The temporary lifting of the ban on the social media site TikTok did what it was supposed to do, spike certain markets on nothing but fluff.
We can see this in the oilseed sub-sector early Tuesday morning, particularly the strong rally in soybeans despite early harvest taking place in Brazil.
In the wheat sub-sector, new record short futures positions were reported for both Minneapolis (HRS) and Chicago (SRW) markets.
Morning Summary: As I watched markets overnight through early Tuesday morning, keeping in mind most were closed Monday for another US holiday, I was reminded of the song Tik Tok by Kesha. It seems markets, particularly the oilseed sub-sector, bought into the idea all is well and good between the US and China now that the new US administration has temporarily lifted the ban against the social media site TikTok. This on the heels of last Friday’s rally that was supposedly tied to a conversation between the incoming US president and China’s president Xi. What is my key takeaway from the party over the extended weekend? Watson will have to relearn everything said is not necessarily real. In fact, given the individuals involved, trade algorithm programmers might want to build in a function that reads the opposite of what is said. We’ll see if that happens. As for markets, the Grains sector led the way higher overnight with a cumulative 1.3% gain. On the other end of the spectrum, Energies were posting a 1.8% loss. It’s also interesting to note Metals were under pressure despite continued weakness in the US dollar index ($DXY). But that’s what happens sometimes when “the party don’t stop”. Things don’t necessarily make sense.
Corn: The corn market extended its uptrends coming out of the 3-day holiday weekend. March (ZCH25) rallied as much as 6.25 cents on trade volume of 42,000 contracts and was sitting 4.25 cents higher at this writing. Indications are the move continues to be driven by noncommercial buying, though we’ll be able to tell more as Tuesday’s session unfolds. Last Friday’s CFTC Commitments of Traders report showed Watson held a net-long futures position of 348,075 contracts, an increase 28,260 contracts and the largest net-long futures position since the week of June 21, 2022. (Recall the corn market was still in the early stages of its previous long-term downtrend that began with the completion of a bearish key reversal at the end of May 2022.) Though this is the first trading day of the week, we need to keep in mind it is a Tuesday, the last trading day of the positioning week for Watson. The next CoT report will be released this coming Friday. Commercial traders continue to play defense against this fund-led rally with my Friday evening national average basis calculation coming in at 32.25 cents under March futures, as compared to the previous Friday’s 30.25 cents under and this week’s previous 10-year low weekly close of 34.5 cents under March.
Soybeans: The soybean market partied overnight with the March issue (ZSH25) gaining as much as 23.25 cents pre-dawn Tuesday. March was sitting near its session high on trade volume of 38,500 contracts on what looks to be commercial buying interest. This raises a number of questions, including if the world’s largest buyer has been prompted to show interest due to the temporary lifting of the TikTok ban. The carry in the March-May futures spread was trimmed by 1.5 cents overnight, with the deferred issue showing moderate-to-light trade volume of 17,000 contracts. It’s also interesting to note the July issue registered 12,300 contracts changing hands while gaining as much as 20.75 cents. Activity in the two deferred issues stands out to me given there are reports of early soybean harvest taking place in Brazil. Something else we have to keep in mind is the weeklong Chinese New Year holiday begins next week, often preceded by a round of export sales announcements from its secondary soybean supplier, aka the United States. Friday evening’s national average basis calculation came in at 60.5 cents under March futures as compared to the previous Friday’s 59.0 cents under and the previous 5-year low weekly close for this week of 56.0 cents under March.
Wheat: The wheat sub-sector was even invited to the overnight party to start the week with all three markets showing solid gains pre-dawn. March Chicago (SRW) (ZWH25) rallied as much as 11.75 cents on trade volume of nearly 15,000 contracts and was sitting 9.5 cents higher at this writing. For now, the carry in the March-May spread had weakened by 0.75 cent but we’ll see what happens as trade volume picks up over the course of the day. March Kansas City (HRW) (KEH25) was sitting 8.0 cents higher after rallying as much as 9.5 cents and March Minneapolis (HRS) (MWH25) was showing a gain of 7.25 cents. Last Friday’s Commitments of Traders report, for positions as of a week ago today, showed mixed results for the three wheat markets. Watson reportedly decreased its net-short futures position in HRS by 990 contracts, yet the short futures position swelled to a new all-time large of 44,010 contracts. On the other hand, Watson’s net-short futures position in SRW increased by 2,735 contracts, also including a record large short futures position of 220,980 contracts. While both markets were in position to rally on a round of short-covering, spring wheat would be expected to lead the way on its more bullish national average basis market.
