DTN Plains, Prairies Opening Comments

GENERAL COMMENTS:

Grain and oilseed markets are quietly higher ahead of Friday’s WASDE update, with short covering possibly emerging given the size of some of the fund short positions amid hotly debated yield impacts of the late-season drought. The extended forecasts finally remove the below-normal precipitation for the eastern corn belt by Sept. 24, but by then, damage will be done. And there is no indication yet that anything meaningful precipitation-wise is on the horizon. In the meantime, the Canadian prairies are in for a wet stretch that will delay harvest for most, with Alberta looking like it may be able to work around more scattered showers. Southern Manitoba looks just ugly with the seven-day total approaching three inches along the American border. In outside markets, Wednesday’s PPI report turned out to be much weaker than expected, not only in the data but also containing revisions lower for the previous report. Some of that data does flow through to the PCE index, which is the Fed’s preferred inflation indicator, so it will matter, even though the PPI data tends to be much more volatile. At 7:30 a.m. CDT, the CPI data will be released with markets paying close attention. Weekly jobless claims and the weekly ag export sales report will be out at the same time, all potential market movers.

OUTSIDE MARKETS:

Treasury markets are quietly lower ahead of the CPI report following the weak PPI figures. Those turned treasuries higher Wednesday with the 30-year bond leading the way on ideas inflation may not be as bad as feared. If CPI follows up with weaker-than-expected data, the trade seems to be taking it as a sign that tariffs are indeed a one-time shock and not a greater inflation risk. All of which plays into the lower interest rate scenario, something everyone carrying debt will benefit from. The U.S. 10-year note is at 4.05%.

The US dollar is quietly higher, extending its bounce following Tuesday’s reversal from the lowest level seen since July. The CPI data and resulting interest rate moves will likely dictate whether the retreat from the 100-day moving average will continue. The Sept U.S. Dollar Index is .183 higher at 97.930.

Equity markets are making record highs yet again on weak inflation risk.

Energy markets are lower as geopolitical risks seem to be moderating. Not that Russian drones testing NATO’s resolve is moderating, but political leaders seemed to talk themselves into agreeing it was likely more a mistake and not serious, for now anyway. October crude oil is $.54 per barrel lower at $63.13.

The Sept Canadian Dollar is down .00090 at $.72070. The Brazilian real is down .00025 at .18390. December gold is down $23.30 per ounce at $3658.70.

OILSEEDS:

Canola is quietly higher, extending solid gains seen Wednesday as the likelihood of delayed harvest combines with bargain hunting following Tuesday’s break. Despite the July 31 stocks being higher than the AAFC August update, it will still result in demand rationing as there will not be enough canola seed to maintain last year’s export pace. Soybean oil recovering almost all of Tuesday’s losses helps with the market, apparently expecting the attempts to limit small refinery exemptions to have little impact in the end. Technically speaking, the market is oversold and due for a bounce, with the small gap down Aug. 28 being a reasonable target. It would take a rally to $650/mt to fill that. November canola is $1.40 higher at $629.50/mt.

Palm oil is higher on expectations of strong demand and a rebound in soybean oil. The October contract is up .98%.  

Soybean oil is also extending gains following a significant reversal Wednesday. Tuesday’s break came from efforts by a group of senators to block the EPA from reallocating small refinery exemption gallons. With the recovery, the market seems to be taking the developments as signaling the EPA plan is likely to be implemented, and the move may be more political grandstanding than anything. With that, the saucer on the continuation charts that’s been years in the making still looks good with Wednesday’s rally off old resistance, now support, suggesting a leg higher to come.

European rapeseed is quietly higher. November rapeseed is .25 euros higher at 468.00 euros per mt.

Soybeans are quietly higher, marking time awaiting Friday’s WASDE update despite what should be bullish weather conditions and forecasts. The apparent boycott of U.S. soybeans by Chinese buyers offsets the production loss potential. That said, it’s worth remembering that a disappointing yield combined with the sharp cut in acres will cement a drop in production, while there is plenty of time for export demand to expand, either from China or other global importers that are having trouble sourcing from South America due to added Chinese demand there.

WHEAT:

Wheat markets are lower because it is a day that ends in Y. Chicago made another new low for the December contract overnight, despite Russian drones making it into Poland Wednesday. In the past, that would have inspired a boost in wheat prices on fears of actions taken against Russia, but the trade has been convinced nothing Russia does will have an impact on the availability of their exports. Friday’s COT report confirmed that between Chicago and Kansas wheat markets, managed money traders had returned to the sell side ahead of the Sept. 1 cutoff. They were net short 136,624 contracts or 683 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 quietly higher but remaining in the range seen since the start of the month as traders wait for Friday’s WASDE update. It’s worth noting that Friday’s COT report showed net purchases yet again by managed money traders of 19,199 contracts for the week ending Sept. 1 and another 12,633 contracts by commodity index traders. That takes the three-week net buys to 129,765 contracts or 649 million bushels since Aug. 11 for the two groups — adding credibility to concerns over drought and disease-inspired yield losses. The managed money traders remained net short 91,487 contracts or 457 million bushels with plenty of buying potential remaining. 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.

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

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