Daily Grain Market Update (6.18.18)
Jun 18, 2018
Last Week’s Close: December corn futures finished Friday’s session down 1 ¼ cents, adding to the total loss of 13 ¾ cents for the week. Futures traded in a 22 ¾ cent range as many market participants were active in trying to manage the volatility. Friday’s Commitment of Traders report showed that funds were sellers of 77,383 contracts through June 12th. Add in the previous weeks selling and you have the largest two week sell-off on record.
Fundamentals: Tariff talk and weather have led funds to exit long positions at a rapid pace over the last three weeks, but will they want to get aggressively net short this early in the year is the question. This afternoons weekly crop progress report is expected to show corn conditions at 76% good/excellent, this would be unchanged from the previous week. Hot temperatures work their way back into the forecast (it is summer after all), but there looks to be good chances of moisture along with it. If it stays hot and the rain misses, perhaps we could see some premium come back into the market. July option expiration is this week, once we get this behind us perhaps that could help ease the pressure.
Technicals: The chart is ugly, there’s no other way to put it. The RSI is down to 28.5 this morning which is in “oversold conditions”. In this type of market environment, you will want to take the RSI with a grain of salt, you don’t have to go back too far to see an oversold market continue to be sold into. On June 17th of 2016 we closed at 448 ¾, by July 6th we printed a low of 346; if you’re trying to catch the falling knife, be sure to have an exit strategy in mind before your entry. Over the last week we saw the emotional trade trump that of technicals and fundamentals, we will remain neutral in our bias until volatility contracts and the market consolidates.
Resistance: 387 ¾**, 397 ½-399 ¼****, 404 ½-405 ½***
Support: 376 ¼-379 ¼****, 360 ½-364 ¼**
Last Week’s Close: November soybean futures finished Friday’s session down 20 ¼ cents, extending losses to 60 ½ cents for the week. Friday’s Commitment of Traders report showed that funds sold 59,429 contracts through June 12th, putting their net long position at 12,870 (we estimate that they are net short by now). This was the second-largest one-week selloff on record.
Fundamentals: Tariff talk has been one of the key catalysts in the recent sell-off which started to feed on itself in the back half of the week with margin calls/forced liquidation coming in that needed to be met before the weekend. The Chinese retaliatory tariffs will begin on July 6th, affecting 545 products (including beans) to the tune of 25%. South American soybean prices responded accordingly and skyrocketed as they will look to fill at least a partial void for the Chinese demand. On top of the tariffs, we have ideal growing conditions and one of the best crop ratings for this time of year. This afternoon’s crop progress report is expected to show the soybean crop at 74% good/excellent, this would be unchanged from the previous week. July option expiration is on Friday which could be a factor in price action in the back half of the week.
Technicals: The chart is a complete disaster which makes it hard to have any conviction on either side, which is why we are keeping our bias at neutral for the time being. On one hand, the market is due for a relief rally, on the other hand, people said that last week. This type of market environment, which we feel is more emotional than anything is where many sayings come from, here are a few examples: “the market can remain irrational longer than you can remain solvent”, “don’t try to catch a falling knife”, “no need to be a hero and catch the bottom”. We look at tops and bottoms as a process, not a point. The RSI (relative strength index) is currently at 20.6, well into “oversold conditions”. Previous support becomes resistance today, that comes in from 935-939 ½. First technical support this morning comes in from 921 ¾-923 ½.
Resistance: 935-939 ½***, 946 ½-950***, 967 ½-974****
Support: 921 ¾-923 ½****, 900 ¼-910***
Last Week’s Close: July wheat futures finished Friday’s session down 2 ½ cents, extending the week’s losses to 23 ½ cents. Friday’s Commitment of Traders report showed that funds sold 1,383 contracts through June 12th, this puts their net long at 14,903 futures and options.
Fundamentals: Wheat could not avoid the spillover pressure from corn and beans in the back half of the week as forced liquidation began to feed on itself. Winter wheat harvest continues to roll on and that doesn’t seem to be helping the bullish thesis as much of the bad news has been priced into the markets. Weather abroad could help provide a bit of a floor to the market, but bulls want to see that hot and dry weather in the Black Sea region and Australia become more of a threat.
Technicals: The market formed a head and shoulders pattern midway through last weeks trade, that coupled with bearish fundamentals has led to recent pressure in the market. First technical support for the week comes in from 477 ½-483, this pocket represents a key Fibonacci retracement on the year and the 200-day moving average. On the resistance side of things, 502 ¾-508 ½ is the pocket that the bulls will want to reclaim.
Resistance: 502 ¾-508 ½***, 523***, 537-538 ½***
Support: 477 ½-483***, 459-462****
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