Grains closed lower again on Thursday. Kevin Duling, KD Investors, says the funds continued to sell in the grain markets, and both old and new crop corn hit new contract lows before bouncing off those levels.
Both classes of winter wheat futures took out the June lows to make new lows for the move.
Plus, soybean futures made fresh for the move lows and are trading below the 100-day and 200-day moving averages. These prices are also below the level they were trading before EPA released their supportive Renewable Volume Obligations (RVOs) or blending mandate proposal for biomass-based diesel.
Duling says the wheat market has seen some commercial hedge pressure with the ongoing harvest and the lack of a weather threat is part of the catalyst for the fund selling in corn and soybeans.
However, he thinks money flow and macro economic factors are playing a larger role.
“There’s a lot of politics affecting these grain markets right now, which keeps the money flow moving out and that keeps the trend funds short and selling. They don’t care about the risk of a July heat ridge right now,” he says.
Duling points to the volatility in outside markets like crude oil and the bearish impact that has had on the grain markets.
“If look back at Sunday night, we had crude oil open up $5 a barrel and then as the session progressed, it closed down $5, almost a $10 move in crude oil on Monday alone to the downside from where it peaked. And basically all the commodities started falling in line with that. So that shouts money flow to me,” he explains.
The grain markets are oversold going into the end of the month, the end of a quarter and the USDA Acreage and Quarterly Stocks Reports on Monday, which usually produces some type of short covering rally or position squaring.
“Well in the old days, we definitely would,” Duling says. “We’re the most competitive wheat in the world for FOB just about anywhere. Typically there’s no reason to go below these levels, but cash markets aren’t moving quite as fast as the futures. They’re having at least a little value, well, at least some of them. That tells you the futures shouldn’t continue lower. But if the funds want to sell, they’re going to sell. We have higher open interest in some of these contracts with the funds than we’ve ever had before.”
He thinks round number support will hold on corn at $4, soybeans at $10 and winter wheat at $5.
USDA releases their Acreage and Quarterly Stocks Reports on Monday, and Duling believes it would take a majorly bearish report to push the grain markets any lower. Currently, he thinks the best hopes for a rally though lie in weather, a bullish demand shock tied to trade deals, or China and the U.S. working out a trade deal that includes agriculture.
