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Grain Markets React to Bullish Quarterly Stock Report; and Close the 2019 Report Season


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Strategy of the Day 1.10.2020

Grain Markets React to Bullish Quarterly Stock Report; and Close the 2019 Report Season

The March contracts for corn, wheat, and soybean futures closed the day positively, with corn and soybeans near highs of the day. After an initially bearish reaction to the report, the majors all rallied a solid 10 cents off their lows of the day; suggesting the initial reaction was nothing more than a news driven whipsaw which tested through support but ultimately resulted in a reversal higher. Today, the USDA released both their January WASDE and Quarterly Gain Stock estimates, which many analysts including myself have been anticipating bringing some life back to the grains (and being a catalyst for price to move out of the ranges of the last several months). While todays minor volatility was to be expected, what was not expected was the somewhat significant reduction in quarterly grain stocks. Below, I will discuss in more detail how each commodity reacted to their report, and what it might mean for supply and demand estimates going into the 2020 season!


Corn

March corn futures closed near highs (386.75) of the day, after trading 10 cents off their lows (376.5). In what has generally been a quiet corn market, todays volatility certainly was a breath of fresh air to anyone who was falling asleep! The USDA released their quarterly grain stock estimates of 11.389 billion bushels, which was about 200 million bushels lower than trade expectations, and the likely culprit for the rally back towards highs of the day. The USDA also released their final 2019 season WASDE report, which estimated the corn ending stocks for 19/20 at 1.892 billion bushels, with a 168 b/acre national average for yield, and 13.693 billion bushels total production (up from 13.661 on the November Report). This should be considered a bullish report (given the circumstances of this crop season), and if the price of March corn futures can carry through higher in trade on Monday, the market would seem to be confirming its bullish tone.

From a technical perspective, the daily close for March corn futures has created a reversal pattern in its candlestick, leaving a very long tail off its lows. If the March corn futures are able to trade higher on Monday, they will be starting to make higher highs, above the highs of the last 4 trading sessions as well, constituting a the beginning of a bull trend higher. The highs of January and December are still unbroken above at 392.25 and should be considered the first major resistance for bulls to break through. There is trendline resistance against highs (two lines in fact, yellow dashes on chart), however at this time I believe these are more confirmations for breakout (if we move above them) than a reason to be a seller and use them as resistance on a future test. The full 50% Fibonacci inflection zone at 381, which was also an open gap from 12/13, was untested as support into the USDA release; the initial reaction after the news ran stops through this level but resulted in a rally back to the highs of the day. Upside projections suggest the market has the potential to continue towards the $4.00 handle, a level the March contract has not seen since its November highs.


Wheat

March wheat futures closed about 4 cents off their highs (568.50) to trade out at 545.75, but only after recovering nearly ten cents off their lows of the day (555.75). The USDA reported quarterly grain stock estimates of 1.834 billion bushels, which was below trade expectations and the likely cause of the recovery in prices. The wheat complex was also the recipient of additional USDA attention today, with the release of Winter Wheat seeding estimates at their lowest levels in 111 years, an extreme level that the consensus was somewhat expecting. The USDA also released their estimates for US Wheat ending stocks of 0.965 billion bushels, a historically tight carryout that may be a precursor to future price rationing.

From a technical perspective, March Chicago wheat futures have been continuing a steady and pace of stair stepping higher in a series of higher highs and higher lows on almost every time frame considered. While this uptrend is anything but exciting (yet), it may be the building blocks for a more sustained breakout if the market can break out of the 560 resistance zone towards the 580 breakout area of resistance. Today's price action was merely a small pullback after making a new high for the month of January (568.5), and after which traded into the 50% Fibonacci supportive inflection zone at 556, before getting a reaction back towards highs and the 560 level. Wheat finds itself in a price channel, trading higher within, and defining a short term line in the sand at 555 for the bulls. Below the 555 price level, would break trendline support from the channel as well as technical fibonacci support, and likely call up a test of the 545 lows of January.


