Grain Markets Trade Lower Wednesday As Downside Risk Continues To Weigh On The Market


Investment Thesis

Despite the fact that the planting season is off to a slow start and weather over the next couple of weeks will be unfavorable for farmers, there remains a slew of variables including a stronger U.S. dollar, uncertainties with the U.S.-China trade deal, and an ample supply of old corn and wheat crops that continue to weigh the market down. Investors should remain on the sidelines until further notice.

Weather continues to support but an array of other variables weigh down on the market

The U.S. May corn futures were seen down around 0.54% to $3.4912 on Wednesday. Meanwhile, U.S. May soybean futures were seen down 0.33% to $8.5938, while U.S. wheat led the way down 1.20% to $4.3275. For the less volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was seen down 0.73% ($0.11) to $14.87, the Teucrium Soybean Fund (SOYB) was lower 0.39% ($0.06) to $15.38, and the Teucrium Wheat Fund (WEAT) led the way down 1.28% ($0.07) to $5.01. Figure 1 below is a price trend chart of the front-month May futures contract for wheat over the past month.


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


May Chicago Soft Red Winter Wheat (SRW) futures were seen down 7 cents to $4.380, with May Kansas City Hard Red Winter Wheat (HRW) futures down 8.6 cents to $4.122, resulting in a bearish 26-cent premium of CBOT wheat to KCBT wheat. MGEX’s Hard Red Spring Wheat (HRSW) May contract was up $0.52 to $5.060. Figure 3 below is a price trend chart of the front-month May futures contract for spring wheat.

Source: Barchart

Beginning this weekend, a mid-upper level ridge will develop over the southeastern U.S. The jet stream associated with a baroclinic zone will set up on the periphery of this ridge (over the northern sections of the Lower 48). This zone will set the stage for an active (stormy) weather situation from the northern Rockies and Plains, the Midwest, Great Lakes into the Northeast with a series of back-to-back showers and thunderstorms. The central U.S. will be the primary recipient of this wet pattern with the epicenter being over the northwestern sections of the corn and soybean belts. This wet pattern is expected to persist through next week, possibly longer. Figure 4 is a map showing the 7-day accumulated precipitation forecast across the Lower 48.

Source: NOAA

Given that the planting season for corn, soybeans, and spring wheat are off to slow starts helps to limit new supply. Combine this with the wetter weather pattern expected over the next week or so and there’s some support for prices to the upside. However, with a strong supply of old crop products both domestically and globally, that offsets the slow planting season and disruptions with the weather. Additionally, traders continue to tread water carefully regarding the U.S.-China trade talks. Uncertainties with that is a cause for concern for investors. The Chicago Board of Trade CBOT soft red winter wheat continues to trade at a 20-plus cent premium to the Kansas City Board of Trade KCBT hard red winter wheat. This is a bearish signal indicating that traders are not frantic about purchasing wheat, but instead willing to wait for a trigger or mechanism that will support the need to purchase. According to the USDA crop progress report, 62% of winter wheat reported in good to excellent condition, which will add to an already healthy supply of wheat.

Final Trading Thoughts

Investors should continue to take a wait-and-see approach (sidelines approach). There’s just not much to get excited about in the grains markets with all of the bearish drivers in play.

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.

2019-04-24 20:55:00

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