February Opens with Heavy Pressure as the Bull Story Fades

After last Friday’s momentum killing reversals, prices started the week with follow through losses as no weather threats are present in South America. Energy prices were sharply lower today with crude oil falling over $3 a barrel after a weekend of diplomatic progress between Iran and the US regarding Iran’s nuclear intentions and the current state of civil unrest and rioting against Iran’s current regime. Increasing SA yield estimates and lower energy prices are tough opponents for the bulls on the first trading day of February and look to continue to provide problems this week.

News and Notes:

• The next 2-weeks of SA weather offer no threats with plenty of rain chances for the recently dry regions in Argentina and S Brazil, while a perfect mix of sum/temperatures/rain for Brazil’s bean harvest to accelerate and safrinha corn planting to move quickly. Through the weekend, Brazil’s total bean harvest is about 10% complete while second season corn planting is moving along at a record pace at 16% in Mato Grosso. The US finally warms up this week to help melt ice, snow, and waterways.
• The November bean daily chart is on Page 2 and shows the ugly last 2-days of losses after rallying into technical resistance at the 50-DMA (green line) and psychological resistance at $11. Today’s good news is at the early morning lows at $10.69 ¾ (30-cents below Thursday’s highs) were able to decently bounce from support at the 200-DMA (black line). With Brazil’s record bean harvest just 12-15% complete, it is too early to call this a sustainable range, but $10.60-$11.00 seems like a safe bet until more Brazilian bean yields are known.
• Cattle were sharply higher again today with feeders up over $8 to $368.40 at the highs with live back to former resistance at $240 and new 3-month highs. Both recent cattle inventory reports lacked any bearish surprise and with new cases of screwworm being reported in Mexico every few weeks, there is no reason for the market to break with in the current news landscape.
• Weekend estimates for Brazil’s bean crop continue to get larger with early yields allowing another private analyst to push their total yield to a 6.6 to 6.8 BBU crop. Brazil’s total exports this year will be the second consecutive year that completely fulfills China’s import needs. Domestic US bean consumption programs have to be a focus of every farm group and elected representative from a large ag state. Mandates on year-round E-15 and further support for Sustainable Aviation Fuel are the most route to improve demand and address the potential loss of all Chinese bean business and make US renewable fuel policy the consistent domestic demand source we need.

Negative new week momentum is a tough way to start the month but without a world production problem and the fleeting hope from President Trump’s support for E-15 now a distant memory, there is not much for the bulls to build a story around to attract more buyers for any major breakouts. While it is too early in Brazil’s harvest to expect a complete price meltdown, the last two days of trade certainly indicate what could be to come. Rewarding rallies will remain my plan as the markets will have a tough time rallying back to meaningful levels unless US planted acreage shrinks below 94 MA for corn with more than 2-3 MA going into cover crops or not planted because of spring weather. After that it will be all about US pollination weather and that is six months away. Another $15 billion Farmer Assistance Program is being discussed with a September timeline, or just in time to buy your vote in the November mid-term elections.