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.
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.
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