Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.
Archives

Archive for May, 2018

Market Report

Tuesday May 29th, 2018

July corn closed down 6 at $4.00 and December closed down 6 at $4.19. July soybeans closed down 11 at $10.30 ½ and November closed down 11 at $10.42 ½. July wheat closed down 6 ½ at $5.36 ½ and September closed down 6 ¼ at $5.53 ½. Crude oil closed down $1.16 at $66.62.

Another “start higher, end lower” trade in the corn market, though this time, the markets did both with a little more gusto than normal. Call it an “early welcome” to summer markets, and the increased volatility that comes with them. Corn traded as much as $.04 higher Monday night, saw those gains fade into the dawn, and then slowly sold off throughout the day. Futures would close $.06 lower in a wide $.12 intraday range. Managed Money types were active today, selling 25,000 contracts, which would pare their net length in the market back to 190,000 combined futures and options.

Crop Progress data after the close was a little eye-opening.  The first national corn condition report of the year found the best start for the crop since 1996. Good-Excellent ratings were pegged at 79%, which compares to 65% last year. Poor-Very Poor was just 3% versus 7% last year. The only states with condition ratings behind this time last year were mostly “fringe” states – Texas, Tennessee, Pennsylvania, North Carolina, and Michigan.  Conditions almost always start “good” and conditions are usually all downhill from here. The USDA also pegged corn planting progress at 92%, advancing 11% wk/wk, and is now slightly ahead of average. The data implies roughly 7 million acres left to plant, including 810,000 in Michigan and 732,000 in Wisconsin.  Next week will capture the data past “Final Planting Dates” in the northern states, and will likely be used to get some idea of any potential lost corn acres.

Ideas for a fast start to the condition ratings discussed above, a little extra rain in the midday forecast maps, and China trade jitters, all conspired to turn the corn trade bearish. On the latter point, the Trump administration apparently decided to slap $50 billion worth of tariffs on China, after appearing to back off that very same move just last week. No doubt markets with length ended up paying the price with traders looking to lighten up those positions. US Dollar traded to new recent highs today.

The soybean market failed to sustain overnight strength and reversed lower including a key reversal on the November chart. There were some open farm selling orders filled at $10.60. Rally strength the previous week had been fueled by optimism for the resumption of Chinese imports of US beans. That business has not materialized and today the White House ratcheted up the intensity of negotiations by announcing plans to enact a 25% tariff on certain technologies totaling $50 billion and other tech restrictions aimed at investments, export controls and intellectual property. Additional details will be released by June 15th and the tariff enacted shortly after. Just like that, trade uncertainty was back on the table and the market responded as you would expect.

Trade wasn’t the only factor that weighed on prices today.  Global currencies continue to restructure their values with the dollar into new highs and the Brazilian real revisiting its lows. Thus making US values less competitive relative to Brazil.  There seemed to be a macro component tied to the selling as a result. A favorable weather outlook factored in with most of the Corn Belt set to get a nice drink this week and crops expected to start off in good shape in this afternoon’s report. Crop progress report showed soybean planting is 77% complete vs. 56% a week ago and 62% avg, the crop is 47% emerged vs. 26% last week.

Today was another session that saw wheat volume reach well over 250,000 contracts. Keep in mind, since a week ago Friday, open interest in Chicago wheat futures has increased around 79,000 contracts, and despite today’s poor close, that number may go up again tomorrow. As has been the case over the past couple of weeks, trade received a boost after the European markets opened, eventually reaching double digits higher before the rally stalled. However, in the 30 to 45 minutes leading up to the morning break the entire grain complex reversed, and wheat was not immune to that selling.

The sell-off leading up to the morning pause coincided with the Trump administration announcing that it had laid out a timeline for imposing tariffs on $50 billion in imports from China. A final list will be released on June 15th, and the tariffs will be imposed “shortly thereafter.” The proposed investment restrictions and enhanced export controls will be announced by June 30, with implementation soon after. This was not behind the midday collapse, but by then it sure seemed to turn into a risk off day for all commodities, with a lot of red on the screen across the board. Hopefully this does not turn into a three-day fund selling marathon culminating with month end on Thursday.

State by state wheat condition ratings will only add fuel to that thinking. Overall expectations were for winter wheat conditions to be unchanged week over week, but they improved 2% and it could have been more. Winter wheat conditions came in at 38% G&E and 34% P&VP vs last week when they were 36% G&E and 35% P&VP.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Friday May 25th, 2018

July corn closed up 1 ¾ at $4.06 and December closed up 2 ½ at $4.25. July soybeans closed up 5 ¾ at $10.41 ½ and November closed up 6 at $10.53 ½. July wheat closed up 12 ¾ at $5.43 and September closed up 12 ¾ at $5.59 ¾. Crude oil closed down $2.97 at $67.61.

The corn market glided into the long weekend with gains, no doubt benefitting from yet another buying binge in the wheat market. Futures generally maintained a firmer tone throughout, finishing just below session highs. For the week, futures notched just over $.03 gains, holding the “outside week reversal” higher trade. CFTC Commitment of Traders data for the week ended 5/22 found fairly flat fund positioning in corn.  There were just 12k “new” longs and 10k “new” shorts, resulting in a net change of 2,000 new net length in the market. When including mixed action since then, we would estimate they are heading into the weekend net long just over 215,000 combined futures and options.

Given an unusually warm bias, traders suspect plenty of the “behind” acres in the northern plains will get planted, just in the nick of time to avoid crop insurance issues. Early conditions should be quite good. In Brazil, analysts are still trying to grapple with a less-than-ideal safrinha corn crop this year.  AgroConsult was the latest to opine, pegging the second crop at 57 mmt vs. 60.2 mmt in prior estimates and 67 mmt last year.  With 26 mmt in first crop, that would make for an 83 mmt total crop, 14 mmt less than last year.  Some talk around that Argentina may resume an export tax on corn, as the gov’t there looks for money.  Could have a bearing on corn planting decisions in their next season this winter, but high South American prices could overcome this obstacle.

