TFM Midday Update 1-2-20


Corn futures are trading moderately higher this morning, pushing towards the high end of the recent trading range. Mar corn is up 3-1/4 to 3.91, May is up 3 cents to 3.97-3/4, and Jul is up 3 cents to 4.04. Basis levels in the country have tightened a bit lately, though this may be due to slow farmer selling through the holidays rather than demand increases. Ethanol margins are down for the fifth straight week which is a negative demand indicator. Brazilian corn demand is increasing due to growing cattle numbers. The Mar corn contract briefly tested its 100-day moving average support level this morning and has since rallied through its 10-day moving average level and is trading at the highs of the day so far. The high of the recent trading range is 3.92, and a close above would be the first since November 4 and should open up an additional nickel of upside potential in the near term. Speculative funds were thought to have sold about 1,000 contracts of corn on Tuesday.


Soybean futures are grinding higher so far today, with Jan up 5-1/2 cents to 9.48-1/2, Mar is up 5 cents to 9.60-1/2, and May is up 4-1/2 to 9.73-1/4. The markets are still finding buyers on rumors that China may sign the Phase One trade deal as soon as January 15. Chinese imports of American beans reached a 20-month high in November towards the tail end of negotiations. Soybean oil futures are continuing their rally today, led higher by palm oil strength. Indonesia and Malaysia are both expecting to increase palm oil blending at the same time that palm oil production is falling. Mar soybeans have made two very strong closes in a row, and after lower trade early in the session have rallied to the session highs currently. Mar beans are at their highest levels since October 25. The October 22 high of 9.70 appears to be the next target though technical indicators are sharply overbought which leaves soybeans vulnerable to a setback, especially ahead of next Friday’s Supply and Demand report. Speculative funds were thought to have bought about 3,000 contracts of soybeans on Tuesday.


Wheat markets are leading the grain complex higher this morning, with Mar Chi wheat up 8-1/2 to 5.67-1/4, Mar KC wheat is up 10-1/2 to 4.96-1/2, and Mar spring wheat is up 5 cents to 5.66. Major exporter ending stocks are currently at four to five-year lows which could attract passive speculative length. There are still questions about quality with the 2019/20 harvest and weather for the U.S. winter wheat crop is currently mixed. Approximately 15% of U.S. winter wheat is currently experiencing drought conditions, including the southern southwest quadrant of Kansas. This may be a large reason why the winter wheat spreads have strengthened so quickly, with Mar KC wheat trading at a discount of 71-1/4 cents to Mar Chi wheat. This is just four weeks removed from the spread low point of 98 cents under. Mar Chi wheat is making new highs for the move trading at its highest level since June 28. Mar KC wheat is also making new highs for the move and is trading at its highest levels since July 15 while Mar spring wheat is at its highest level since October 17. Speculative funds were thought to have bought about 2,000 contracts of Chi wheat on Tuesday.


Cattle markets are soft this morning, with Feb lives down 70 cents to 125.22, Apr lives are down 97 cents to 126.20, and Jun lives are down 45 cents to 118.45. Jan feeders are down 1.12 to 144.20 and Mar feeders are down 1.42 to 142.80. Cash cattle trade has been very quiet this week due to the holiday and beef values have been slipping lower. The current premium of futures to the cash market is about 4.00 wider than normal, but many are still hoping that China could become a bigger buyer of U.S. beef due to the Phase One trade deal. The Feb live cattle contract has fallen sharply below its 20-day moving average support level. A close below would be the first since December 10, and though this has not necessarily changed the trend, it is not a positive sign. A close below the 50-day moving average at 124.75 would be much more significant and could trigger significant long liquidation. Jan feeder cattle are trading back below their 10-day moving average after a few days above. Nearby support comes in at the 50-day moving average at 43.55. Momentum indicators are pointing lower in both markets.


Hog markets are trading very slightly higher this morning, with Feb up 20 cents to 71.62, Apr is up 2 cents to 77.95, and Jun hogs are up 5 cents to 89.47. China is expected to lower import tax rates on frozen pork and over 850 other commodities starting this year. Coupled with the Phase One trade deal expected to be signed within the next couple of weeks, this should be a positive for U.S. pork exports to China. U.S. pork values are slipping to their lowest levels since mid-September, though speculative funds have switched from holding a net-short position to a net-long position. Feb hogs have been overbought according to Stochastics for over a week now but the trend still appears to be higher. The Feb higher tested nearby support this morning at the 10 and 50-day moving average levels but has bounced back to near the highs of the day. A close above the 100-day moving average resistance level at 72.10 would be a major technical development and open up additional rally potential.


Carol Tillmann

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