« February 2017 | Main | April 2017 »

March 2017 Archives

March 1, 2017

"Unofficial" Start to Planting Season as USDA Ag Forum Begins

Wednesday, March 1, 2017

Today's Spotlight Market

While the crop planting estimates from the USDA AG forum are solely based on the analysis of the agency's economists, the market will get its first glimpse of what producers are planning when the USDA releases its Prospective Plantings Report, scheduled to be released on March 31. Those who have followed the grain markets for any length of time will note the potential for large price swings following this report, especially if the estimates vary widely from what private forecasters and USDA economists expected.


Fundamentals

Spring is in the air, despite being early March, as temperatures reached nearly 60 degrees here in Chicago and grain traders got their first glimpse at what government economists believe producers may be planning for this season's crop. This past Thursday, the USDA held its annual Ag Forum conference, with the agency's economist presenting their acreage estimates for this season's cash crops. For Soybeans, the USDA estimates that 88 million acres will be planted this season which, if accurate, would be a 5.5% increase from last year. Much of the additional acreage is expected to come at the expense of Corn, with government economists looking for a 4.3% decline in Corn plantings to 90 million acres. Large global Wheat inventories combined with relatively low prices are expected to sway U.S. producers to plant less Wheat for the 3rd consecutive year. The USDA is estimating an 8.3% decline in Wheat acreage to only 46 million acres this season. The USDA also released its price projections for the 2017-18 crop year, with average cash Soybean prices expected at $9.60 per bushel, up just over 1% from last year. Average cash Corn prices are expected to rise by 3% to $3.50 per bushel. Economists expect global grain demand to rise in 2017, as improving global economic growth and forecasts for increasing livestock production were noted factors for the increase in average Corn and Soybean prices.

Technical Notes

Looking at the daily chart for May Soybeans, we notice what might be a "head and shoulder" formation on the daily chart. However to confirm this bearish technical pattern we would need to see prices fall below the "neckline" which is currently near the 1017.00 price level. The recent price decline has taken the market below the 20-day moving average, but Tuesday's sharp rally may have signaled an end to the recent price slump. Prices do remain above the longer-term 200-day moving average, which is currently near recent chart support near the 975.00 price level. Momentum as measured by the 14-day RSI has recently turned upward after coming close to oversold levels with a current reading of 50.00. Those traders who follow the old crop/new-crop Soybean spreads will note that the decline in the old crop May futures vs. the new-crop November futures appears to have formed a near-term bottom just above the 15-cent May premium over November. Given the prospect for higher new-crop Soybean plantings plus some logistics issues in Brazil, we could see the May premium start to widen vs. the November futures as spring planting season approaches. Chart support for the lead month May contract is found at the January 4 low of 1001.25, with resistance seen at the January 18 high at 1088.25.

Mike Zarembski, Senior Commodity Analyst

March 3, 2017

Natural Gas Prices Shake-off Late February Storage Build

Friday, March 3, 2017

Today's Spotlight Market

U.S. Crude Oil inventories saw a storage build last week, rising 1.5 million barrels to a record 520.2 million barrels. While U.S. Oil imports were up last week, we also saw domestic production increase, with U.S. production averaging over 9 million barrels per day for the past 2 weeks.

Fundamentals

Some may argue that 2016-17 was the "winter season that wasn't", as a large part of the country saw above normal temperatures and a general lack of snowfall -- especially in the heart of the Midwest. This abnormally mild winter has kept Natural Gas prices on the defensive, with spot prices falling about 25% so far in 2017. Highlighting the unusually warm weather was the weekly report from the Energy Information Administration (EIA) on Gas storage which showed that U.S. Natural Gas inventories saw a storage build of 7 billion cubic feet (bcf) for the reporting period ending February 24. This was the first reported build in the month of February since the EIA started keeping records 23 year ago. Despite the surprising build, front-month April Gas futures posted a modest gain, as it appears that traders already priced in a bearish EIA report. Looking at weather forecasts out through the middle of March, it appears that winter may indeed be over, as the Climate Prediction Center weather models have all but the Pacific Northwest with above to well above normal temperatures out through March 15. So last week's storage build may not be the last we see as the winter heating season comes to a close.