The soybean market traded higher on Chinese purchases and tight SA supplies of beans from the trucker strike. The products were mixed with soymeal up three bucks and soyoil down 37 points. CIF premiums were unchanged for May and mixed for J/J (down 1-2 cents / up 1 cent). Brazilian trucker’s road blockage protest is in its 5th day, disrupting grain movement for pork and poultry processing facilities, soybean crushing plants and export facilities. They rejected the government’s proposal to reduce diesel prices for the next 30 days. Brazil’s government has requested military intervention, to begin removing the roadblocks from the main arteries, to allow products to move again. The USDA announced the sale of 312,000 tonnes of US soybeans to China for 2018-19 and 165,000 tonnes of optional origin soybeans to China for 2018-19.

Trade across the wheat complex fared much better today than yesterday, with prices extending overnight gains early, then staying firm throughout the rest of the day. KC was the leader of the complex today, maybe signaling that the big fund short that had been in Chicago has now liquidated its position. The HRW wheat contract ended the day $.15 higher, and for the week it finished more than $.25 higher. It was the highest weekly close since July of last year. Twice this week we saw the volume of trade in Chicago wheat futures exceed over 200,000 contracts. Thursday’s volume may have been a record at 283,396. Open interest in Chicago wheat futures since last Friday has increased a shade under 60,000 contracts. Farmer selling has been a big part of it, as it was strong Tuesday, and downright overwhelming Thursday.

Weekend weather will play a major role to how futures start the week Monday night. Black Sea, Australia, Canada, China and the US weather will all be monitored closely. Here in the US, temps across the southwest are expected to soar above 100 degrees. Granted, this area of the HRW wheat belt has been an issue for the past several months, but the scorching heat will not do the crop any favors. It has been mentioned several times that the USDA is just way too high in their early estimates for Kansas. Either the 7.3 mil harvested acres estimate or 37 yield estimates will come down. But what if the Colorado crop gets below 80 mil bu, Oklahoma under 50 mil bu and Texas under 40 mil bu? The recent rally in wheat futures has taken US HRW wheat values more than a dollar out from being competitive with the rest of the World. But it may not matter if the HRW wheat crop diminishes as much as we think it possibly could. We will not get an update on that until the end of June, so it’s still five weeks away. Plenty of time to see several flushes (downside moves) before then.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday May 24th, 2018

July corn closed down 4 ¼ at $4.04 ¼ and December closed down 4 at $4.22 ½. July soybeans closed down 3 ½ at $10.35 ¾ and November closed down 1 ¼ at $10.47 ½.  July wheat closed down ¾ at $5.30 ¼ and September closed down ¾ at $5.47. Crude oil closed down $1.13 at $70.58.

Corn looked set for “more of the same” today, with futures reaching up to new highs overnight and trading firm early in the day. The markets began to buckle a little mid-day, however, which kicked off a quick break in the market. The corn market finished right on its lows, settling four cents lower on the day. Managed Money traders were viewed net sellers of about 15,000 corn today, which would take their net length back to recent highs of 210,000 combined futures and options. They may be looking to lighten up a little heading into the three day weekend. Weekly USDA Export sales were toward the high-end of expectations for corn. Net new sales of 854,300 metric tons for old crop (17/18) and 273,400 for new (18/19).

On the weather front, most of the “fireworks” are abroad, with concerns centered mostly in a couple of major world wheat producers. Brazil crops are still generally walking back, with estimates in the low 80′s versus high 80′s earlier this month.  Last weekend’s rains are ancient history with dryer conditions settling back in. The U.S. Midwest is entering a welcome warm-up phase that should help the final 20% of the crop get planted in a timely fashion, likely ahead of the Northern Plains May 31 “FPD” deadline. Despite better weather, Argentine farmers only managed to harvest 1% of their corn crop last week, taking the total to 35% complete.

The soybean market extended its rally to a new recovery high but was unable to hold the gains and reversed back to the downside.  The keys to the reversal were likely the poor spread action the awful weekly export sales report, and the lack of meal leadership. It will be interesting to see if the market will liquidate some of our new length heading into the holiday weekend. Bean export sales were downright ugly at -140 tmt old crop and just +7 tmt net new crop. The highlight of the weekly sales report is the cancellations of old crop beans from unknown (895) and China (53) but it is important to note that this was already picked up in the daily report and traded last week.  The negative new crop meal total of -43 tmt came on a cancellation by the Philippines. Speaking of China, a breakthrough in trade negotiations indicates a willingness to expand purchases of US ag products which, if finalized, will stabilize the downside risk to a certain degree in the market moving forward.  We may start to see the resumption of trade confirmations of Chinese by the USDA in the coming days/weeks but considering the healthy domestic and global supply situation the price of soybeans should not get out of control to the topside without a US weather issue. In terms of weather, we will end the month with a warming and drying trend across much of the corn belt with the exception of the plains where a wetter pattern sets up while the central to eastern belt goes the other direction as a ridge sets up. While there have been some areas that have seen significant rainfall during the month of May there are many others that have not been as wet so there is some concern building over a drying trend as we head into summer.

For much of the overnight, price action was quietly mixed, but around the time the European markets opened all of that would change. Matif wheat had a gap higher start to their session, which in turn provided a spark to trade here in the US. The IGC raising their 2018/19 global wheat production estimate by 3 MMT may have deflated the balloon a little, but trade still ended the night strong. During the first couple hours of the day session price action was choppy, first rallying to new highs, then breaking, then re-rallying to new highs once again by late morning. Shortly around the time Trump announced the cancellation of the US and North Korean meeting in June, price action across the entire grain complex started to turn. The rest of the session saw trade gradually weaken.

