Market Strategy: Market Apprehension

October 26, 2016 02:02 AM
 
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After going through the surprise rally this spring into the price peak during the second week of June, I’m sure the market is apprehensive as to what is in store for calendar year 2017. 

Brazil’s love affair with continuous soybean expansion seems to have been curbed somewhat, as reflected in the smallest year-over-year increase in acres to date. Same for Argentina, where the government plays tricks with taxes, making corn the crop of choice. 

For certain, traders now know that counting on continued record production of grains in South America can be dangerous. Just ask some of the major global grain merchants, many of whom missed the price appreciation seven months ago. 

Worrisome Move. USDA has increased the demand side of the supply-and-demand equation for corn and soybeans nearly every month this year, including in October. Exports rose again by 50 million bushels of corn and 40 million bushels of soybeans. Corn levels haven’t been this high since 2007/08. Soybean exports are at a record high of 2.2 billion bushels, a figure that rivals corn export estimates of 2.2 billion bushels and doubles the levels seen in 2007/08. 

Yet it concerns me the market responded to the seemingly positive October report by posting a daily key reversal lower for corn, soybeans and wheat. Hidden within the report are implications that are cause for apprehension.

USDA chose not to increase the other demand line items, such as feed use and crush (ethanol, soybean oil and meal) against a backdrop of a livestock industry that is signaling to reverse growth. USDA cut feed wheat usage by 70 million bushels.

Demand Pinnacle. The good news is that while prices reached 10-year lows this year, it did nothing to discourage overall demand for usage, especially in soybeans. Yet the October report hinted that demand might be nearing its pinnacle. 

The South American growing season will be keenly on traders’ radar for any hint of an imperfect season. This past year, traders were fooled from March through June. Odds are good attitudes have adjusted. 

The U.S. harvest largely is complete. The task remains for end-users and exporters to obtain physical possession of supplies to meet the record book of export sales for corn and soybeans. Wheat has come alive on apprehension about a reduction in planted acres, while U.S. prices became competitive again.

Positive Technical Corn Picture.  It took only one day after the October report to negate the key reversal down in corn with a close into new highs not seen since mid-July, suggesting producers once again did a good job overall of putting away a record crop and of controlling their financial destiny. End users and exporters now have the task of obtaining the physical product in quantity and in a timely fashion to fill record usage of both corn and soybeans. 
 

Climbing A Wall of Worry
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           Soybeans attempted to climb out of a trading range, but the daily key reversal lower on USDA’s           Oct. 12 report indicates concerns that further export demand expansion might be difficult. 

 

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