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Grain Market's Quiet Ahead of USDA Report

Wednesday, May 10, 2017

Today's Spotlight Market

Here are the pre-report estimates for the May USDA Crop Production & Supply/Demand report:

U.S. Corn Stocks: 2.320 billion bu. (2016-17) 2.100 billion bu. (2017-18)

U.S. Soybean Stocks: 440 million bu. (2016-17) 572 million bu. (2017-18)

U.S. Wheat Stocks: 1.160 billion bu. (2016-17) 974 million bu. (2017-18)

World Corn Stocks: 223.5 mmt. (2016-17) 208.5 mmt. (2017-18)

World Soybean Stocks: 87.6 mmt. (2016-17) 87.2 mmt. (2017-18)

World Wheat Stocks: 252.0 mmt. (2016-17) 244.0 mmt. (2017-18)

U.S. Winter Wheat Production: 1.325 billion bu. (2017-18) vs. 1.672 billion bushels (2016-17)


Fundamentals

Grain traders have been in a selling mode since the surprise up-move in prices on May 1, following a weekend when strong storms occurred over much of the Midwest and Great Plains causing some crop damage to the Winter Wheat Crop as well as caused a delay in plantings for both Corn and Soybeans. The main reason for the negativity for both Grains and Soybeans is mainly due to ample global supplies. Traders and analysts will get an update later this morning from the USDA on both U.S. and World grain supplies when the USDA releases data from its May crop production and Supply/Demand report. While the USDA is expecting lower global Corn, Wheat and Soybean stockpiles for the upcoming 2017-18 crop season, large global old-crop inventories, particularly for Wheat and Corn, are keeping any price rally attempts in check, despite what looks like lower U.S. Corn and Wheat production this coming season. While world Soybean inventories are tighter than that for Corn or Wheat, the prospects for potentially record Soybean production out of South American as well as expectations for a record amount of Soybean acreage to be planted by U.S. producers this spring is sparking a negative bias for Soybean prices. While we did see some short-covering by large speculative accounts and commodity funds the past week, especially in Chicago and Kansas City Wheat, according to the most recent Commitment of Trader's report, non-commercial traders are still heavily short Corn, Soybeans and Chicago Wheat futures, so any "bullish" surprises in the USDA data could potentially trigger an out-sized price reaction if additional short-covering buying emerges.

Technical Notes

Looking at the daily chart for Hard Red Winter or K.C. Wheat futures, we notice that the chart gap created from the sharp price rally on May 1 has finally been closed during Tuesday's trading session. Non-commercial traders actually turned net-long in both K.C. and Minneapolis Wheat the past week, but this small net-long position may have been liquidated this week as last week's rally appears to have been a "bull trap". Prices have fallen below the 200-day moving average (MA) once again but have, so-far, held above the 20-day MA. The 14-day RSI has weakened the past week but is still reading a neutral 48.72 as of this writing. We see major chart support at the April 21 low of 411.25, with major chart resistance seen at the May 2 high of 474.75.

Mike Zarembski, Senior Commodity Analyst