Technical Notes

Looking at the daily chart for April Natural Gas futures, we notice prices starting consolidate just above the 2.640 price level following the price gap created during the steep price decline on February 21. Some of the widely followed technical indicators are still favoring the bears, with prices below both the 20- and 200-day moving averages and momentum as measured by the 14-day RSI weak, with a current reading of 38.06. The February 22 low of 2.641 looks to be the next support level for the April futures, with resistance seen at the chart "gap" at 2.946 made on February 21.

Mike Zarembski, Senior Commodity Analyst

March 6, 2017

Spring Budget Battles

Monday, March 6, 2017

Today's Spotlight Market

On Wednesday, UK Chancellor of the Exchequer Philip Hammond will deliver the eagerly awaited Spring Budget Statement. The budget is expected to contain some tax increases and very little increased spending. One proposal being floated is to increase the National Insurance rate for self-employed persons. There is expected to be few spending increases except for a potential increase in the social care budget. Social care has been a hotly debated topic in Parliament over the past few months.

Fundamentals

As the calendar flipped to March, it is now crunch time for Prime Minister Theresa May. Mrs. May has indicated several times that she intends to trigger Article 50 by the end of March and begin the two-year negotiating window for the UK to leave the European Union. However, there are two potential setbacks. Last week, the House of Lords voted to amend the Brexit bill to protect the rights of EU citizens that are currently living in the UK. The Lords is also expected to further amend the Brexit bill this week to guarantee that the UK Parliament will have a final up or down vote on the Brexit terms once they're negotiating. The Prime Minister has repeatedly stated that she wants a 'clean' Brexit bill with no terms and conditions attached, allowing her to trigger Article 50 quickly.

Technical Notes

Turning to the 3-month continuation chart, the March British Pound contract continues to exhibit bearish signs. The 20-day SMA has developed a sharp downward slope and appears ready to cross below the slower moving 50-day SMA. The 50-day SMA, which was serving as a support level, is now a resistance level. 14-day RSI, at 38.13, is also bearish.

Dale Jennings, Commodity Analyst


March 7, 2017

Yellen, Dollar Put Stranglehold on Oil

Tuesday, March 7, 2017

Today's Spotlight Market

Crude Oil futures have been stead y to weaker over recent sessions, despite positive comments from OPEC . OPEC Secretary General Mohammad Barkindo said January data showed compliance had been above 90% from OPEC nations. Mr. Barkindo also expected that supply glut would be further worked down this year. However, despite the production cuts from OPEC, inventory levels remain very high in many parts of the world, which has led to some speculation that OPEC could further slash production later this year. This could keep the over tone of the Crude Oil market positive moving forward.

Fundamentals

Global Crude Oil demand is expected to increase by 1.4 million barrels per day (bpd) in 2017, while production is expected to remain 1.5 million bpd lower if OPEC's compliance rate stays at current levels. It may be impossible for the US to make up for the 2.9 million bpd shortfall. There has been a wide variance in opinions regarding how much the shale industry can ramp up production this year. Some analysts estimate that the shale industry could only increase US production by roughly 1 million bpd, while others are far more optimistic, citing efficiency and technology improvements. The supply squeeze is being felt by some faster growing Asian countries, as evidenced by larger exports from the US to the region. The US Dollar Index has been on a bit of a rebound recently. The index broke the 100.00 level in late January/early February, which was generally viewed as critical support by many traders. The DXY was able to right the ship since then and has been steadily climbing. If the greenback is able to make some meaningful headway, this could put some pressure on Oil prices. Recent comments from Fed Chairwoman Janet Yellen suggest that a March rate increase from the central bank is not off the table. A rate increase next Wednesday could give the Dollar rally some legs.

Technical Notes

Turning to the chart, we see the April Crude Oil continue to trade in the 51-54 range, without any strong signals that prices could snap out of this range. The oscillators have been giving neutral readings, not offering any more information that the chart. The 14-day RSI is currently at 52.57, almost as neutral as the indicator can read. Likewise, the 20-day momentum has been hugging the 0 line. If prices break the midpoint of the range - 52.50 - prices could test the lower end of the price band.

