Full Morning Report - Both China and Ukraine tug on markets
Mar 12, 2014
Fundamentals – The tensions in the Crimean Peninsula were enough to lift the wheat market higher yesterday but the washout in beans overnight have taken precedence this morning. As you are likely aware, Crimea is set to vote in a referendum this week to decide if they want to align with Russia and reportedly Ukraine has called up their National Guard. Outside of Crimea there are no reports of problems with grain trade or movement but understandably, everyone is on edge over future developments. For a point of reference, Crimea accounts for around 2% of the total wheat production in Ukraine.
Technical – The rally yesterday was able to lift May wheat into slightly higher highs for this drive but we remain well within the target zone between 6.58 and 6.70. Prices are basically mixed in the overnight trade with an inside range so far but with intermediate indicators very overbought, I suspect we are going to need to keep hearing troubling news out of Ukraine if we are to maintain the strength. I continue to feel it is just a matter of days before we see this market roll over for a correction but that may not happen until we move out to the next cycle date ahead on the 18th.
Fundamentals – Corn also caught a Ukraine bounce yesterday but at this point it appears to have been little more than a Tuesday undo rally. Corn production has risen steadily in Ukraine over the past several years with the crop last year estimated to have been 30.9 MMT, up from just 6.9 MMT a decade ago. They are expect to export around 18.5 MMT during the current marketing year of which 15 million has already been shipped and I understand that farmers are clinging on to the balance as kind of a hedge against the uncertainty. Actually Ukraine is a large producer and exporter of barley so brewers in Europe could be uneasy. Probably the biggest concern is that this country, just like the US, should be headed for the fields for spring planting over the next 30 to 45 days and additional problems with Russia could create issues with fuel and fertilizer. I suspect this will be a factor that is not going away anytime soon and should be an underlying supportive factor.
Not much else to report for the corn market this morning. There is nothing exciting in the export lineup and sales will be reported in the morning. CONAB released updated estimates for Brazilian crops this morning and now project the corn crop to total 75.18 MMT vs. the previous estimate of 75.47. The Rosaria Exchange released estimates for the Argentina corn crop yesterday placing it at 22 MMT. This compares with the recent USDA number of 24 MMT.
Technical – May corn posted a nice turnaround from the early pressure yesterday but with no follow-through overnight. While I continue to believe we have begun our downward correction, I would still enjoy seeing a little rebound into the 270-calendar day cycle count that lines up for Monday the 17th. If that unfolds, we could be presented with a selling opportunity at that time.
Fundamentals – The unrest in the FSU may have given the bean market a Tuesday undo bounce yesterday but the bulls are paying for that overnight and into this morning. It is not that Ukraine does not play into the world oil seed market as they are a major producer of sunflowers and sunflower oil but with China dropping out of the world beans market at this point, that trumps all else. Prices gapped lower overnight and it appeared that once we have violated last weeks lows, a number of sell stops were triggered. This is the first weekly lower low since prices turned higher at the beginning of February.
The question now that begs to be asked is will China step back in as a buyer, particularly considering that it is estimated that they sold back or canceled quite a few cargos in the past week. Considering they are still confronting poor meal demand and an active line up of ships, they may not be so quick to step back in.
CONAB cut the Brazilian bean crop estimate this morning from 90 MMT to 85.44. This compares with the most recent USDA number of 88.5, who was also at the 90 MMT mark before the report on Monday. The Rosaria Exchange now expects the Argentine bean crop to total 54.7 MMT, down 300k from the previous estimate. The USDA has Argentina at 54 MMT.
Technical – May beans gapped lower overnight and once last weeks lows were violated, it appear to touch off a big round of sell stops. This is the first lower weekly low since prices turned higher in February. We have quickly pushed down to compete a 38.2% retracement of both the Feb/March rally as well as the Nov/March rally. In case you are wondering what measuring targets the gap could leave, they are between 13.61 and 13.54 and we have already posted a low at 13.65 ½ this morning. We are quickly pushing into a short-term oversold position, and I suspect should find very solid support down between 13.61 and 13.50, which could setup a bounce within another day or so. That said, I believe that ultimately we should have room to reach down to at least the 13.30/13.15 level before the correction is complete. The next cycle date ahead sits on the 20th.
Soybean Oil – May bean oil was not able to maintain strength yesterday and has been under pretty solid pressure overnight and into this morning. Unlike beans, we have not posted a lower weekly low but I do have intermediate daily indicators finally beginning to roll over. Retracements lower for this contract sit at 42.03, 41.10 and 40.16. I suspect that we will eventually have room to reach down to the lower retracement but that could unfold in two-swings. Cycle dates ahead on the 20th and then the 31st with that latter date marking the completion of the 8th cycle of 90-calendar days from the April 2012 high and the 2nd cycle of 90 from the reaction low last October.
Soybean Meal – After a lackluster performance yesterday, May meal has been under solid pressure overnight and has already pushed down to complete a 50% retracement of the last advance at 434.60 and did not stop there. It would appear that this contract will be headed for at least the 425.60/423 zone and eventually room to head for the 412 level. Short-term oscillators are oversold but I do not have a cycle date lining up until the 20th.
Cotton – Short-term indicators have rolled over and May cotton is under pressure this morning but the bulls have not completely abandoned ship just yet. Prior to last Thursday, this market had a contract high of 90.44 and found very stiff resistance against 89.67 and those level should provide support at this time. At a minimum we need to push down and close below that range to force out bull. I do have a cycle date lining up for this Friday.