The US dollar index extended its short-term downtrend overnight, while the next FOMC meeting grows larger on the horizon.
The soybean market took a breather, not overly surprising given the March futures contract has rallied roughly 50 cents from last Thursday's low.
Trade volume was solid in the wheat sub-sector, led by impressive activity in the Minneapolis HRS market.
Morning Summary: I was going to start today’s Morning Commentary by mentioning markets were quiet overnight, but that wasn’t necessarily the case with many still showing solid trade volume through early Wednesday. Maybe this was nothing more than Turnaround activity given the exaggerated moves seen in a number of sectors, but for now I’ll leave it at markets are taking a breather and could certainly rejoin their previous moves before today’s closing bell. One sector that continues to stand out is Softs, with Coffee taking another turn in the spotlight[i]. Pre-dawn finds the March issue (KCH25) up 2.6 cents (0.8%), though still sitting well below the recent all-time high of $3.4735 (per pound) from early December. It’s interesting to note Watson may have moved to a new all-time large net-long futures position in coffee as of Tuesday’s close. We’ll wait to see what the next CFTC Commitments of Traders report (legacy, futures only) has to say. In other news, the US dollar index ($DXY) was under pressure once again, extending the short-term downtrend on its daily chart to 107.75. The recent high of 110.18 was posted on January 13. February gold was up $10 to start the day, also creeping closer to its contract high of $2,826.30.
Corn: The corn market was in the red early Wednesday morning, but I’m not reading much into overnight activity other than March (ZCH25) found some selling interest up against the round number $4.90. Recall March posted a high of $4.9050 before closing on the round number Tuesday, with the overnight high (so far) at $4.8975. March also registered 31,100 contracts changing hands overnight, a solid but not extraordinary trade volume number. As usual, the spotlight was on the National Corn Index and national average basis Tuesday evening following the strong rally in futures to open another holiday-shortened week. The Index was calculated near $4.5775, up 5.75 cents from last Friday, on par with the gain posted by March at yesterday’s close. This left national average basis at 32.25 cents under March futures, still within sight of the previous 10-year low weekly close for this week of 34.5 cents under March. While not bullish, I found it interesting merchandisers followed the futures market higher yesterday indicating there is an uptick in demand versus available supplies, something to keep an eye on as we close out the week and approach the end of the month. The March-May futures spread covered a neutral 45% calculated full commercial carry while the May-July was covering a bullish 6% at Tuesday’s close.
Soybeans: The soybean market took a breather overnight through early Wednesday, and why wouldn’t it? After all, the March issue (ZSH25) had rallied roughly 50 cents from last Thursday’s low through Tuesday’s high of $10.68. As I discussed in yesterday’s Chart of the Day, this created an interesting yet expected development on March’s daily chart. Was Tuesday’s high the peak of the short-term 5-wave uptrend, particularly with daily stochastics above the overbought level of 80% and implied volatility surging higher? Or can the contract turn to its weekly chart with next technical resistance up near $11.00? Grab your popcorn, it should be fun to watch. Fundamentally, the market hasn’t changed much. The National Soybean Index came in Tuesday evening near $10.0575 putting national average basis at 61.5 cents under March futures as compared to last Friday’s figure of 60.5 cents under and the previous 5-year low weekly close for this week of 56.0 cents under March. This tells us immediate demand has not strengthened in relation to available supplies, allowing merchandisers to continue to take a defensive stance against the fund-led rally. However, at Tuesday’s close we saw the May-July futures spread covering 33.5% cfcc with the bullish threshold at 33%, again something to keep an eye on as Brazil’s soybean harvest progresses.
Wheat: The wheat sub-sector was in the red early Wednesday morning, barely. All 3 March issues were showing fractional losses, though overnight trade volume jumped out at me. March Chicago (SRW) was showing a modest 10,800 contracts changing hands, while March Kansas City registered a sizeable – for HRW – 4,600 contracts traded. Even more impressive was March Minneapolis (HRS) registering 1,100 contracts traded through the pre-dawn hours. This is big overnight trade volume for spring wheat, with March posting a 5.0 cent trading range as of this writing, from up 1.5 cents to down 3.5 cents. What do I make of this? It’s possible the early hours of the overnight session saw follow-through short covering by Watson, though if so I would think the initial move higher would’ve been stronger. In fact, March Minneapolis (MWH25) opened at $6.0125, one tick off the overnight low before rallying. What’s my conclusion? It’s wheat, and trying to make sense of it only works to give one a headache. Let’s see how Wednesday’s session plays out. What we know about the sub-sector is this: Watson held large net-short futures positions in all three markets as of Tuesday, January 14 while winter wheat fundamentals remain neutral-to-bearish.
[i] I’ll talk about the coffee market in a piece for Barchart later this week.