Rob Kurzatkowski, Senior Commodity Analyst


March 8, 2017

Long Liquidation Keeps Pressure on Sugar Prices

Wednesday, March 8, 2017

Today's Spotlight Market

Both large and small speculators were liquidating net-long positions the past week with the most recent Commitment of Traders report showing a decline of over 51,000 net-long positions combined by non-commercial and non-reportable traders during the reporting period ending on November 28. This reduces the speculative net-long position to just over 195,000 contracts. Commercial traders have been on the other side of the speculative trade having reduced their net-short position by over 51,000 contracts.

Fundamentals

Raw world Sugar futures, which were one of the best performing commodity markets in 2016 have had a tough go of it so far in 2017 as long-liquidation selling by speculators has dominated trading of late. While it does appear that technical factors, such as prices failing to test recent highs just above the 21.00 price level, have been behind the recent speculative selling, we do note some fundamental factors potentially influencing prices as well. Analysts note that while estimates for India's Sugar production continue to decline, it is expected that domestic demand will also decline which could dampen the need for further imports this season. In addition, it appears that increased Sugar production out of both China and potentially Brazil this coming year could finally pull the global Sugar market back to a surplus for the 2017/18 production year following several season of demand out-stripping supplies. So unless we start to see some issues with the upcoming Brazilian harvest or we start to see some unexpected Sugar demand appear, we could be in for a period of weaker Sugar prices as the still large speculative long position continues to be unwound.

Technical Notes

Looking at the daily chart for the lead month May Sugar contract, we notice prices falling to 2 ½ month lows as near-term chart support at 19.00 failed to hold. While prices have been trading below both the 20 and 200-day moving averages (MA) for the past several trading sessions, we are now seeing the 20-day MA preparing to cross below the 200-day MA, which is generally viewed as a bearish technical signal. We are seeing increased trading activity on days where prices have declined, which could be an indication of long liquidation sell-stops being activated as prices move lower. Momentum as measured by the 14-day RSI is weak but has just moved into oversold territory with a current reading of 29.84. We see the next major support level at the last major low made back on December 15 at 17.66, with chart resistance seen at the recent high of 19.84.

Mike Zarembski, Senior Commodity Analyst


March 10, 2017

Will Employment Report "Seal the Deal" on Fed rate Hike Next Week

Friday, March 8, 2017

Today's Spotlight Market

Trader's in Fed Funds futures are expecting the Federal Reserve to raise interest rates next week with the March 2017 Fed Funds futures contract currently pricing-in a 88.6% probability of a 25 basis point increase following the Federal Open Market Committee meeting that ends on Wednesday. Looking forward out to the end of 2017, the December 2017 is currently pricing-in a total of 3 interest rate hikes by the Fed this year.

Fundamentals

While market participants appear to believe that the Federal Reserve will raise short-term interests by 0.25% at the 2-day Federal Open Market Committee (FOMC) meeting scheduled to end on March 15, Fed officials will still have one more major economic report to digest this morning with the release of non-farm payrolls data for February. While the average consensus of analysts' is for a gain of about 190,000 jobs, some traders are looking for a much stronger employment number following the rather strong 298,000 private sector job growth figure reported by payrolls processor ADP in its monthly National Employment Report. Even more impressive in ADP's data was that all the major employment sectors posted job gains including a 32,000 job increase in the widely watched manufacturing sector. Traders are looking for the unemployment rate to fall by 0.1% to 4.7% although a small uptick would not be a huge surprise if we also see the labor force participation rate tick upward. This would indicate more potential workers entering the labor force as the employment picture continues to improve. Also of note will be the reported increase in average hourly earnings, which are expected to have increase by a modest 0.2% in February. This data is particularly important for FOMC voting members as an indicator of any wage inflation due to a tightening labor market. Interest rate futures have been in a downward trend the past several trading session with the lead month June 10-year Note futures trading just above the most recent major low made back in December of last year when the Fed last raised short-term interest rates.