It would be unfair to say that the Trump announcement was the reason behind the grain markets reversal today, but it does beg to ask how much uncertainty does this bring back to the table now. Where does that leave the US relationship with China? Today, the grain markets appeared to be a bit nervous as they all came unglued and finished near the session’s lows in a somewhat wide trading range. But what does all this mean for the grain markets Friday? How much energy will the markets have left going into a three-day weekend, with these new longs feeling the strongest pressure to liquidate? For the second time in the past three days the volume of trade in Chicago wheat futures exceeded over 200,000 contracts. Today’s volume may have been a record. The wheat market’s reputation of carrying completely through, to the upside or to the down side, and make that good or bad trade has been downright awful lately. After today’s reversal type price action, it is easy to look at a chart and say here we go again.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Monday May 22nd, 2018

July corn closed up 2 at $4.04 ¾ and December closed up 2 ¼ at $4.23 ¼. July soybeans closed up 5 ¼ at $10.30 ½ and November closed up 5 ¼ at $10.39.  July wheat closed up 14 ¼ at $5.21 ½ and September closed up 14 at $5.38 ½. Crude oil closed down $.06 at $72.02.

Corn felt like a supporting cast member as a double digit rally in wheat once again captured traders. Corn would finish the day with gains, once again proving unequal to the task of pushing into new highs. Managed Money traders were viewed net buyers of about 5,000 contracts today, which would take their net length in corn back up to 215,000 combined futures and options.

Wheat remains the x-factor in the markets, driving excitement, chatter, and, yes, some degree of confusion. There remains a great deal of debate just how bullish, bearish, or indifferent, Black Sea and European weather patterns are. Recent dryness in parts of Russia in particular has certainly captured the attention of the European market, which traded to new highs for 2018 today. Corn, meanwhile, has eased into a holding pattern, as the market begins its yearly transition from watching planting progress to judging crop conditions. On the former point, some of the Northern states remains behind on planting progress, but there is expected to be enough breaks between rains to get that fieldwork done, hopefully before “Final Planting Dates” kick in 5/31 for some key states.

The soybean market extended its recovery in a somewhat wobbly that reflected more uncertainty in the state of US-Chinese trade negotiations. The market started the day on stable footing with additional trade concessions in the headlines. The US is looking at lifting its ban on US companies supplying parts to China’s electronics manufacturer ZTE and China reportedly will reduce tariffs on imports of US cars/parts. Midday comments that the President ‘was not pleased with how the talks went with China’ and ‘the talks were a start, is not satisfied’ pressured the market into the red before some late buying helped salvage a more modest rally with yesterday’s upside gap remaining intact.  Trade headline volatility appears to be a feature to our market for the foreseeable future.

Besides China news, the keys to look for on near term price direction in beans are fresh export activity (or lack of) and planting progress where conditions appear favorable for planting and early development. With a better window opening for the last week of the month along with a $4.25 corn board, we are not expecting to see any significant shift from corn to bean acres.

Elsewhere in the news, Argentina is looking at potentially pausing their local soybean export monthly reductions that began in January. The pause is in an effort to accelerate the reduction of their fiscal deficit. The current tax on soybean exports is 27.5% and meal and oil both are set to 24.5%.  Congress will take another swing at passing a farm bill with another vote set for June 22nd.  There are reports that the Brazilian trucker strike may be nearing an end with a deal agreed on to cut fuel taxes which was the objective of the strike.

Today’s price action in wheat was similar to Friday in which most of grain sector had a bid behind it, but it was the wheat market that produced the strongest gains. It is easy to say that wheat is one of the more illiquid contracts, thus easy to push around, but trade was extremely active today with volume in front month Chicago July over 117,000 contracts. After a dismal start to the week, some friendlier bits of data for wheat surfaced overnight, and the wheat complex ran with that positive news only like the wheat market could. Wheat has been a streaky market lately, running on any positive or negative data it finds. The problem is that it has not carried completely through – to the upside or down side – to make that good or bad trade. Sooner or later that will change and we will come in and find wheat on a 60 to 70-cent rally or break.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Friday May 18th, 2018

July corn closed up 7 ¼ at $4.02 ½ and December closed up 7 ¼ at $4.20 ¼. July soybeans closed up 3 ½ at $9.98 ½ and November closed up 4 at $10.08 ¼. July wheat closed up 20 ¾ at $5.18 ¼ and September closed up 20 ½ at $5.34. Crude oil closed down $.20 at $71.37.

FOR THE WEEK ENDED 5-18-18

CORN – China announced they would discontinue the 178.6% anti-dumping deposit on US sorghum imports on Friday.  This allowed corn to erase the weekly loss it had accumulated up until the announcement.  Corn began the week on a dull note, but found traction to the upside on spillover support from the wheat market and an early week soybean rally.  The downside was limited in corn on uncertainty about the size of Brazil’s safrinha crop and year on year declines in the US ending stocks forecast.  Corn planting in the US essentially caught up to the average by May 13th.  Planting progress was 62% complete, only 1% behind the 63% average.  The average for May 20th is 81% complete.  Emergence as of May 13th was 28%, 1% ahead of the average.  Minnesota planted 31% of their corn crop to get to 40% complete, but was still 25% behind the average.  The weather picture for corn was deemed as favorable for the foreseeable future.  How much planting is completed by May 20th in Minnesota and the Dakotas will be carefully scrutinized.

