DTN Plains, Prairies Opening Comments

DTN Plains, Prairies Opening Comments

GENERAL COMMENTS:

It seems the grain and oilseed markets are stuck in the twilight zone where the debate between (what seems like unrealistically high) record yield estimates and much lower outlooks (thanks to drought and disease damage) cannot be resolved until the combines roll. In the meantime, changing export (and domestic use) patterns with China no longer the dominant player keeps prices on the defensive. The overnight trade was no different with prices leaking lower amid a lack of bullish news. Weaker energy markets are of no help with growing speculation that OPEC+ may increase production quotas for October at this weekend’s meeting. Up until Wednesday, there was a consensus that no increase would be seen this time. Financial markets are still reacting to a surprisingly weak Job Openings and Labor Turnover Survey (JOLTS) report released Wednesday that had treasuries sharply higher with lower interest rates the result. A weak labor market is the one thing that Jerome Powell has consistently said would inspire the Fed to lower interest rates. This is yet another sign of such labor weakening. It will also make Friday’s payroll report that much more important. The lower interest rates helped equities resume their push towards record highs yet again and took the wind out of the sails of the U.S. dollar rally Wednesday.

OUTSIDE MARKETS:

Treasury markets are extending gains following a sharp rally on Wednesday thanks to the weak JOLTS report. Technically speaking, that resulted in the 10-year note rallying off the 25-day moving average with prices currently at levels not seen since April. The weak labor data is aligning with the political will to see interest rates fall with that expected to start at this month’s Federal Reserve meeting. The 30-year bond is still relatively weak on inflation fears, but it too recovered from Tuesday’s losses. The U.S. 10-year note is at 4.19%.

The U.S. dollar is quietly higher after retreating from its 100-day moving average yet again Wednesday on the weak JOLTS report. That said, it’s still unlikely it will keep challenging it without eventually breaking higher. Time will tell. The Sept U.S. dollar is .122 higher at 98.205.

Equity markets are extending gains seen following the weak JOLTS report on lower interest rate prospects. Even a weak labor market and a Fed Beige Book update reporting increased evidence of stagflation can’t seem to slow the bulls.

Energy markets are weak thanks to speculation of increased OPEC+ production quotas for October as discussed in the general comments. Diesel futures are following crude down after avoiding much of the break on Wednesday. October crude oil is $.89 per barrel lower at $63.08.

The Sept Canadian dollar is down .00150 at $.72375. The Brazilian real is down .00005 at .18200. December gold is down $36.20 per ounce at $3599.30.

OILSEEDS:

Canola is leaking lower yet again with it appearing as though end users don’t want to step up and start buying as long as momentum traders keep pushing prices lower. Harvest pressure will be adding to the selling given the beneficial weather seen for most of the Prairies over the past week. With the market very oversold, bargain hunting could be significant once confidence grows that prices have stabilized. November canola is $4.00 lower at $612.90/mt.

Palm oil is quietly higher, again displaying relative strength of the global vegetable oil markets (thanks to expectations of slower production growth). This will need to be monitored as a premium to soybean oil cannot be seen again given the limited supply of soybean oil available for export amid strong biofuel demand. The October contract is up .18%.  

Soybean oil is quietly lower amid a lack of bullish news and weakness in energy markets. Support at the top of the gap and the 100-day moving average is being tested yet 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 extending losses seen Wednesday thanks to widespread weakness in global vegetable oil markets. November rapeseed is 6.25 euros lower at 458.25 euros per mt.

Soybeans are leaking lower as the market continues to focus on the lack of anything promising regarding potential sales to China. The fact global importers will likely have to turn to the U.S. if China takes more of the available South American exportable supplies and increased U.S. crush requirements will leave less available for export will have to wait to be proven out over time. For now, China’s absence is outweighing that and potential losses thanks to a dry August and forecast for more of the same for the first half of September (at least).  

WHEAT:

Wheat markets are setting new contract lows yet again. Even though they are new lows for the December contracts, they are still (barely) above multi-year lows set on nearby contract continuation charts. That may attract some bargain hunting and fund short covering. 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. To put that in perspective — the ending stocks estimate for those two categories of wheat is only 548 million bushels. Short covering by this group is likely the best hope for any meaningful rally.

CORN:

Corn is only quietly lower, holding up relatively well amid the sour market sentiment thanks to the stellar export demand despite China’s complete absence. This could be the role model for soybeans as the realignment of global trade patterns resulted in record U.S. corn exports in 2024-25, not a collapse amid China’s absence. Concern over production prospects (due to drought and disease damage) and a lack of farmer sales despite nearly record high new crop export sales (which has exporters with a reportedly large short position that they need to fill) keeps buying interest strong despite private forecasts continuing to call for record high yields. The trade is obviously taking those with a grain of salt, assuming they may be self-serving. 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 million bushels 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 million bushels with plenty of buying potential remaining.

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

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