Technical Notes

Looking at the daily continuation chart for 10-year Note futures, we notice prices trend lower towards the lower portion of the consolidation pattern that begin in December of last year. Prices are now well below both the 20 and 200-day moving averages and momentum as measured by the 14-day RSI continues to weaken but is still holding just above oversold levels with a current reading of 32.93. Chart support is seen at the December 15 low of 122-14.5, with resistance found at the recent high of 125-20.5 made back on February 27.

Mike Zarembski, Senior Commodity Analyst


March 13, 2017

Can You Take Me Higher?

Monday, March 13, 2017

Today's Spotlight Market

A strong nonfarm employment report released Friday is likely to be the final strong economic report that will spur the Federal Reserve to raise interest rates this week. The Fed begins a two-day meeting starting tomorrow, and Fed Fund Futures are showing an 89% chance of a rate hike.

Fundamentals

The United States added 235,000 jobs in February, marking the 94th consecutive month of job growth. The unemployment rate fell by 0.1%, decreasing to 4.7% from 4.8%. Job growth was strong across all sectors, except retail. Unseasonably mild weather in most of the US helped the construction industry ad 58,000 jobs. Retail lost 26,000 jobs, perhaps as retailers attempt to adjust to the increase in online sales. Year-over-year average hourly wages showed a growth of 2.8%, perhaps indicating wage push inflation. The labor force participation rate also increased in February to 63%.

Technical Notes

Although US equity markets were down for last week, the overall bullish trend continues in the E-mini S&P 500. The faster 20-day moving average is providing support, and the slope is turning sharply upward. The 20-day SMA is also well above the 50-day SMA, another bullish sign. 14-day RSI is at a bullish 64.81, but not yet into overbought territory.

Dale Jennings, Commodity Analyst


March 15, 2017

Short-covering Creates Near-Term Bottom for Cocoa Prices

Wednesday, March 15, 2017

Today's Spotlight Market

Just prior to the recent Cocoa price rally, large speculators were busy adding to their existing short positions according to the Commitment of Traders report. During the reporting period ending on March 7, non-commercial traders added just over 2,100 new net-short positions during the week which increase the overall net-short position to 29,164 contracts. Both commercial and non-reportable traders are currently net-long Cocoa futures adding to positions as prices moved lower.

Fundamentals

The Cocoa market has been in a "textbook" example of a bear market since August of last year as an improving supply picture, especially out of West Africa, has sent prices reeling. The International Cocoa Organization or ICCO is forecasting that nearly three-fourths of the global Cocoa production is expected to come from the African growing regions this season with significant production increases expected from the two leading cocoa producing nations--Ivory Coast and Ghana. While the prospects of increased production has triggered increased selling pressure by speculators. Lower Cocoa bean prices are expected to encourage increased demand for Cocoa products which should encourage an increase in Cocoa grindings by processors especially in Asia and Africa. Grindings out of Europe and the America's are expected to remain unchanged, however, this coming season which could help blunt any significant rally on futures prices especially if actual production increases materialize. The wildcard remains the weather, with some forecasts calling for a return of an El Nino weather event for the upcoming crop season. Traditionally, an El Nino weather event has produced drier conditions in the key Cocoa production areas of West Africa and should this occur, we could see the Cocoa supply situation move back to a deficit next season and potentially bring to an end the bear market for Cocoa prices.

Technical Notes

Looking at the daily chart for the front month May Cocoa futures contract, we notices prices rebounding back above the $2000 per ton level as the market appears to have produced a near-term bottom. Prices moved upward the past few trading sessions, mainly attributed to short covering buying by large speculators who have been net-short Cocoa futures for the past several months, following a failed test of the major low at 1869 made back on March 2. We now see prices trading back above the 20-day moving average for the first time since late January but we should note that prices remain well below the widely watched 200-day moving average which currently hovers over $500 per ton above current price levels. Price momentum has strengthened, with the 14-day RSI rebounding from near oversold readings to a more neutral 56.30 as of this writing. Strong support is seen at the recent low of 1869 with chart resistance noted at the February 1 high at 2146.

