Seeking Alpha

Grain Prices To Continue To Trade Sideways With Cold Providing Upside Support

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Includes: CORN, SOYB, WEAT
by: Andrei Evbuoma
Andrei Evbuoma
Commodities, energy, oil & gas, research analyst
Summary

Corn and wheat inspections disappoint, coming in very weak; soybeans inspections strong with 752k tonnes sent to China.

Corn harvest improves to 52%, with 58% in good-to-excellent condition; soybean harvest improves to 75%.

Cold pattern with continuous shots of Arctic air locked in over the next couple of weeks; will continue to pose upside support to corn and soybeans.

Investment Thesis

Grain prices should continue to trade sideways/range-bound with a multitude of variables weighing.

Corn and wheat futures edge lower after a dismal inspection report; soybeans flat after inspections come in line with trade expectations

On Monday, the U.S. December corn futures finished down 1.38% to $3.8362, with the U.S. November soybean futures up 0.12% to $9.3812 and the U.S. December wheat futures finishing lower 0.95% to $5.1012. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) finished down on Monday 0.73% ($0.11) to $14.99, with the Teucrium Soybean Fund (SOYB) up 0.12% ($0.03) to $15.81 and the Teucrium Wheat Fund (WEAT) down 0.73% ($0.04) to $5.45. Figure 1 below is a price trend chart of the front-month December futures contract for corn over the past month.

(Source: Investing.com)

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

(Source: Investing.com)

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

(Source: Investing.com)

On Monday, the December Chicago Soft Red Winter Wheat (SRW) futures were seen down 5.6 cents to $5.102, with December Kansas City Hard Red Winter Wheat (HRW) futures down 2.6 cents to $4.232. MGEX's Hard Red Spring Wheat (HRSW) December contract was down $0.070 to $5.242. Further down the strip, the March contract was down $0.066 to $5.412. Figure 4 below is a price trend chart of the front-month December futures contract for spring wheat.

(Source: MGEX)

Monday's inspection data dismal with very weak inspections for corn and wheat; soybeans boosted with strong inspections including 752k tonnes to China

Monday's export inspection report showed corn from the week ending October 31 at 276k metric tonnes. This came in less than last week's mark of 391k metric tonnes and well below traders' expectations range of 432k-635k metric tonnes. Year-over-year shipments are down 62%. Mexico (171k) was the main destination.

Wheat reported 293k metric tonnes, less than last week's 558k metric tonnes and well below traders' expectations range of 435k-680k metric tonnes. Wheat inspections included 92k metric tonnes of Hard Red Winter (HRW) and 83k metric tonnes of Hard Red Spring (HRS). Year-over-year shipments are up 22%. Japan (84k), South Korea (62k), and Nigeria (48k) were the main destinations.

Soybeans came in at 1,481k metric tonnes, less than last week's 1,579k metric tonnes and within, albeit on the higher end of, the traders' range of 844k-1,497k metric tonnes. Year-over-year shipments are up 11%. China (752k) and the Netherlands (113k) were the main destinations.

Figure 5 below is Monday's grain inspection chart for the week ending October 31, 2019.

(Source: USDA)

Corn and soybean harvest improves to 52% and 75%, respectively; winter wheat planting in good condition as weather is not presenting much challenge

On Monday afternoon, the USDA issued its weekly crop progress report. The report showed that as of November 3, corn matured was at 96%. Corn harvested is at 52%. That's behind both last year's 74% and the 5-year average pace of 75%. Of the corn planted, 58% is in good-to-excellent condition. That compares to 58% a week ago and 68% last year. Figure 6 below is a graph comparing the years (from 1995) of the corn progress in the harvested phase of development.

(Source: Andrei Evbuoma)

Winter wheat planted is at 89%. That's slightly ahead of both last year's 83% and the 5-year average's 88%. Winter wheat emerged is at 71%. That's slightly ahead of last year's 69% but slightly behind the 5-year average pace of 74%. Of the winter wheat planted, 57% is in good-to-excellent condition. That compares to 56% a week ago and 51% last year.

Soybeans harvested is at 75%. That's behind both last year's 81% and the 5-year average pace of 87%.

Other crops of note from Monday's report include:

  • Peanuts - 84% harvested (up 7% from the prior week)
  • Sugarbeets - 70% harvested (up 12% from the prior week)
  • Sorghum - 78% harvested (up 13% from the prior week)
  • Cotton - 53% harvested (up 7% from the prior week)
  • Sunflowers - 31% harvested (up 14% from the prior week)

Here is the link to this week's USDA's Crop Progress Report.

Relentless barrage of cold air intrusions expected across the eastern half of the nation over the next 15 days; record cold possible and increasing snow chances likely

Forecast models remain mixed on the evolution of the pattern in the 11-16 day time period. The GFS continues to be the most aggressive in keeping the cold pattern in play, while the ECMWF is the least aggressive with the cold and, in fact, breaking down the pattern faster than the GFS. The Canadian/CMC model sides more with the GFS model. Overall, the outlook over the next two weeks has trended colder over the weekend. The eastern Pacific/western North American ridge has proved resilient and continues to do so. This feature will continue to give way to persistent downstream troughing over central and eastern Canada/U.S. A large and deep upper-level vortex rotating over central Canada is associated with this upper-level trough and will support a perpetual/incessant northwest flow pattern of clipper systems and subsequent reinforcing shots of cold air over the central and eastern U.S.

This will ultimately result in colder-than-average temperatures across the eastern half of the country for the balance of the next couple of weeks. The coldest of temperatures will be found from the northern Plains to the Upper Midwest/Great Lakes to the northeastern U.S. There will be several waves of cold shots coming in, but the most noteworthy/more anomalous cold air intrusions look to occur during the second half of this week Wednesday through Saturday (November 6-9) and then again Monday through Wednesday/Thursday (November 11-14) of next week. Figure 7 below is a map from the 18z GFS ensemble depicting the 1-6 day (November 5-10) temperature pattern.

(Source: WeatherBELL)

Figure 8 below is a map from the 18z GFS ensemble depicting the 7-12 day (November 11-16) temperature pattern.

(Source: WeatherBELL)

The cold pattern will come with multiple clipper systems traveling over the northern sections of the country, but with limited moisture source will not pose any heavy/notable precipitation amounts. So, despite a fairly active pattern across the northern sections of the grain belt over the next 7 days or so, precipitation levels will run normal to drier than normal across most locations. Figure 9 below is a map showing the seven-day accumulated precipitation forecast (Monday morning to next Monday morning) across the Lower 48.

(Source: NOAA)

Figure 10 is a map from the 18z GEFS depicting a normal to drier-than-normal pattern across much of the country in the 2-8 day time frame (November 5-12).

(Source: Tropical Tidbits)

Final Trading Thoughts

The latest crop progress report revealed that just over half of corn have been harvested and about 60% of corn are in good-to-excellent condition. Soybeans are a little better, with three-fourths of the crop having been harvested. Overall, the report was not a terrible one despite being behind the 5-year average. It's clear that the northern sections/states of the corn and soybean belt are struggling the most due to the recent bouts of cold and wintry weather. The cold pattern will remain in place over the next couple of weeks, which will continue to have potential negative impacts on the crops. Given the progress however of corn and soybeans, the effects that weather will have on these crops will decrease as time goes on. That said, support to the upside will continue to remain, though to a lesser degree than precious weeks. Look for grain prices to trade sideways with export data, inspections, crop progress, weather, and trade weighing.

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.