DTN Plains, Prairies Opening Comments

GENERAL COMMENTS:

The canola market is returning from its Thanksgiving break to the same turmoil caused by escalating tensions between China and the U.S. that it left on Friday. The saving grace for canola so far was the offer by the Chinese ambassador to remove tariffs on canola if Canada did the same on EV’s. There is a strong push from western Canada, including from premiers, to take them up on it. Meanwhile, despite efforts to try to publicly minimize the tensions between the U.S. and China, the markets have resumed their anxiety attack. Treasuries are sharply higher on a flight to safety bid (plus damage likely to be done to the economy by increased tensions and the ongoing government shutdown), equities and energies are trading sharply lower on the same, and gold (the ultimate reserve currency) is setting record highs yet again overnight. The U.S. dollar is also higher on a flight to safety bid, but not aggressively so considering the damage being done. The implementation of port fees by China (matching the U.S.) is getting the blame, but China’s attempt to stress that export controls on rare earth materials are not a ban is failing to provide much comfort. They leave out any use for military applications as an allowable export use, making it clear that export licenses will still be granted in a case-by-case process as long as not for military use. That will be the critical sticking point for relations between the two countries. In the meantime, the lack of any sign of an end in sight for the government shutdown keeps the market anxiety high amid a lack of actual data to trade on.  

OUTSIDE MARKETS:

Treasury markets are sharply higher, approaching levels set in early September on developments noted above. Regardless, the market is still pricing in just two more quarter-point rate cuts this year. The U.S. 10-year note is 4.01%.

The U.S. dollar is quietly higher, testing Thursday’s reaction high in what looks like a breakout now that the 100-day moving average has been cleared. It is approaching the end of July high (100.055) with close over that leaving the double-bottom target of 104 in traders’ sights. The December U.S. dollar is .170 higher at 99.200.

Equity markets are sharply lower in what has been another outside reversal lower on the day (so far). The divergence top left prior to the violent selloff Friday is a strong technical warning sign of a more significant correction to come.

Energy markets are extending Friday’s selloff on the deterioration in relations with China and the impact it (and the shutdown) may have on the economy. November crude oil is $1.38 per barrel lower at $58.11.

The Dec Canadian dollar is down .00150 at $.71295. The Brazilian real is down .00115 at .18145. December gold is up $15.80 per ounce at $4148.80.

OILSEEDS: 

Canola has remained surprisingly resilient through the market volatility of the past few days, likely thanks to China’s public offer to remove canola tariffs if Canada does the same with EV’s. That was expected to be the case, but this ramps up pressure on Ottawa. Technically speaking, the divergence bottom formation remains intact with a solid close over the 25-day moving average needed to confirm (at $619.10/mt currently). Prices did test it again overnight but have so far retreated. November canola is $4.60 higher at $612.00/mt.

Palm oil is lower on sharp declines in energy markets, retreating from the neckline of its broad inverted head-and-shoulders bottom formation. December palm oil is .84% lower.   

Soybean oil is sharply lower with pressure coming from a similar move in the energy complex. It turned out last week’s selling resulted in a retreat from the 100-day moving average (even though it hadn’t quite rallied to that point), not a strong look technically. The soybean oil premium over palm oil is currently $40/mt compared to $247/mt in July. Such price relationships and concerns over palm oil supply suggest that soybean oil export sales make sense here. We will know once the shutdown is over.

European rapeseed is back within its recent trading range. November rapeseed is 4.00 euros lower at 465.75 euros per mt.

Soybeans are lower on the developments discussed in the general comments and ongoing seeding progress in South America. Technically speaking, support at $10/bushel is being tested again with the lack of data not helping to feed any bulls here.

WHEAT:

Wheat markets are setting new contract lows yet again with both Chicago and Kansas now under $5/bushel. The last COT report confirmed that between Chicago and Kansas wheat markets, managed-money traders were net short 148,239 contracts or 741 million bushels as of Sept. 23. To put that in perspective — the ending stocks estimate for those two categories of wheat is only 513 million bushels. Short covering by this group is likely the best hope for any meaningful rally.

CORN:

Corn is quietly lower following a retreat from the 100-day moving average on Thursday. Technically speaking, the possible head and shoulders bottom formation took a hit with the recent selloff, taking out the last reaction low of $4.105/bushel. The lack of reporting of any export sales activity or official yield updates (both being the most likely bullish factors) is taking a toll. Should the market unexpectedly turn for some reason, a rally over the neckline found at the important resistance level of $4.30/bushel would not only fill the gap down that remains from July 7, but have an eventual target of $4.68/bushel. A close over the 100-day moving average would be a positive first step.

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

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