Mike Zarembski, Senior Commodity Analyst


March 17, 2017

Oil Price Struggle to Rebound over $50 as Shale Production Rises

Friday, March 17, 2017

Today's Spotlight Market

Large speculators continue to be heavily long Crude Oil and the Oil products but we have seen some long liquidation selling starting to occur. The most recent Commitment of Traders reports shows that non-commercial traders were net-long a whopping 555,917 contracts as of March 7 reducing this very large position by 7,676 contracts during the reporting period. However, these large speculators added to their net long positions in both Gasoline and Middle Distillates during the same time period. Small speculators are also overall net-long Crude and the products but did the opposite of the non-commercials by adding over 7,100 new net long positions to Crude Oil and reducing the net-long position in Gasoline and Diesel by 2,779 and 4,653 contracts respectively.

Fundamentals

Following a steep price sell-off the past several trading sessions, Crude Oil prices have recovered off of recent lows but continue to struggle to move above 50.00 in the lead month April futures. This week's price recovery was attributed to a weakening U.S. Dollar which makes commodities priced in Dollars more attractive to non-Dollar users as well as weekly inventory declines in both Crude Oil and the major refined products including Gasoline and Diesel fuel. However, the price recovery has been modest as traders are starting to believe that OPEC members may not be willing to honor production cuts announced towards the end of 2016. In addition, U.S. Shale producers are continuing to improve drilling techniques which has continued to lower the break-even costs of production. Lower drilling costs will encourage producers to ramp up production even at lower price level for Crude as long as it remains profitable.

Technical Notes

Looking at the daily chart for April Crude Oil, we notice after prices fell to nearly 4-month lows on Tuesday, we have seen some buying emerge which took the lead month futures from just above $47 per barrel on Tuesday to $49.62 at its highest on Thursday before prices drifted lower going into the April option expiration at 1:30 pm Central time with settlement at 48.75. Prices remain well below both the 20 and 200-day moving averages and the 14-day RSI remains week but has recently moved back above oversold territory with a current reading of 32.61. It appears that the November 2016 low of 45.18 is the next major support level for the April contract with chart resistance found at the February 8 low of 51.86.

Mike Zarembski, Senior Commodity Analyst


March 20, 2017

We Have a Date!

Monday, March 20, 2017

Today's Spotlight Market

UK Prime Minister Theresa May has announced that she will trigger Article 50 on Wednesday, March 29. Last week, after a spirited debate in Parliament, the Notification of EU Withdrawal bill was passed without amendment and given royal assent by Queen Elizabeth II, setting the stage for Mrs. May to begin the two year negation period for the United Kingdom to leave the European Union.

Fundamentals

EU withdrawal is one of several issues which may influence the British Pound. Last week, Scottish First Minister Nicola Sturgeon called for a second referendum on independence from the United Kingdom as she is strongly opposed to EU withdrawal. The Monetary Policy Committee of the Bank of England also met last week and voted to leave interest rates unchanged. However, this was not a unanimous decision as the threat of increasing inflation is causing some members to believe a rate hike may be needed. The next release of the Consumer Prices Index is scheduled for tomorrow. Other upcoming economic data includes business conditions on Wednesday and retail sales on Thursday.

Technical Notes

Turning to the 3-month continuation chart for the British Pound, we see a reversal of the bearish trend in late February. Resistance was first broken at the 20-day SMA and then broken again at the 50-day SMA. 14-day RSI, at 54.14, is neutral.

Dale Jennings, Commodity Analyst

March 22, 2017

Is Cotton Rally Vulnerable to Higher Planting Intentions

Wednesday, March 22, 2017

Today's Spotlight Market

Looking at the spread markets in Cotton futures we notice that bear spreading (selling front month futures and buying more deferred month futures) has been prevalent with the old crop May/Jul spread moving to an over 1.25 point contango (a market condition where more deferred contracts trade at a premium to closer to expiration months) from an small May premium since the middle of December. The old-crop/new-crop spread has also fallen with the May contract premium to the December futures falling from over 4.50 point premium to a 1.84 point May premium as of this writing.