Our trade issues with China had impacted the corn through the soybean and sorghum markets.  China’s threat of a 25% import tariff on US soybeans, if the US acted on their proposed tariffs on Chinese goods, cast a shadow over bean prices which spilled into corn.  China’s decision to implement a 178.6% import “deposit” on US sorghum imports last month was negative for corn as the sorghum had to find an alternative market and would displace corn in the feed channel. The “deposit” was in response to China’s anti-dumping and anti-subsidy investigation of US sorghum.  Sorghum already headed to China found homes in places such as Japan, Vietnam, and Spain.  On the second day of the trade talks (May 18th), China stated they would discontinue the sorghum import deposit (and the investigation) and would return any fees already collected.  They said the deposit would inflate living costs for Chinese consumers.  US sorghum exports to China accounted for 4.76 mmt of the 5 mmt they imported in 2017.  There was also chatter that China would buy US ethanol, which would help cut the trade deficit between the two countries.  Prices rallied in response to the news.

Weekly export sales for old crop corn were at the high end of estimates at 38.8 million bushels.  This brings total commitments to 2.07 billion bushels, on par with last year!  The USDA is anticipating a year on year 3% decline in exports.  Total sales are 93% of the target, compared to 91% on average. This was a decent week despite the fact we haven’t seen a daily corn sales announcement of at least 100 tmt since April 26th!  New crop sales were 5.1 million bushels, bringing total new crop sales to 87.8 million bushels compared to 97.4 million bushels last year.  Next year’s exports are forecasted to show a decline of 5.6% from this year.  We are currently down 9.8% from the previous year.

NOAA issued their 90-day forecast for the US this week.  For June/July/August, temperatures have an equal chance for above/below normal.  For precipitation, look for above normal rain for the majority of the Corn Belt.  For upper Midwest, including Minnesota and the Dakotas, there is an equal chance of above/below normal rainfall.  In general, nothing looks threatening for the Corn Belt for J/J/A on this early forecast.  Informa Economics this week projected US corn acreage at 89 million acres, up 1 million acres from the USDA’s latest report.

OUTLOOK: A tightening world carryout scenario and uncertainty over Brazil’s second corn crop should limit further downside in corn.  However, if the weather continues to look favorable, we could see further pressure in the short run.  We’re at the whim of weather forecasts and political events for direction.  Nothing is moving in the country, so no natural hedging is occurring, and funds remain net long.  Political events can change quickly, in either a positive or negative way, as was shown this past week.  We may be in for increased volatility, but buyers/funds seem to want to continue to own corn.  As of this writing, the farm bill failed to pass the House.  Corn closed the week on a strong technical note.  For the week, July corn was up 6 cents at $4.02 ½ per bushel. December corn posted a key reversal higher into the week, up 5 ¾ cents for the week at $4.20 ¼ per bushel.  The contract high in the December corn is $4.29 ½ per bushel, set last July.

SOYBEANS – Politics anyone?  Let’s start at the end and then skip back to the beginning.  China was in the US at the end of the week to continue trade talks.  On Friday, May 18th, they dropped the import “deposit” on US sorghum imports, hinted they would buy more US ethanol to help cut the trade imbalance with the US, but nothing was overtly mentioned about soybeans.  The initial trade take was the likelihood of a 25% import talk on US beans into China was decreasing as the talks progressed.  The fly in the ointment came on the USDA same day announcement that 829 tmt of old crop and 120 tmt of new crop soybean sales to unknown had been cancelled.  The chatter was these sales were part of a frame contract where no price had been set.  This didn’t change the fact that we just erased huge sales.  The same release reported the sale of 56 tmt old crop beans and 112 tmt of new crop beans to unknown.  On one hand, yeah! China probably won’t put the tariff on our beans.  On the other hand, hey, what happened to our sales?!  Prices treaded water into the weekend as traders tried to decipher the news.

Looking back to the beginning of the week, soybeans rebounded higher on a technical bounce and more optimistic trade talk news and after a poor close the previous week.  The rally was short-lived as optimism faded that the US and China would quickly resolve their trading issues, and as planting progress moved ahead of the average pace. The US ambassador to China, former Iowa governor Branstad, hinted that the US and China were still far apart on any resolution.  A stronger US dollar and sharply lower South American currencies added to the negative force.  Argentina’s peso fell to record lows.  Farmers there tightened their hold on soybean and corn stocks as their hedge against inflation, which has hit 40%!  The country needs export sales to generate money for the government.  Would Argentina raise their export taxes to raise money?  Anything is possible, but nothing is happening on that front.  Brazil’s soybeans are the cheapest source in the world, but lately China has slowed their soybean purchases from any origin as their crush and feeding margins have declined.  It’s thought they are well covered into July.

Weekly export sales were disappointing at the lower end of estimates.  Old crop sales were the second lowest of the marketing year at 10.4 million bushels.  This keeps us 3% behind last year’s pace.  The USDA is expected year on year exports to show a decline of 5% this year. We are at 99% of the projection versus 97% on average.  We need just 3.4 million bushels of sales per week to hit the USDA’s 2.065-billion-bushel export target.  We did see our first sale of at least 100 tmt announced in the USDA’s reporting system this week since April 20th with 132 tmt of old crop soybeans sold to unknown.  New crop sales were 8.3 million bushels.  Total new crop commitments are 204 million bushels versus 105.8 million bushels last year.  New crop sales are 92% ahead of last year!  The USDA’s forecast is for a 10.9% increase in year on year exports in 2018/2019.  Total inspections year to date (what actually is shipped) is 1.644 billion bushels, down 199 million from last year.  We need weekly inspections to average approximately 26 million bushels per week to hit the USDA’s projection.  Many are sharpening their pencils to estimate how many bushels sold to China will actually ship versus being rolled over into the new crop year, or get entirely cancelled.  China has about 4 mmt still to ship from the US and Brazil is the cheapest source of beans.

