Impactful News and What to Watch for in Market Movement
During the month of January corn and soybean futures consolidated on daily futures charts into pennant flag formations. Prices have been trapped in the lines of the chart technical formations, with a breakout due soon. Which way the market breaks out (higher or lower) largely depends on any fresh scraps of fundamental news traders can find. After one month of extremely limited commodity market news stemming from the USDA due to the government shutdown, news and data will slowly start to matriculate thanks to a three-week government reopening. In the next three weeks USDA data will be released with a February 8 WASDE report, and pertinent fundamental news will be devoured in feast-like fashion to starving traders much like a 1:00 a.m. Taco Bell run. Here are the biggest newsworthy items to watch for.
Traders have been assuming the final yield number for the crop just harvested needs to come down in size. The December 2018 USDA report pegged yield at 178.9 bushels per acre, yet most in the industry feel the yield is likely closer to 177.8 bpa. Though 1.1 bushels per acre doesn’t seem like much, it would be enough to reduce ending stocks down to 1.716 billion bushels. This is down from 1.78 billion bushels; the actual number released in December. This type of news would keep corn prices firm for the 2018-19 crop year. But, more significantly it sets the stage for the 2019-20 crop.
You see, the United States is using more corn than we grow right now. Thanks to years of ample ending stocks, the market price has not had to react; hence the tight price trading ranges we have been stuck in for four years. Yet now, going forward, even if the United States plants 2 million more acres of corn this spring (already the market guesstimate), and assuming yield is trendline at 176.5 bpa, ending stocks for the 2019-20 crop year DROP to 1.387 billion bushels. THAT is something the market will watch! If there are ANY weather issues this summer, prices could potentially, truly have an opportunity to MOVE to the upward end of the trading range on weekly charts, which is closer to $4.50 futures.
Still not an easy answer here in terms of market price direction. Looking at everything we know right now, this market has more fundamental reasons to eventually retest the $8.00 futures price mark, especially with the reality that we are facing the largest U.S. and global ending stocks in history. Yet, if the USDA lowers yield in the upcoming February 8 report, that could keep prices firm for the short term. The December USDA yield number was pegged at 52.1, and many traders feel that yield is likely closer to 51.7, with some groups citing 50.6 as a target. If yield was truly at 50.6 bushels per acre, then that would take ending stocks down to 817 million bushels, from 955 million bushels in December.
Then comes the whole export demand question. Is it? Isn’t it? Will the USDA drop the export number on this report? Will they keep it the same? Will we have further negotiation success with China before then?
Lastly, remember that seasonally, corn and soybean futures prices have a historical tendency to work higher into very early March. But then, poof – the mystery of old crop supply becomes known. Demand for the next few months is known and expected, and in late February, the USDA has its Outlook Forum where spring acreage guesstimates are released (which are usually pretty near the same as the official number at the end of March when the planting intentions report is released). By the early part of March we also have a pretty good handle on South American production, as well. With nothing to talk about for a few months, corn and soybean prices have a seasonal tendency to slide lower from early March into late April.
The point is, if we get any glimmer of positive news in next Friday’s USDA report, use it as an opportunity to price BOTH old-crop and new-crop corn and soybeans.
If you have questions, you can reach Naomi at email@example.com.
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