- Ben Williams
- November 21, 2022
- 2:19 pm
- 10 min read
Relief for global grain supply as the Black Sea Grain Initiative is extended!
Indices
Futures
Forex
– Argentinian soy plantings have been slow this year due to the soil condition being so dry from recent drought conditions. As you can see from the chart below, Argentinian planting is usually pretty consistent with last years pace sticking in line with the 5 year average. At the start of the month you can see the pace began to slip for this season and is now a fair way off the minimum level over the last 5 years for this time of year.
– Forecasts show some light rains over the next 10 days which is promising, although it is going to be less than needed, we could see planting pace pick up. Reports suggest that soil moisture is very low and the farmers face a big risk if they do plant as they will require consistent rain over the next two weeks. They are past the optimal planting window but can still plant up until December, with increasing risk of a poor crop quality as time goes on.
– The Black Sea Grain Initiative was due to expire on Saturday but was extended for an extra 120 days on Thursday which will see the continuation of grain exports through a safe corridor. We expect to see pressure on grain prices as a result of this boost to global supply. This is likely to be the situation for the foreseeable future with little change in the Ukrainian war and no signs of things coming to an end any time soon.
– Chinese covid cases look to be on the rise with the country reporting its first covid related death in 6 months which is adding to concerns that the end of their zero covid policy could be further away than previously thought which is concerning for investors across the board, but especially for commodities. As the largest consumer of soybeans, further lockdowns are only adding further strain to the demand side of the market.
– The CFTC commitment of traders report from 15.11.22 showed Managed Money to be net sellers as the reduced their long position by 6,232 and added to their short position by 4,711. This leaves them with a net long position of 92,965.
– OR reduced their long and short positions this week leaving them net short 11,404 contracts. NR added to both their long and short positions leaving them net short 28,966.
– The January contract traded in a range of 58 and closed the week down 21.6 cents. As expected the market encountered overhead resistance from that downward trend line and broke through the 200 day MA and 50% retrace level. It continued to the downside on Thursday before bouncing off the 38.2% retrace. Going forward we see see the formation of the contracting triangle leading to a decisive move in the next week or so and we expect it to be to the downside with support seen at the 23.6% retrace level seen on the chart above.
– Elliot Wave see near term strength with prices going above 1475 basis the March contract, by the mid December. However, they are expecting it to be short-lived and still see prices going t0 the 1250 level early next year.
Conclusion
This bounce is likely to encounter overhead resistance fairly soon which we expect to be followed by a downward move. With Chinese lockdowns not showing any signs of slowing down as rumours suggested, despite some slight easing of rules and Brazil still looking set for a record crop we are bearish this market.
Written by:
Ben Williams
Copyright statement
No image or information display on this site may be reproduced, transmitted or copied (other than for the purposes of fair dealing, as defined in the Copyright Act 1968) without the express written permission of Earlam & Partners Ltd. Contravention is an infrigement of Copyright Act and its amendments and may be subject to legal action.
The risk of loss associated with futures and options trading can be substantial. Opinions set forth herein should not be viewed as an offer or solicitation to buy, sell or otherwise trade futures, options or securities. All opinions and information contained in this email constitute EAP’s judgment as of the date of this document and are subject to change without notice. EAP and their respective directors and employees may effect or have effected a transaction for their own account in the investments referred to in the material contained herein before or after the material is published to any customer of a Group Company or may give advice to customers which may differ from or be inconsistent with the information and opinions contained herein. While the information contained herein was obtained from sources believed to be reliable, no Group Company accepts any liability whatsoever for any loss arising from any inaccuracy herein or from any use of this document or its contents. This document may not be reproduced, distributed or published in electronic, paper or other form for any purpose without the prior written consent of EAP. This email has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. For the customers of EAP, this email is produced exclusively for our business and expert clients, it is not for general distribution and our services are not available to private clients. Past performance is not indicative of future results.