The Buenos Aires Grain Exchange, or BAGE, cut their Argentine soybean production estimate by 2 mmt to 36 mmt.  The USDA last week was at 39 mmt.  With Argentina’s farmers holding stocks tight due to the weak peso (down over 20% this month), it makes it harder for Argentine processors to source soybeans to crush.  The trade will continue to monitor soymeal prices for any indication of increased business.  Their government put out a plea for growers to sell soybeans to increase the government’s revenue.    The current export tax on soybeans is 27.5%.  There is no tax on corn exports.  Argentina soy crush workers began a nationwide strike after layoffs earlier this year.  The April US NOPA report was as expected with the crush a record for the month at 161 million bushels.  The soyoil stocks was higher than expected at 2.09 billion pounds.

Soybean planting as of May 13th was 35% complete versus 26% on average.  The average pace as of May 20th is 44% complete.  Soybean emergence as of May 13th was 10%, 4% ahead of the average.  Informa Economics refreshed their US soybean acreage to 89.4 million acres. This is slightly higher than the USDA’s 89-million-acre estimate. Their May acreage number has been under the June USDA estimate in 8 of the last 10 years.  The next USDA planted acreage report will be released June 29th.  The USDA’s June number has been higher than the March estimate in 8 of the last 10 years for both corn and soybeans.

OUTLOOK: Soybeans posted their lowest closing prices this week since early February.  July soybeans settled below the psychological $10.00 per bushel.  Trade uncertainty, absence of China in the export market, weak South American currencies, weather, and poor demand all contributed to this week’s price decline.  Weather and China will be expected to stay on the front page.  The US dollar index rallied to a 5-month high this week, which also provided a headwind for beans.  For the week, July soybeans were down 4 ¾ cents to $9.98 ½ and November beans fell 6 cents to $10.08 ¼ per bushel.  July meal dropped $2.30 to $376.30 per ton and soyoil was 33 ticks lower at $.3098 per pound.  Soybeans trended lower during the week and will need food for the bull to see any significant recovery.

Wheat

The world wheat markets are on a dryness alert.  Weather in the Ukraine, Russia, Kazakhstan, Australia, and the US plains has been dry to very dry.  The world has plenty of wheat stocks currently, but production problems in more than one region would certainly get trader’s attention to add some risk premium into the futures markets.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday May 17th, 2018

July corn closed down 4 at $3.95 ¼ and December closed down 4 at $4.13. July soybeans closed down 4 ¾ at $9.95 and November closed down 4 ¾ at $10.04 ¼. July wheat closed up 3 ¼ at $4.97 ½ and September closed up 3 ¼ at $5.13 ½. Crude oil closed up $.01 at $71.57.

The corn market maintained a defensive posture again, finishing lower in the end. Corn actually re-opened after the AM break a couple cents higher, spent most of the day just fractionally lower, and saw selling pick up some steam after the noon hour.  The market finished at a three week low. Heading into Friday, corn is sporting five cent gains, all by virtue of the hand-off from May futures to July. Managed Money traders were viewed net sellers of about 10,000 corn today, which would take their net long in the market back down to around 200,000 net long.

Export sales this morning were fairly good after a couple of disappointing weekly showings. Net new sales of 985,700 MT for 17/18 and 129,200 for 18/19, were toward the very high-end of expectations. Japan was the big buyer of record (400k), with mixed Asian and Latin interest in for the balance. “No news” was apparently not “good news”, and the absence of positive headlines coming out of the meetings likely helped contribute to the market’s late break. Weather is in a holding pattern. U.S. planting progress is likely advancing some today and Friday in front of more weekend storms. There are another two weeks to get Northern Plains acres planted before “Final Planting Dates” start kicking in, which could negatively impact the corn acreage mix. Brazil safrinha did get some rain relief, but it proved disappointing and will take some time to ascertain yield losses, or lack thereof. The final full year corn production number out of Brazil should be in the 80′s “somewhere” versus 97 last year.  Argentina is finally getting a dryer weather pattern which will help them get their crop harvested. They were only 34% harvested heading in.

The soybean market continued its slide as overnight strength melted away in the day trade. A promising start just could not fight off the bear. The main drivers continue to be trade deal uncertainty, ideas of larger US acreage and disappointing export activity despite a flash sale announcement of 132 mt old crop beans to unknown early on. It feels like funds are liquidating at the same time with estimates that funds were sellers of 7,000 beans today after dumping 15,000 yesterday leaving them long 90,000 or so. Trade talks had a very pessimistic tone today with President Trump saying he ‘doubts the China trade talks will be successful’ and that China has become ‘very spoiled’ on trade.  The President is scheduled to meet directly with Chinese rep Liu behind closed doors this afternoon. NAFTA isn’t going much better with no date set for the next round of talks but likely will not take place until after the July 1 Mexican election. There was a silver lining though as Trudeau says that NAFTA talks are down to the final few sticking points which appear to be Mexico & Canada’s reluctance to accept language on the sunset clause and arbitration.  To me, that means we are closer to an agreement than what some of the other headlines suggest.

