Rumors, Energy Shockwaves, and a Market Looking for Its Next Spark

Rumors and a sharp rally in the energy markets started the grains and soy markets higher early before a mid-day selloff took corn and beans back to fractional changes or small losses while wheat finished strong. The holiday shortened week could finish with a flourish if this morning’s rumors from Washington are true that the EPA will submit their updated RVO guidelines this week, much faster than expectations. Thursday and Friday’s USDA Ag Outlook Forum will give some planted guideline and stocks guidance starting in the morning. The markets have responded with a welcome counter-seasonal February rally which will need positive weekly developments to continue.

News and Notes:

- SA weather forecasts remain non-threatening for next 7-10 days which will keep both bean harvest and corn planting moving quickly in Brazil. Argentina’s crops are finishing in great conditions.

- The daily chart for March beans is on Page 2, and the 10-session rally looks tired and today’s early 10-cent rally to new 3-month highs, before a noticeable pullback and lower close, sets up a potential reversal. The bottom section on the chart is the Relative Strength Index (RSI) and with the market having been overbought for the last week, a correction would be normal and healthy and not represent a definite top or end to the rally. Any pullback should be used to buy upside call protection if you believe China will follow through on another round of promised old-crop bean purchases. Please call us for strategy for re-ownership or setting a floor after the $1+ rally since mid-January.

- The main raw material story today was crude oil rallying over $3 a barrel after VP Vance said Iran had crossed a line in the sand on not complying with guidelines in their nuclear agreement. US military reinforcements are already moving toward the region in what could become another US strike to take out Iran’s nuclear program. Diplomacy has worked  over the last year to keep Iran in check, but this has escalated well past that. If Iran’s daily oil production potential was taken offline for any length of time, either through increased sanctions or infrastructure destruction, world crude oil prices could easily test $70 a barrel. Today’s high was $65.43, up over $10 since the January low.

- Another day passed with no daily export sales announcements and China’s absence, even with it being Chinese New Year week, is beginning to test the bull’s patience. Cash sources are also confirming that there are no indications China is working any back channels to get offers on US beans.

- Bean oil made new 4-month highs on both the strength in the energy markets and well sourced rumors that the EPA will give President Trump their recommendations on bio-fuel blend volumes later this week. The industry had expected this step in the process would not be until late March, which sparked more crying. Unlike beans, bean oil did not sell-off and closed solidly higher. Increased domestic consumption of US sourced bean oil and China complying with additional old crop bean purchases has quickly changed the bean outlook with the record Brazilian bean crop getting very little attention over the last few weeks.

- The annual February USDA Outlook Forum starts on Thursday and their economists’ forecasts for US planted acreage will be released in the morning. These are only projections from computer modeling and long-range forecasts and rarely end up matching actual planted acres. Expectations are for 95 MA of corn and 85 MA of beans. This report is rarely a big market mover.

An unexpected confluence of bullish events could be colliding soon if the EPA RVO mandates are approved (as promised) by the White House and if China begins to buy additional old crop beans. The thing everyone probably noticed is that both of those statements contain IF. As the markets get used to daily surprises out of DC, the trend has been bullish surprises, but that never continues indefinitely. The standing new crop bean Sales Target was missed by 1-cent in today’s trade and is an important reminder to have your sell orders in with your buyers as the daily volatility has become too much to be able to react quickly enough to place sales calls immediately after your price level is activated. Continue to be proactive with sales to reward rallies with ownership strategies in place on the investable breaks. Call us if you have any questions.