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Grain Spreads:Grain Spreads: Can This Rally Hold?


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Old crop/New crop corn and bean spreads firmed this week on short covering amid yesterdays grain rally. Despite a bearish corn report and neutral report on wheat, beans surged higher on positive trade war vibes and noise. Chicago wheat continues to keep an abnormal pricing disparity vs KC wheat while it has tightened vs Minneapolis. We feel that there is an opportunity here longer term but I wouldn't jump in buying KC and Minny vs Chicago just yet. Rallies have been shorting opportunities for the funds and specs in those inter-market spreads. The Chinese government yesterday announced no new tariffs on US soybeans and pork. However the existing tariffs seem to still be in play. It has given thoughts to an agreeable ending to all the drama that has further complicated and frustrated market participants in the AG sector since the trade war began last June.

Weather and its impact on future yields will be the ultimate determinant for price this Fall. Either we have significant drops well below the USDA's yield and production forecasts or we don't. Yesterdays numbers for corn were nothing but bearish with ending stocks over 2.1 billion and yield over 168. Harvested acres at 82 million were left alone and to me doesn't look like they even tested for any adjustments from prior reports. Corn broke 7 cents quickly after the release, but as beans firmed, funds short covered corn. I think in the back of traders minds is that state by state good to excellent ratings declined three percent last Monday, highlighted by #2 producer Illinois dropping a whopping 8 points in just one week. Should that type decline spill into other major state growing areas, then the market will start pricing in decent percentage drops in production and ending stocks. Also the trade news to me had an effect. The shorts have the profit and the risk, so profit taking for some was an easy decision. Bean yields were revised slightly lower to 47.9 while ending stocks are down to 640 million. The potential demand news definitely caused short covering more than the USDA data did for beans in my view. Rarely do you see the market rally on report day 18 to 20 cents from the previous day close prior to Gov't report release. Pod counts came in surprisingly high while ear counts for corn were lower than expected. These are very subjective and can change quickly.

Technical levels come in as follows for next week:

Nov 19 Soybeans, support is down at 885. A close under 885 and its 866-64. A close under here and its 848/845. Underneath here and its Katy bar the door down to 815 and then 791. Resistance is at 902. A close over and its 916. This level represents the 200 day moving average. A close over and its 936/941 the yearly high. Over 941 and its off to the races to 969.2/971.

Dec 19 Corn. Needs to hold at today's settle at 368.6. Next major support is down at 355.2/354.6. Underneath here and its 3.51 then 347 and 343. Under here its the 331/328 area. Resistance is at 373.4. Over this level and its 390.6 and then 396.6. If we clear here its 4.05, which is the fifty percent retracement for the year and 200 day moving average.

Dec 19 Wheat. Support is down at 4.71. Under here its 4.64 then a major support level at 454.4. Under here its 443, then 433, then 418. Resistance is up at 4.87. Over 4.87 should push us to 5.04. Over 5.04 its 5.09 then 5.24.

Please join me every Thursday at 3 pm Central for a grain and livestock webinar. Sign-up is free and a recording link will be sent upon signup. We discuss supply, demand, weather, trading ideas for both hedge and speculation, and the charts. Sign Up Now

Sean Lusk

Director Commercial Hedging Division

Walsh Trading

312 957 8103

888 391 7894 toll free

312 256 0109 fax

slusk@walshtrading.com

www.walshtrading.com

Walsh Trading

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Chicago, Il 60604

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About the author


Sean Lusk is a registered commodity broker and Director of the Commercial Hedging Division of Walsh Trading in Chicago. Sean began in the business as a runner on the trading floor during summer breaks from college in 1993. Upon his graduation from Southern Illinois University at Carbondale in 1996, Sean began his career on the trading floor of the Chicago Mercantile Exchange (CME). Overseeing billions of dollars of transactions working as a clerk in the Eurodollar pit, Sean took the next step and became a floor broker and member of the CME in 2003. He handled customer orders for banks and investment houses from all over the world from inside the Libor pit at the CME.

Now, at Walsh Trading, Sean utilizes his experience in the marketplace and his professional client service skills to aid and assist customers in their trading endeavors.  

He writes daily and weekly commentaries focusing on both the Precious Metals and Agricultural Markets along with related market activity.

Sean has been quoted in various media outlets discussing futures markets. 

These include:

 

  • Futures Magazine
  • Reuters
  • Forbes
  • Kitco
  • Nikkei Press
  • CCTV.com

 

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