The strong overnight gains tried to carry into the day, but prices began to sell off. That setback gave back much of its earlier gains, but a late morning rally pushed values back towards their highs. Once again trade was unable to sustain the move. The weakness in corn and soy weighed on wheat futures as it traded into the close. Pictures and stories of hail and wind damage across western Kansas from their recent storms filtered throughout the marketplace, and that may have been behind the move today. There was already a very good chance we were going to see the Kansas crop come down, and this will only add fuel to that thought process. A 37 yield and harvested acres of 7.3 mil is just too high for a crop that has struggled throughout the growing season. After a 65+ cent break in KC and 50+ cent break in Chicago, the markets had been due a little bit of a correction. Today’s gains were also not very convincing, and it will now probably take a settle above today’s highs to get the bull enthused again. Export sales this morning came in at the low end of expectations, and besides weather there is not a whole lot of other news that is influential to the markets. Australia remains dry, and there is some talk that private weather forecasters have taken out some of the expected precip for the dry areas across the Black Sea. That, along with a continued strong US Dollar, caused the Matif wheat to gap higher overnight and eventually settle right off its highs. A strong US Dollar should limit rallies here in the US, but a strong European wheat market may provide some support. The tug of war is on.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Monday May 14th, 2018

July corn closed unchanged at $3.96 ½ and December closed down ¼ at $4.14 ¼. July soybeans closed up 14 ½ at $10.17 ¾ and November closed up 9 at $10.23 ¼. July wheat closed down 7 ½ at $4.91 ¼ and September closed down 7 ¾ at $5.08. Crude oil closed up $.31 at $70.99.

The corn market was quiet today, a statement evidenced by the unchanged close, $.03 intraday range, and below-average volume.  Markets were lower overnight and into the early morning, but found their bearings and flitted within a penny either way of unchanged for the balance of the day. Managed Money traders were viewed small net buyers today, as they tentatively defend a 200,000 plus contract net long in the market.

Crop progress data after the close confirmed more “catch-up” fieldwork by U.S. farmers. The USDA reported 62% of the corn crop is now planted, which is greater than the 59% average analyst guess, and is very nearly caught up with the five year average of 63%. Illinois was the headliner for the “planted” camp, bumping up to 90% complete. Minnesota and South Dakota continued to lag well behind and will be the areas to watch going forward. Just 40% of MN was planted versus 77% last year and 65% average. 21% of South Dakota corn was planted versus 71% last year and 61% average. Five day precip maps suggest Minnesota may get enough of a break from the rain to get stuff planted, but South Dakota could get an inch or better. 6-10 day maps are blessedly dry for the Northern Plains, though the 8-14 day shows some moisture. Temps are expected to be average to above.

Mid-Day Grain Inspections have become “consistently good” of late, a trend we expect to continue well into early summer. US exporters shipped 1.55 MMT of corn. While this was down from the 1.92 mmt shipped last week, it was above the 1.42 mmt shipped in the year ago week. This takes total YTD corn shipments to 34.75 mmt versus 40.77 mmt this time last year. Some of the intraday rebound in the markets was attributed to China. Rumors of a “side deal” between the Trump camp and China sparked ideas of a broader trade deal, but for now, it seems to be isolated just to the issue at hand. That deal is a for a “bailout” of troubled China electronics supplier ZTE for unspecified relief on U.S. ag products (which China needs). Expect more details to filter out overnight, though we note claims of this deal being struck have been slowly walked back into the afternoon.

The soybean market bounced smartly off its initial test of $10.00 in a reversal trade that should help stabilize the slide for the near term. Soybean meal also reversed sharply as deteriorating conditions on Argentina’s unharvested soybean crop (67% harvested as of Thursday) has analysts lowering their Argentine meal production ideas further. Fortunately, Argentina’s weather forecast is entering a drier bias but weeks of persistently wet conditions likely have taken their toll and will be realized in the coming day/weeks. Trade factored heavily in today’s strength both from a decent export inspections report to an increase in rhetoric and speculation on trade negotiations between the US and China. Expect more headline volatility as both side work towards a deal. Nothing positive to report on NAFTA negotiations as Friday’s US deadline for a vote by the current Congress apparently will not be met. The weekly grain inspections totaled 688 mt for beans which surpassed expectations of 550 mt. Soybean planting progress came in at 28% complete vs. 8% last week and 29% this week last year and 26% avg. Soybeans emergence is 10% compared to 7% last year this time.

The wheat complex saw slightly lower price action throughout the night and that trend continued into the day. Friday afternoon’s COT report looked to be the driving force overnight, but rains across the western plains, as well as across Russia and Ukraine may have been just as influential. After a six-week absence, Egypt is back in for wheat. Look for offers to be around $5.00 higher than their previous tender back in late March. Conditions this afternoon came in better than expectations. Spring wheat planting at 58% complete was above expectations as well. The wheat complex continues to search for positive news. State by state wheat condition ratings were out this afternoon. Overall expectations were for conditions to be unchanged to improve slightly week over week. Winter wheat conditions came in at 36% G&E and 36 P&VP vs last week when they were 34% G&E and 37% P&VP. Both HRW and SRW wheat classes saw an uptick of about 1%. Spring wheat planting came in at 58% complete vs 30% last week and the long term avg of 67%.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Friday May 11th, 2018

July corn closed down 5 ½ at $3.96 ½ and December closed down 5 at $4.14 ½. July soybeans closed down 18 at $10.03 ¼ and November closed down 16 ¾ at $10.14 ¼. July wheat closed down 7 ¾ at $4.98 ¾ and September closed down 7 ¼ at $5.15 ¾. Crude oil closed down $.63 at $70.68.

FOR THE WEEK ENDED 5-11-18

CORN – Corn began the week with a defensive tone as growers hit the fields running.  The July contract continued to respect the $4.00 price level with funds willing to defend their long positions ahead of the USDA report.  Trading action in the first half of the week appeared to be a prelude to the May 10th WASDE report.  However, when the market didn’t find new buyers in the wake of a neutral to friendly report, profit taking ensued. July corn closed lower for the final three sessions of the week, settling the week at $3.94 ½, down 9 ¾ cents per bushel.  The December contract closed at $4.19 ½ per bushel Tuesday through Thursday, before tumbling to a weekly settlement at $4.14 ½, down 6 ½ cents per bushel for the week. Corn planting as of May 6th was 39% complete, marginally behind the 44% completion average.  The average planting progress for May 13th is 63% complete.

