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Heartland Daily Newsletter - Wheat and Oil


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Commentary

The trading week started with wheat under pressure and corn and soybeans with a light rally. The US missed out on several wheat tenders last week with France, Russia, and Ukraine capturing Thursday and Fridays tenders. That led the disappointing trade overnight for wheat. Soybeans were supported by the announcement of 140,000 metric tons of beans sold to an unknown destination, and a bean crush that was considered friendly during the session.

The NOPA March soybean crush rate was 170.0 Mil Bu, just shy of last years record. The prior record was set in March of 2018 at 171.9 Mil Bu. The February NOPA crush rate was 154.5 Mil Bu. NOPA member soyoil stocks were 1,761 Mil pounds, up 9 Mil pounds from February. The NOPA soybean crush rate was 2 Mil Bu above trade estimates, while soyoil stocks were lower. NOPA members exported 844,294 MTs of soymeal during March, down from the year-ago total of 878,582 MTs. The report was seen as supportive soybeans.

Last Friday it was revealed that index funds had pushed their short corn position to new record levels. Supplies coming up may be larger than previous reports from Brazil and Argentina along with the current US crop report that also increased stocks. They seem to be taking comfort in that increasing their shorts ahead of the start of the Northern Hemisphere growing season.

US Treasury Sec Mnuchin stated over the weekend that the US/China are nearing an end to lengthy trade negotiations. Mnuchin stated on the sidelines of a weekend IMF/World Bank meeting that there would be several more video conferences and potentially a face-to-face meeting if needed before a deal could be struck. Mnuchin confirmed that the US/China had reached a pact on enforcement with Reuters reporting overnight that the US has watered down its demand for China to end its subsidy of state industries. The Chinese are reported to have objected vigorously to such demands, especially with state industry to be the central buyer of some $1.2 trillion of US goods over the next six years.

Reuters reported that China has started a review of US DDG imports (China has argued that the US was dumping DDGs in their marketplace), but that the review could take to up to a year. Most commercial traders suggest that a US/China trade deal could dramatically accelerate the review to a matter of hours/days vs. a year should a bilateral US/China trade deal be accomplished.

Last Thursdays Ag Commodity Futures Confrence hosted by KSU and CFTC, Greg Dowd (Chief Trade Negotiator) defended Lighthizer for being a hardliner saying he had to be to deal with the Chinese. Some points he made were that the US is not getting nearly enough of Chinese ag demand and it would not be a big deal for them to buy an additional 20-40 billion dollars worth of total US ag products. They are exceeding WTO farm supports by 100 billion dollars. There was no mention of the current state of the negotiations or any timeline. He spent time explaining and giving examples of how their perception of trade is so much different than ours. He also pointed out the recent decision of the WTO in favor of the US and how the Chinese have ignored the WTO TRQ requirements for grain imports and how the Gov. controls the grain industry. He talked about how important it was to pass the USMCA in order to move on to the Japanese trade negotiations since we are falling way behind the rest of the world. He went on to say nearly half of the G20 Nations are classified as developing countries and subject to much more lenient trade rules and how that had to change. No surprise that there was nothing new disclosed, but he did do a good job of making the case that the US is not on a level playing field around the world.

Central US Weather forecast: The GFS midday forecast is wetter across IL/IN and slightly drier across the Delta as a storm system slows its forward movement. An increase of 1-2 of rainfall was indicted for IL/IN while like amounts were subtracted for KY/TN. 10-day rainfall totals are still heavy from the E Midwest and Delta with totals of 1-3.50. The rains are not expected to allow much spring seeding. The good news is that amounts across the W Midwest and N Plains appear to be less in a range of .5-2.00. This will help soils to firm and some fieldwork to commence. Temperatures look to be highly variable but average out to near to above normal levels. The warming temps will aid in allow fields to dry.

The market awaits a Chinese-US trade deal, a weather shift that could threaten US crop prospects or in Europe, and then there is the US dollar. It has topped out last November but continues to hold up, not reflecting a change in trend the downside yet. This week a close under 96.30 for the dollar would start to shake the cage and send the dollar down to the 95.00 value where it found support during the winter. I have been anticipating a dollar change in trend since November and lower price movement into the summer. If the US$ can start to break down in the coming weeks, that in itself will help exports pick up for grains and improved pricing.

