Agriculture Futures To Continue Trading Within A Range With Weather, Export Sales, Inspection, And Trade Weighing

Agriculture Futures To Continue Trading Within A Range With…

Investment Thesis

Investors should expect for grain prices to continue trading sideways with weather, inspections, export sales, and trade weighing.

Agriculture commodity prices seen mixed during Friday’s trading session; corn and wheat lower after net export sales come on the lower end of the trading range; soybeans higher

On Friday, the U.S. December corn futures were seen down 1.03% to $3.7212, with the U.S. November soybean futures seen up 0.23% to $9.1938 and the U.S. December wheat futures seen lower 0.57% to $5.0412. For the less-volatile, unleveraged Teucrium ETF grain products, the Teucrium Corn ETF (CORN) was seen lower on Friday, down 0.75% ($0.11) to $14.60, with the Teucrium Soybean Fund (SOYB) up 0.39% ($0.06) to $15.51, and the Teucrium Wheat Fund (WEAT) lower 0.56% ($0.03) to $5.36. Figure 1 below is a price trend chart of the front-month December futures contract for corn over the past week.

Source: Investing.com

Figure 2 below is a price trend chart of the front-month December futures contract for wheat over the past week.

Source: Investing.com

Figure 3 below is a price trend chart of the front-month November futures contract for soybeans over the past week.

Source: Investing.com

On Friday, the December Chicago Soft Red Winter Wheat (SRW) futures were seen down 2.2 cents to $5.054, with December Kansas City Hard Red Winter Wheat (HRW) futures down 2.2 cent to $4.200. MGEX’s Hard Red Spring Wheat (HRSW) December contract was down $0.012 to $5.114. Figure 4 below is a price trend chart of the front-month December futures contract for spring wheat.

Source: MGEX

U.S. crop net export sales come in line with expectations; corn and wheat on the lower end while soybeans on the higher end; some 761k metric tons sent to China

The United States Department of Agriculture (USDA) released its weekly net export sales report for the week ending November 7, Thursday morning.

The 2019/20 wheat export sales for the week ending November 7, 2019, came in at 238,600 metric tons. These came within, albeit on the lower end, traders’ expected range of 200,000-500,000 metric tons. The 238,600 metric tons were down 34% from the prior week and 37% from the four-week average. The main buyers of the 2019/20 wheat crop last week were from Nigeria (40k), the Philippines (36k), Chile (35k), Mexico (34k), and Brazil (30k).

The 2019/20 corn export sales for the week ending November 7, 2019, of 581,600 metric tons exported came within traders’ expectation range of 400,000-800,000 metric tons. The 581,600 metric tons were up 19% from the prior week and 23% from the four-week average. The main buyers of the 2019/20 corn crop last week were from El Salvador (103k), Japan (98k) and unknown destinations (86k).

The 2019/20 soybeans export sales for the week ending November 7, 2019, of 1,253,000 metric tons exported came within traders’ expected range of 800,000-1,400,000 metric tons. The 1,253,000 metric tons were down 31% from the prior week, but up 5% from the four-week average. The main buyer of the 2019/20 soybean crop last week was China (761k metric tons).

Milder and drier weather outlook over next couple of weeks supportive for crops not yet harvested or planted

Forecast models have been mixed/varied in the handling of the temperature pattern with the American GFS being the most aggressive with the cold and the European ECMWF being the mildest. Using a blend of forecast solutions, we should see a continuation of below-average temperatures over the course of the next 15 days though we will see temperatures moderate/warm from the recent extreme/record cold and anomalies in the 6-15 day running closer to normal, well within the typical bounds of below average.

Overall, forecast models have trended slightly colder over the next two weeks. The colder changes have mostly occurred in the 6-15 day time frame. This has been a consistent trend over the past few weeks now where temperatures initially warm out in the 8-15 day time frame turns colder as we move closer into time.

Over the next 10 days, forecast models are showing persistent/perpetual ridging developing over the eastern Pacific/Gulf of Alaska into the western coasts of Canada and the U.S. The upper level ridging over the eastern Pacific continues to be something of interest heading towards the winter season as it looks to be an atmospheric response to the anomalously warm waters over that region. The atmosphere continues to feed off of those warm waters triggering this persistent ridging. This is of special interest given that we don’t have an El Nino present this time around. At the same time, ridging is also being seen developing over Greenland over the next 10 days. These developments will help to keep the upper level pattern amplified (though not to the levels from the recent cold) and ultimately troughing over the central and eastern U.S. that will allow for the continuous transport of cold air into the central and eastern U.S. Because the ridging is not as strong or deep (reaching the Arctic/Alaska/eastern Russia) and thus the jet stream pattern is not as amplified as the recent cold pattern before, the cold over the next couple of weeks over the central and eastern U.S. will be mostly of a Canadian origin and lesser of Arctic origin.

We will see temperatures moderate (returning closer to normal levels) over the next seven days across the eastern half of the country as the Alaskan ridge and highly amplified pattern wanes/breaks down, but temperatures overall will remain below average through most if not all of the two week period. Temperature anomalies in the 8-15 day time frame will be modestly cold compared to the recent extreme cold. Figure 5 below is a map from the 06z GFS ensemble depicting the 1-8 day (November 16-23) temperature pattern.

Source: WeatherBell

Figure 6 below is a map from the 06z GFS ensemble depicting the 9-16 day (November 24-December 1) temperature pattern.

Source: WeatherBell

Tropical forcing also supports the colder pattern as the MJO is expected to be in a 7-8-1 phase over the next 7-10 days or so. All mentioned prior ultimately supports a +PNA/positive Pacific North American Oscillation, a -AO/negative Arctic Oscillation, and a -NAO/negative North American Oscillation for at least the better part of the next two weeks. Figure 7 below is an image depicting the MJO index forecast over the next couple of weeks.

Source: UAlbany

An overall dry pattern will remain in place over the next two weeks as the upper level flow pattern will consist of a split-flow (Rex Block) just off the west coast of the U.S. and the development/amplification of a trough over the eastern half of the country. Not only will this result in a colder-than-normal pattern to the central and eastern U.S. as discussed above, but will come with periodic chances of low profile/light precipitation (rain/snow mix) from primarily weak clipper disturbances tracking across the central U.S./grain belt. Figure 8 below is a map showing the seven-day accumulated precipitation forecast (Friday morning to next Friday morning) across the Lower 48.

Source: NOAA

Figure 9 is a map from the 06z GEFS depicting a drier-than-normal pattern across much of the country in the 2-8 day time frame (November 16-23).

Source: Tropical Tidbits

Figure 10 is a map from the 06z GEFS depicting a normal to drier-than-normal pattern across much of the country in the 8-14 day time frame (November 22-29).

Source: Tropical Tidbits

Final Trading Thoughts

Improving weather conditions (drier and milder) will support downside risk to prices for the crops that have yet to be harvested or planted. Wheat and corn net export sales came in line with expectations though on the low end, providing additional downside pressure. Soybeans came in line, but on the higher end giving upside support. This explains why corn and wheat are both trading lower on Friday while wheat is trading higher. Grain prices overall in the days ahead will continue to trade sideways/mixed with weather, inspections, export sales, and trade weighing.

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.

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