The USDA report did hold a couple of surprises for the market.  The 2017/2018 balance sheet was entirely untouched with ending stocks at 2.182 billion bushels.  This was very close to the pre-report estimate of 2.178 billion bushels.  Our first official 2018/2019 balance sheet used the prospective planting report 88 million planted acres and a trendline yield of 174 BPA.  Production of 14.04 BB is a year on year decline of 564 MB.  Other year on year changes included: feed/residual down 125 million bushels, FSI up 75 million, ethanol up 50 million at 5.625 billion bushels, exports down 125 million (5.6%) at 2.1 billion bushels, and ending stocks of 1.682 billion bushels.  The ending stocks number was 54 million bushels higher than the trade estimate but is down 500 million bushels year on year.  The stocks to use ratio for 2018/2019 is 11.5% versus 14.8% for 2017/2018.

The world ending stocks number for 2018/2019 of 159.2 mmt was well under the 186.4 mmt forecast.  The 2017/2018 figure of 194.9 mmt was close to the 195.2 mmt estimate.  This is a huge 35.7 mmt cut in stocks from crop year to crop year.  Of the decrease, 19 mmt is from China’s balance sheet and 13 mmt from the US.  If the 2018/2019 is true, it would be the lowest ending stocks number in the last six years and the second lowest on record going back to 1975/1976.   Brazil’s corn crop was lowered from 92 mmt to 87 mmt.  This was not a surprise, but early in the day Conab had increased their Brazilian corn number to 89.2 mmt!

Weekly export sales were a disappointment, which shouldn’t have been a shock with nothing announced on the daily export reports.  Old crop sales were at the low end of estimates at 27.4 million bushels.  Total old crop commitments are 2.03 billion bushels, down just 1% from last year.  However, total shipments are down 14% from last year.  The USDA is predicting a 3% decline in year on year exports to 2.225 billion bushels.  New crop sales were also on the low side at 3.5 million bushels.  Total new crop commitments are 82.7 million bushels versus 90.7 million last year.  The 2018/2019 export forecast is 2.1 billion bushels.

OUTLOOK: In general, the market feels we don’t have a lot of wiggle room on the balance sheets for problems with the US crop this year, but that didn’t stop it from posting a weekly loss.   Weather will become increasingly important element moving forward, just as it always is at this time of year.  The average weekly planting progress for May 13th is 63%, and we shouldn’t be more than 5%-10% behind.  If you are looking for downside protection for unsold new crop bushels, consider standard options and short-dated new crop options, if they fit into your risk profile.  These would provide downside protection for a known premium, consider it insurance.  The market will be watching the forecasts for any bumps in the crop development.  Brazil’s safrinha crop is expected to receive needed rain May 15th-20th.  If they don’t, the market may find a reason to limit further downside.  Weather in the US and South America, politics, and fund activity are the drivers of price direction for now.  Have we turned a corner and put in a short-term top?  We haven’t seen any daily export sales announcements in corn or beans this month, funds are still long, and technicals finished the week on a negative note.  However, weather and politics can turn things around quickly, be cautious.

SOYBEANS – Soybeans took a huge hit when traders returned from the weekend, and took another slap in the face to end the week.  Let’s face it, coming off a nice planting weekend, we were just killing time until the USDA report. After the sharp Monday sell-off, prices meandered higher into the WASDE May report. Post-report gains were short-lived, and ensuing profit taking sent prices plunging into the weekend. Friday saw heavy fund selling push prices to the low for the week at $10.02 per bushel in the July contract and $10.12 ¾ per bushel in the November contract.

The May 10th report was viewed as supportive to both old and new crop soybeans.  The 2017/2018 balance sheet’s only change was an increase in the crush of 20 million bushels.  This translated directly to a cut in ending stocks to 530 million bushels.  The trade’s estimate was 541 million bushels and we were at 550 million bushels in April.  The biggest shock was left for the 2018/2019 balance sheet with ending stocks of 415 million bushels.  This was 120 million bushels below the average trade estimate of 535 million bushels and a year on year decrease of 115 million bushels.  The USDA used 89 million planted acres with a yield of 48.5 BPA to come up with production of 4.28 billion bushels.  Other year on year changes for 2018/2019 included: crush up 5 million bushels to a record 1.995 billion bushels and exports up a tremendous 225 million to a record 2.29 billion bushels.  Total demand is forecasted at a record 4.42 billion bushels.  The ending stocks to use ratio for 18/19 is 9.4% versus 12.7% for 2017/2018.  It looked like the USDA did not assume any hiccup in the US/Chinese trade relationship.

The world balance sheets also were a surprise with 2018/2019 ending stocks at 86.7 mmt versus estimates for 90.52 mmt.  The 2017/2018 ending stocks number of 92.2 mmt was higher than the average estimate of 89.9 mmt.  All in all, world ending stocks are expected to fall 5.5 mmt from this year to next year.  Brazil’s soybean production was raised 2 mmt to 117 mmt, which is the same as Conab’s refreshed estimate.  For 2018/2019, Brazil’s bean crop was again projected at 117 mmt, which based on their recent history, may be too low.  Argentina’s 2017/2018 crop came in at 39 mmt and 56 mmt for 2018/2019.  The USDA left China’s soybean imports for this year at 97 mmt, but was aggressive in forecasting bean imports at a record 103 mmt next year.  China’s ag ministry this week said they would see a yearly decline in soybean imports next year for the first time in 15 years, pegging imports at just 95.65 mmt.  They are predicting soybean acres will be up nearly 9% this year.  This year from January through April, China has imported a total of 26.49 mmt, down nearly 4% from last year.  China’s soybean and meal purchases from everywhere have slowed recently.  Negative domestic feeding margins and earlier purchases were cited as factors.

