Grain Markets To Trade Mixed/Rangebound With Improved Weather Conditions, Crop Quality, Amongst Other Variables In Focus No ratings yet.

Investment Thesis

Investors should expect for the grain markets to be mixed/rangebound with wheat having the greatest chance for risk to the downside compared to corn and soybeans. Weather and crop quality are the primary factors.

Improved weather (drier and warmer) conditions give the grain market a breather over the past couple of sessions

Grain markets have taken a breather the past couple of trading sessions as the weather outlook has become more favorable for crops that have already been planted. The U.S. September corn futures finished Thursday’s trading session down 0.81% to $4.4538, with the U.S. August soybean futures down 0.60% to $8.9362 and the U.S. September wheat futures finishing higher 0.05% to $5.4625. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished down 0.53% ($0.09) to $16.91, the Teucrium Soybean Fund (SOYB) finished down 0.51% ($0.08) to $15.52 and the Teucrium Wheat Fund (WEAT) also finished lower 0.17% ($0.01) to $5.93. Figure 1 below is a price trend chart of the front-month September futures contract for corn over the past 24 hours.

Source: Investing.com

Figure 2 below is a price trend chart of the front-month August futures contract for soybeans over the past 24 hours.

Source: Investing.com

Figure 3 below is a price trend chart of the front-month September futures contract for wheat over the past 24 hours.

Source: Investing.com

September Chicago Soft Red Winter Wheat (SRW) futures were seen down 0.2 cents to $5.462, with September Kansas City Hard Red Winter Wheat (HRW) futures down 0.6 cents to $4.812, resulting in a bearish 65-cent premium of CBOT wheat to KCBT wheat. MGEX’s Hard Red Spring Wheat (HRSW) July contract was up $0.012 to $5.514. Figure 4 below is a price trend chart of the front-month July futures contract for spring wheat.

Source: Barchart

USDA weekly net export sales mixed, but mostly positive

The United States Department of Agriculture (USDA) released its weekly net export sales report for the week ending June 20 Thursday morning.

The 2019/20 wheat export sales for the week ending June 20, 2019, came in at 612,000 metric tons. This came in above traders’ expectation range of 200,000-500,000 metric tons. Main buyers of the old wheat crop last week were from the Philippines, Guatemala, Japan, El Salvador, and Columbia.

The 2018/19 corn export sales for the week ending June 20, 2019, of 294,900 metric tons exported fell in line with traders’ expectation range of 150,000-450,000 metric tons. The 294,900 metric tons were up noticeably from the prior week and up 7% from the four-week average. The main buyers of the old corn crop last week were Japan and Mexico. For the 2019/20 new corn crop, net export sales for the week ending June 20, 2019, of 110,100 metric tons fell in line with traders’ range of 100,000-300,000 metric tons. The main buyers of the new corn crop last week were from Mexico.

The 2018/19 soybeans export sales for the week ending June 20, 2019, of 168,200 metric tons exported were less than traders’ expectation range of 200,000-500,000 metric tons. The 168,200 was down 71% from the prior week and down 61% from the prior four-week average. The main buyers of the old corn crop last week were from China and Mexico. For the 2019/20 new soybean crop, net export sales for the week ending June 20, 2019, of 319,600 metric tons beat traders’ range of 100,000-300,000 metric tons. The main buyers of the new soybean crop last week were from unknown destinations, Mexico, Pakistan, and China.

Weather pattern turns warmer/hotter and drier over the central U.S.

On the weather front, a typical summertime pattern is unfolding across the nation. With upper-level troughing out West, strong upper-level ridging is developing across the central and eastern U.S. This upper ridge is highlighted by an elongated 591 dm heat dome stretching from the Southwest U.S. into the Plains and the Upper Midwest. This prominent upper-level weather feature will allow for heat and humidity to build into the major crop production centers of the central U.S. Friday through this weekend. The western sections of the corn/soybean belts will experience the hottest of temperatures compared to the rest of the belt. High temperatures are expected in the 90s with triple-digit heat indices through the weekend. Given the availability of low-level moisture, there will be day-to-day chances for showers and thunderstorms to develop though they will be isolated/scattered in nature. Any storms that do form have the potential to produce localized heavy rainfall. That said, the pattern is mostly dry and drier than it has been in previous weeks. The hot conditions across the central U.S. will be favorable for the development in crops already planted. Because the western areas of the belt will experience hotter temperatures, soil improvements will be greatest in those areas with quicker drying rates.

Next week, the upper-level flow pattern is expected to flatten out a bit becoming more zonal (east-west). That will allow for temperatures to cool some across the central U.S. while also allowing for better precipitation chances as the jet stream sags further southward. That said, expect warm and humid conditions to be maintained through next week and through the 4th of July holiday weekend across the central U.S. Precipitation chances will improve, but still not expecting any widespread precipitation and certainly not to the levels in the recent past. Figure 5 below is a map from the 12z ECMWF ensemble depicting the 0-7 day upper-level/jet stream pattern.

Source: WeatherBell

Figure 6 is a map showing the seven-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Figure 7 is a map from the 12z GFS ensemble depicting a normal-to-drier than normal pattern over much of the country and the grain belts (outside of the northern belt) in the 1-7 day time frame (June 27-July 4).

Source: Tropical Tidbits

Outside of weather, traders will be eyeing the G-20 summit and Friday’s USDA acreage report.

Final Trading Thoughts

Seeing that we are beginning to break away from the excessively wet pattern and that temperatures are warming is good news for farmers in that it could help support the development of crops already planted (as long as the heat is not extended). This development has been reflected in some of the downside movement in prices of late. Moving forward, the weather trend will remain a primary focal point as well as crop quality and yields. The current weather pattern and outlook support prices to the downside and places a limit to upside potential. That said, news surrounding crop quality and yields is going to be very important moving forward.

Stay Tuned For More Updates!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source link

Please rate this