Morning CME Globex Update:
Grain and oilseed markets reversed their direction overnight after Tuesday's bullish supply and demand estimates, and more changes could be in store throughout the day. An EIA Energy Stocks report could influence crude oil and ethanol prices, but so far, all commodity futures markets are lower Wednesday morning as traders consider a long-term outlook for a stronger U.S. dollar.
|U.S. Dollar Index:||Lower|
Corn futures prices have stabilized Wednesday morning, but given the bearish implications from the U.S. dollar and outside markets, they're unlikely to extend the bounce that was triggered by Tuesday's bullish World Agricultural Supply and Demand Estimates. Increased projections for ethanol production in the 2018/19 marketing year may draw down ending stocks to as low as 1.577 billion bushels, which would be a tighter inventory scenario than the corn market has seen for the past five years. However, there is a lot of time, a lot of favorable growing weather, and a lot of geopolitical uncertainty between now and the realization of any of those projections. In the very near term, the Federal Open Markets Committee is expected to announce a hike in the target federal funds interest rate on Wednesday. This will likely keep the U.S. dollar on its upward path, which is a traditional headwind to dollar-denominated commodity prices. Meanwhile, in the old crop cash market, the DTN National Corn Index, an average of cash bids around the country, was $3.46 Tuesday, showing the national average basis level steady at 31 cents under the July futures contract.
The soybean market turned itself around Tuesday but has now resumed moving in its original direction -- downward by double digits overnight, with no clear goal or endpoint in sight. The new crop November futures contract has explored a new 2018 low at $9.62 3/4, and the next potential level of chart support may be another 30 cents away. All this, despite USDA's mildly bullish tweaks in their monthly supply and demand estimates Tuesday, raising domestic soybean crush expectations and lowering the projected 2018/19 ending stocks. Speculative traders' long liquidation activity may have triggered this downward movement of the past three weeks, but total open interest in soybean futures has been rising in recent sessions, suggesting there are fresh bearish positions being taken. The DTN National Soybean Index was $8.90 Tuesday, with basis bids stronger at an average of 64 cents under the July futures contract.At 8 a.m. USDA reported 177,000 mt soybeans sold to unknown destinations. 5,000 mt were for delivery in 2017-2018 and 172,000mt for 2018-2019 delivery.
Twenty-cent gains in the benchmark Chicago wheat futures contract on Tuesday may have been an overreaction to the 19-percent year-over-year reduction in projected Russian wheat production, as listed in USDA's monthly World Agricultural Supply and Demand Estimates. Local estimates from the Black Sea region are not all as drastically bullish as the USDA's outlook, and in any case, the worldwide wheat stocks-to-use ratio is likely to remain above 35 percent in the 2018/19 marketing year. The weather forecast for U.S. Southern Plains wheat harvest is hot but mostly dry, which will help get the wheat out of the fields and into bins or elevators, but cash merchandisers in the country still must aggressively compete for those bushels. The average Hard Red Winter wheat basis bid has strengthened by more than a dime this week. On Tuesday, the HRW Index came to $5.39, or an average bid of 14 cents under the July contract. Soft Red Winter wheat's cash bids averaged $5.09 or 26 cents under the July Chicago contract. Hard Red Spring wheat's cash index was at $5.78 and its average basis bid remained at 15 cents under the July Minneapolis contract.
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