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Corn

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Crude Oil

It was just a matter of time, with the elevating oil prices since the first of the year, Russias finance minister said Russia and OPEC may decide to boost production to fight for market share with the United States, where output remains at record highs. This was the catalyst that caused crude oil to react from the resistance we had been showing in crude oil for the past two weeks. Oil still found subliminal support from renewed fighting in Libya that could wipe out there crude oil production which would add to the shortfalls of production out of Iran and Venezuela because of their sanctions.

The bulk of the oil rally since the first the year of 30% is mainly due to OPEC and Russia curbing 1.2 million barrels per day for six months. This deal needs to be renewed in June for continued production cuts, and now support for that is faltering. Production cuts may occur but probably at a reduced level.

U.S. crude oil output from seven major shale formations is expected to rise by about 80,000 barrels per day (bpd) in May to a record 8.46 million bpd, the U.S. Energy Information Administration said in its monthly drilling productivity report on Monday. This would not be occurring had it not been for the rise in oil prices from last winters lows.

In North Dakotas Bakken region, shale production is estimated to rise by about 11,000 bpd to about 1.39 million bpd, easing from a record 1.41 million bpd hit in January. In the Eagle Ford region, output is expected to edge higher by 7,000 bpd to about 1.43 million bpd, which would be the highest monthly output since January 2016.

A retreat in price from the current rise should not be a surprise, as resistance is heavy in the 64.50 range. The next turn is on April 22, and a price low could occur in their in the 58.00-60.00 price range if support at 62.00 gives way.

Annually, there is a 70% likelihood that the price rise for crude oil is to top in the month of May or June. One more price spike should occur into that window in the 66.00-69.00 range. If the US dollar breaks lower into May, that price target could be above 70.00.

Beans

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Wheat

Wheat is a dog by any terms, with only Chicago wheat showing a V bottom and consolidation considerably above the March 11 low. The hard wheat of Kansas and Minneapolis are struggling just above the March lows.

If you play with timing cycles on daily charts, you have a 60-day cycle, a first of the month cycle which is a 30-day cycle along with a mid-month cycle that implies the 14th-16th of any given month for wheat creates a change in trend on a micro level. This would imply that wheat will try to make a low by Tuesday and try a bounce into the end the month. We have shown in the past, wheat has a tendency to rally into late April-opening of May annually.

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Cattle

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2018 Hedge Recommendations

Corn

Sold 30% of 2018 corn at 409 on the December contract.

Sold 20% of 2018 corn at 421 on the December contract.

Wheat

Sold 30% of new crop HRS wheat at 628 on Sept MN or 638 Dec, depending on need.

Sold 20% of new crop HRS wheat at 630 on Sept MN or 642 Dec, depending on need.

Sold 30% of new crop HRW wheat at 532 on September KC wheat.

Sold 20% of new crop HRW wheat at 570.4 on September KC wheat or 570.4 on Dec.

Beans

Protected 100% of new crop 2018 beans by purchasing the July $10.20 short-dated new crop bean put for 26.2 cents. These were cashed in for $1.14 profit.


NOTE: All trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.

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Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.

Copyright 2018 Heartland Investor Capital Management All rights reserved



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About the author


Eugene Graner is the founder and President of Heartland Investor Capital Management Inc. As a veteran commodity analyst, broker, and CTA that eats, sleeps, and breathes commodity futures, his priority is to bring clients the latest and most useful information of the markets along with uncannily accurate futures predictions. By balancing risk and reward, Eugene uses his proprietary trading strategies to develop the best possible trading approaches for his clients. He has 28 years of experience in the industry and his voice has been heard around the United States. He is heard on multiple radio stations throughout the day, also has been featured on CNN, Bloomberg, Wall Street Journal, and The New York Times, and is the go-to guy to for multiple TV network stations for interviews about market news weekly.
 
Contributing author since 1/3/2019 

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