Fundamentals

The Cotton market has been a favorite of commodity bulls so far in 2017 as surprising strong U.S. exports have supported prices this year. It appears that Cotton end-users have turned to the U.S. for supplies due to the high quality of this past season's crop. This has offset some of the negative sentiment from China where continued auctions of Cotton from state owned reserves was supposed to depress imports from the world's leading consuming nation. However, analysts note that the quality of Cotton being auctioned is poor which is forcing those needing better quality Cotton supplies to continue to import from the U.S. This unexpected demand has is keeping U.S. Cotton futures process supported with the new-crop December futures near contract highs. This upward trend has caught notice of large speculative accounts, especially trend following commodity funds, as prices moved higher. The most recent Commitment of Traders report shows non-commercial traders holding a net-long position in Cotton of over 130,000 contracts. This huge net-long positions has some analysts fearing a potentially large price correction should a bearish catalyst appear that forces a bout of long-liquidation selling to occur. With the USDA Prospective Plantings report due out a week from this Friday and with some estimates looking for U.S. producers to increase Cotton plantings due to attractive new-crop prices, the rally could be vulnerable to selling as weak longs are shaken out of the market.

Technical Notes

Looking at the daily chart for May Cotton futures, we notice prices moving back below the 20-day moving average and what may be interpreted as a possible head and shoulder top being formed. This technical formation is generally viewed as a bearish indicator. We also should note that there is a bearish divergence in the 14-day RSI ad this momentum indicator failed to not only make a new high when the recent highs were made earlier this month but also was beginning to trend lower when the new highs were made. The next major support level for the May contract is found at the February 17 low of 75.05, with chart resistance found at the contract high made on March 6 at 79.46.

Mike Zarembski, Senior Commodity Analyst

March 24, 2017

Strong Demand Propels Cattle Prices Higher

Friday, March 24, 2017

Today's Spotlight Market

The following are pre-report estimates for this afternoon's USDA Cattle on Feed report:

On Feed (March1): 100% of last year

Placements (February): 99% of last year

Marketings (February): 103.5% of last year


Fundamentals

After making multi-year lows back in October, Live Cattle futures prices have staged an impressive rally, with the June futures up over $20 per hundredweight as high meat packer profit margins are contributing to strong cash market sales. Wednesday's auction at the Fed Cattle exchange showed buyers paying an average price of $133 per hundredweight which is a nearly $19 per hundredweight premium to the June futures. This unusually wide cash market premium may lend further support to the futures unless we start to see a steep drop in cash Cattle prices in the coming weeks. An investigation of Brazilian meat packing firms regarding potential bribery of food safety inspectors has caused the nation's beef exports to tumble, as several nations, including China, have temporally banned beef imports from Brazil. While the investigation is in its early stages, some traders believe that the U.S. may see increased demand for beef should the Brazilian ban continue for any length of time. A report out on Wednesday showed U.S. frozen beef stocks fell by 0.8% of last year's totals to 502.429 million pounds. The Cold Storage report was generally viewed as bullish, as most analysts were expecting a small increase in storage. This added another bullish fundamental factor to the Live Cattle futures market.

Technical Notes

Looking at the daily chart for June Live Cattle futures, we notice that prices staged a minor price reversal on Thursday after making a new contract high of 114.200 earlier in the session. Some of Thursday's selling stems from profit-taking by weak longs following Wednesday's strong up move as well as positon squaring ahead of the this afternoon's Cattle on Feed report scheduled for 2 pm Central time. We should also note that the 14-day RSI has moved into overbought territory with a current reading of 73.26. Thursday's high at 114.200 looks to be the new resistance level for the June futures, with chart support seen at the January 19th high at 109.625.

Mike Zarembski, Senior Commodity Analyst


March 29, 2017

"Trump Trade" Correction Running into Resistance

Wednesday, March 29, 2017

Today's Spotlight Market

Looking at the most recent Commitment of Traders report we see that large speculators were busy reducing their net long positions in the E-mini S&P 500 futures. During the reporting period ending March 21, non-commercial traders reduced their overall net-long position by over 75,000 contracts. At the same time, this category of traders reduced their net-short position in 10-year note futures by a whopping 129,000 contracts. This scenario seems to support the notion that an unwinding of the so called "Trump Trade" was occurring.

