positions during the week ending Aug. 26. After another 6,372 contracts being liquidated on the week, they had reduced their net long position to just 29,204 contracts with most of those likely gone now after heavy selling seen at the end of the week and month. November canola is $5.10 higher at $631.50/mt.

Palm oil is sharply higher on strong export data for August and improved demand from India. The October contract is up 2.09%.  

Soybean oil is higher to start the month on bargain hunting thanks in part to strong energy markets. Buying emerged again at support at the top of the gap and the 100-day moving average again. Technically speaking, with a portion of the breakaway gap higher that was left on the daily and weekly continuation charts in mid-June remaining, a leg up from the saucer bottom that’s been years in the making remains as the primary technical influence going forward.

European rapeseed is stronger following a sharp reversal higher Friday from below the bottom end of its recent range. The result has been prices trading back into that range. November rapeseed is 3.50 euros higher at 470.75 euros per mt.

Soybeans are lower, giving back Friday’s gains on showers expected to pass through the Corn Belt Wednesday despite the drought damage and risk of frost. At this point, it appears to be nothing more than noise technically speaking with the real start of the month moves likely to be seen beginning with the traditional pit hours. Friday’s COT report confirmed funds are indeed taking the potential yield damaging dryness seriously and not selling into the price gains it inspires. Managed money traders added 20,815 contracts to their net long in a sharp reversal of their previous short position in three weeks. Commodity index funds were also net buyers during the week with them adding 8,168 contracts. That adds credibility to ideas that August production estimations were likely representing peak optimism for the year, and that future updates will contain lower yield projections. With the market much more sensitive to any production risks given the surprising cut in acres, there should be good underlying support on any pullback. With August being one of the driest in 133 years of records for many areas south and east of Iowa, pent-up buying to start a new month cannot be ruled out for the week.

WHEAT:

Wheat markets are under pressure, retreating from their 25-day moving averages yet again. It’s Minneapolis wheat’s turn to set new contract lows to start the month. Friday’s COT report confirmed that between Chicago and Kansas wheat markets, managed money traders had started covering their short positions ahead of the Aug. 26 cutoff, resulting in the attempted bottom formations. They were still net short 130,268 contracts or 651 million bushels (mb). To put that in perspective — the ending stocks estimate for those two categories of wheat is only 548 mb. Short covering by this group is likely the best hope for any meaningful rally.

CORN:

Corn is quietly lower ahead of Wednesday’s light showers, giving back a bit of Friday’s impressive gains thanks to strong exports and increased production risk. Concerns over a fast dry down thanks to intense disease pressure and dry conditions inspired significant buying interest by funds as managed money traders continue to try to cover their short positions and commodity index traders add to their longs on inflation concerns. It’s worth noting that the year is shaping up much like 2020 when record yields were predicted in August only to have the final yield well below trend. Technically speaking, the sharp rally off support at the 25-day moving average and early August resistance (now support) suggests an attempt by the market to fill the gap lower on July 7 would make sense. It would take a rally to $4.33/bushel in the December contract to accomplish that. Friday’s COT report confirmed managed money traders had reduced their net-short position by another 33,964 contracts or 170 mb during the week ending Aug. 26 — a clear indication of how serious they are taking the threats to record yield estimates. They remained net short 110,686 contracts or 553 mb with plenty of buying potential remaining.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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