Soybeans

March soybean futures closed the day less than 2 cents off their high (947) after an impressive recovery from their lows (935.5) to end the day at 945.75. The USDA quarterly ending stocks estimate of 3.252, and was the only estimate to come in above analysts expectations. On the other hand, the USDA also released its January WASDE estimates and confirmed their previous ending stocks release of 0.475 billion bushels. While this may be considered slightly bearish in the short term, the reduction of the balance sheet to these levels is rather tight to begin with; and with the question fo Chinese demand potentially solved with Phase 1 signing next week, suggests beans may be on the verge of some serious price rationing into the spring. It's also important to remember, China has actually been a head of pace on exports recently, and it's been rather surprising how unresponsive the market has been reported sales and shipments over the last several weeks.

From a technical perspective, and like the rest of the majors, the 10 cent rally off lows was a great beginning to a potential reversal higher and resumption of the trend higher into the end of 2019 that has been trying to follow through into 2020. This trend has remained intact in my opinion while the March soybeans have defended the 940-935 inflection zone. This area of support was created by the highs of December (before the breakout above 940 to 960 in early January), as well as a number of other price measurement indicators (like a 50% Fibonacci measurement at 939). The significance of this area technically is that it would confirm the monthly bullish engulfing and bullish reversal candles that the December (outside reversal higher) close created. The month of January has begun by confirming this setup by breaking to a new high, and the subsequent retracement to 940 from new highs has been nothing more than a test of prior resistance as support. To the upside, technical price projections suggest the next point of interest is the 970 handle, but at that point March soybeans would be breaking out of its 6 month range higher (and that would likely lead to a run and test of 1000 and beyond). Below the 940 inflection zone (and really below the lows of today at 935.5) opens the door to close the open gap at 921, and testing the cluster of Fibonacci and technical support that would be the next level of interest to the downside. Conservatively, I am considering this 940-960 range as the opening range to the 2020 year, and while I anticipate a bullish trend to resume I am well aware of the potential consequences if March soybeans trade below the lows of today.


Dan can be reached at (312)277-0110 with any question or further comments, and you can click here to get access to the Zaner Ag Hedge daily newsletter to receive his emailed commentary daily!


Get all of Dans commentary, as well as the entire Zaner Ag Hedge teams thoughts:

http://www.zaner.com/landing/ag_hedge_newsletter.asp?AP=DHUSSEY


March 2020 Chicago Corn Futures - 240 min Chart

March 2020 Chicago Wheat Futures - 60 min Chart

March 2020 Soybean Futures - 60 min Chart



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About the author


Dan began his career in 2006 as an arbitrage and clearing clerk for Spyglass Options in the Eurodollar futures options pit on the floor of the Chicago Mercantile Exchange. Taking his employing brokers advice, Dan soon left the floor to pursue a career “behind the screens upstairs”, as there was an inherent lack of opportunity for market making in open outcry pits. After graduating from the University of Notre Dame in 2009 (and for the subsequent 10 years), Dan leveraged his IT background in networking and computer programing to begin developing computerized trading algorithms and trading systems for multiple private equity firms and his own account. He eventually found his specialization in trading carry trade dynamics in currency and interest rate futures; while simultaneously building his experience in trading both inter-market and intra-market spreads. His trading experience later expanded to include most commodity spreads, with an emphasis on carry trade economics in agricultural commodities. In 2016 Dan decided to take his career full circle by becoming a series 3 and 34 licensed broker; and expanded his outreach to the agriculture production community. In 2018, he joined Zaner Financial Services Ag Hedge division, bringing his knowledge and expertise of carry trade economics and continues expanding exposure to spread markets. Dan can be reached at (312)277-0110 by phone, @DanielHusseyJr on twitter, @DanSOTD on facebook, and emailed at dhussey@zaner.com.
 
 
Contributing author since 2/15/2019 

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