Fundamentals

The rally in the Treasury Bond futures that began in mid-March is starting to run into some headwinds, being influenced by what appears to be a near-term low for U.S. equities as well as some supportive economic data. On Monday, we saw U.S. equities stage a modest reversal, with the E-mini S&P 500 closing well off of the session lows after trading at price levels not seen since early February. The initial selling in equities and, in turn, a rally in Bond futures on Monday occurred in the aftermath of a failure to bring to a vote a new healthcare bill in the U.S. House of Representatives. While there was no certainty that even passage of the bill in the House would survive debate in the Senate, it was the market's concern that other more "market friendly" parts of President Trump's agenda, such as a tax code overhaul and other fiscal stimulus measures, would be more difficult to implement in a divided Congress that sparked selling in equities and a rally in Bond prices. On Tuesday, a surprisingly strong reading in the consumer sentiment index, which rose to 125.6 from 116.1 in February, kept the trading momentum favoring equities over Bonds on Tuesday, although the data did not account for the lack of action concerning health care reform. So while it is still too early to say that the recent unwinding of the so called "Trump trade" being long equities and short bonds is over, it does appear any further correction of this widely held trade may find some resistance in the near-term.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures, we notice the recent short-term rally in prices has run into some resistance just short of the most recent high of 153-12. In fact, prices only rallied as high as 152-03 on Monday prior to a nearly full point drop on Tuesday. It does appear that there is some significant resistance on the daily chart at price levels from 153-12 to about 155-14 for the front month futures, which may be difficult to overcome in the short-term. While prices are currently above the 20-day moving average (MA), the long-term 200-day MA is still well above current price levels just north of 160-00. Momentum as measured by the 14-day RSI has started to weaken from the recent high reading and is now poised at a more neutral reading of 54.87 as of this writing. Monday's high of 152-03 looks to be the next resistance level for the June Treasury Bond futures, with chart support found at March 14 low of 145-26.

Mike Zarembski, Senior Commodity Analyst


March 31, 2017

Grain Traders Await USDA Prospective Plantings Report

Friday, March 31, 2017

Today's Spotlight Market

The following are the pre-report estimates for this morning's USDA Prospective Plantings and Quarterly Grain Stocks reports:

U.S. Stockpiles as of March 1
Corn: 8.55 billion bushels
Soybeans: 1.68 billion bushels
Wheat: 1.62 billion bushels

Planted Acres
91.03 million acres
88.13 million acres
46.06 million acres (All Wheat)

Fundamentals

In what is normally among the most anticipated government reports for Grain traders, the USDA will release their estimate for prospective grain and soybean plantings this spring at 11 am Chicago time today. This is the first survey from producers on what they are preparing to plant this season and could provide a baseline for what the eventual size of this year's harvest will be. Going into the report, traders are looking for a significant increase in Soybean planted acres, with the average estimate just north of 88 million acres. For comparison, U.S. producers planted 83.433 million acres in 2016. A good portion of the additional Soybean acreage is expected to come from Corn, where traders are expecting only about 91 million acres of Corn this season vs. just over 94 million acres last year. Strong U.S. Soybean exports and large Corn stockpiles had created a favorable price scenario that favored Soybean planting over Corn for most of the winter. However we have started to see that favorable price ratio slip, which could draw more Corn acreage or even Cotton acreage away from Soybeans, where producers have more flexibility. U.S. Wheat acreage is also expected to decline this season, with estimates averaging around 46 million acres for all Wheat varieties, down over 4 million acres from last year. In the past we have seen some large price swings in the grain markets following the Prospective Plantings report, especially where the USDA estimate was significantly different than what the trade was expecting. So we can expect grain traders to be glued to their computer monitors later this morning.

Technical Notes

Today we are going to look at the daily spread chart for new-crop November Soybeans vs. new-crop December Corn. After reaching a peak of around a $6.45 cent Soybean premium to Corn back in late December of last year, we have seen this premium erode to where we are now down to a $5.83 cent Soybean price premium, which is the lowest premium for this spread since October. The daily chart for this spread now shows the current spread level is below both the 20- and 200-day moving averages, with the 14-day RSI now moving into oversold levels with a current reading of $28.65. The next support level is seen near a $5.735 Soybean premium, with resistance found near the recent high of a $6.1675 Soybean premium.

Mike Zarembski, Senior Commodity Analyst