Prices Weaken as Fundamentals, Tech and Macro Factors Align.

Author: Doug Christie 

Fundamental

Autumn is in the air with lower temperatures moving across the US, and ag markets felt the same vibe.  

Prices worked lower over the past five trading sessions, with lower levels posted in corn, soy, wheat and cotton. The 24-cent decline in wheat was the most sizeable (down 4.1%), followed by a 171-point decline in cotton (down 2.1%). Corn and soy were off 1.0% and 0.6%, respectively.  

The US grain harvest moved ahead nicely and is now entering the later stages, with corn 71% complete and soy 85% done. Cotton sits at 49% complete as of the October 30 crop progress report. In wheat, prospects for the US winter crop look good with string condition scores.  

Internationally in wheat, grain is flowing more freely in the Black Sea region with increasing rail-to-port movements being reported by Ukraine. All the markets seem to be behaving in textbook fashion, with prices declining as more physical supply comes into the system. Rainfall in Brazil kept the outlook for that crop favorable and helped to point prices in a downward direction.

Technical

As with prices, moving-average tech indicators all flashed bearish this week.

Cotton in particular seems to be struggling since breaching the 200-day moving average, hitting lows not seen since mid-summer. The recent cotton price decline has momentum indicators there tipping to oversold, while other markets show balanced levels despite another week of lower prices.

COT reports as of October 24 reflected some market consolidation, with a reduction in managed money shorts in corn and wheat. Soy managed money moved to a small long position, with cotton showing a nominal decline in the managed money long. Open interest figures were mixed, with weekly increases in corn and wheat and declines in soy and cotton.   

Macro

Crude oil prices were off $2.50 across the five-day period while the USD index strengthened, both of which added to the negative tone. Financial markets were also lower across the reference period. 

With this alignment of factors above, it is not surprising to see ag markets retreating. Having said that, harvest is winding down so will likely need some new developments in markets to continue the downward push. Expect to see consolidation at these lower levels in the very near term.  

Trading strategy is based on the author's views and analysis as of the date of first publication. From time to time the author's views may change due to new information or evolving market conditions. Any major updates to the author's views will be published separately in the author's weekly commentary or a new deep dive.

This content is for educational purposes only and is NOT financial advice. Before acting on any information you must consult with your financial advisor.