Weekly export sales were dismal at 13 million bushels for old crop and 10.2 million bushels for new crop.  Old crop total commitments are running 3% behind last year, the USDA is forecasting a 5% decline, and shipments are down 12% from last year.  A big question mark is how many sales to China may be delayed until the next crop year, or won’t get shipped at all.

OUTLOOK: Now that the monthly crop report is behind us, attention will increasingly return to weather, US/Chinese trade relations, and fund action.  A trade delegation is expected to be in the US the week of May 14th for further trade talks.  Nothing is expected to result from the meeting, except to agree to another meeting.  Argentina should dry out this coming week, allowing for a better look at quality and quantity of the remaining one-third of unharvested acres.

At risk of being repetitious, the wheat markets were lower again today as KC HRW saw double digit losses to nearly 50 cents off last Friday’s highs. Chicago July filled a chart gap from April 25. The 100 and 200 day MAs are converging below at $4.81 and $4.82 respectively. The US HRW and HRS crop still experience dry conditions from Canada to Texas, but quite large stocks/use ratios act as an anchor for now.

Market Report

Thursday May 10th, 2018

July corn closed down ¾ at $4.02 and December closed unchanged at $4.19 ½. July soybeans closed up 5 ½ at $10.21 ¼ and November closed up 6 ¾ at $10.31. July wheat closed down 4 at $5.06 ½ and September closed down 4 ¼ at $5.23. Crude oil closed up $.26 at $71.31.

While there was certainly nothing bearish in the report for corn, futures still ended up stumbling a little, finishing fractionally lower on the day. Markets were lower in the run-up to the report as traders likely lightened positions a little, popped a little in the immediate aftermath, then proceeded to sell back off late. Managed Money traders were viewed small net sellers of the day, and are likely heading into tonight long roughly 200,000 combined corn futures and options.

The May WASDE will go down in history as a bullish report, though the results were not surprising enough to impact a market that was already leaning long. As broadly expected, 18/19 carryout forecasts for both U.S. and world represented sharp reductions from a little changed 17/18 balance sheet. The USDA’s first glance at 18/19 uncovered a 1.682 BB domestic carryout.  The average analyst guess ahead of the report was 1.628 billion.  The production side was largely pre-determined 174 bpa “trend line” yield with the 88 million acres from intentions. The USDA took considerable liberty with demand. Despite rising animal numbers and expanding ethanol capacity, they reduced total domestic demand 50 MB from 17/18.  They also trimmed 18/19 exports back to 2.1 bil from an unadjusted 2.225 billion this year (17/18).

The world S&D was perhaps a little more eye-opening. The first stab at 18/19 world carryout was 159 mmt, which was a whopping 35 mmt reduction from prior. The stats were heavily-influenced by China de-stocking in corn. The USDA has trimmed China corn ending stocks from 100 mmt two years ago to 80 in 17/18 to 60 in 18/19. Many argue the USDA needs to double their estimates of China corn ending stocks. The USDA is expecting large “reversion to the mean” increases for major world corn producers in 18/19 – time will tell. For 17/18, the USDA took Brazil’s full year corn to 87 mmt from 92 mmt prior. They left Argentina unchanged at 33 mmt (private analysts in the 31-32 mmt area).

The soybean market closed higher on a day that included a myriad of fresh data points to digest from CONAB to weekly export sales to USDA crop report/WASDE and more. With all the information out there, we had few real surprises and at the end of the day the market was supported by the lower US and world supply outlook for next year.

US old crop soybean carryout seen at 530 mb down from 550 mb last month – trade est. was 540 mb. This came on a 20 mb increase in crush to 1.990. The new crop soybean carryout is projected at 415 mb compared to the trade est. for 535 mb. They took exports up by 225 mb to 2.290 bb and increased crush by 5 mb to 1.995 bb.

In the world numbers, the old crop soybean carryout increased 1.3 mmt to 92.16 mmt while the new crop tightens to 86.7 mmt which was nearly 5 mmt below trade estimates. China soybean imports were projected up 6 mmt from 97 to 103 mmt. Argentina’s crop was lowered by 1 mmt to 39 mmt while Brazil’s crop was increased by 2 to 117 mmt. Weather forecast is warm and wet for the next couple of weeks where some planting delays in the upper Midwest should be expected. USDA weekly export sales came in on the low end of expectations for corn and beans (no China cancellations but unknown cancelled 45 mt old crop).

The wheat complex did not have the start to the day that it was hoping for after the export sales data this morning came in at 83 MT. We have reiterated all week how much the US has moved away from being competitive with the rest of the World, and this just re-iterates that idea. Price action was two-sided heading into the report, not too surprising consider the break the complex has been on. Coming into the report, expectations for US all wheat production varied greatly depending on who you talked to. We did not think the US was going to be as aggressive as many others, and that is what we thought was going to be the surprise of the report. The USDA obliged with that thought process, and the markets reacted with a flush to the downside. The initial break may have been worse if not for a strong soy complex and firm corn market post-report, but as those markets weakened, wheat prices drifted back to their lows. The $5.00 level in Chicago July held several times post-report and prices firmed a little over the final hour of the day.

What the crop report said: The USDA gave us an all winter wheat production estimate of 1.191 BB. Not too surprising as most did not think the USDA was going to be as aggressive. The USDA would give an all wheat production estimate of 1.821 BB, which was at the high end of expectations, but admittedly, some were worried that this number might be even larger. From this number one can imply a Spring wheat production number of around 630 MB.

On a side note. The USDA gave us their first look at state by state harvested, yield and production estimates. Of the top HRW wheat states, Kansas is the most baffling. In Kansas, they planted 7.7 MA, yet despite all the problems in western Kansas this year, the USDA thinks they are going to harvest 7.3 MA and have a 37 yield. One of those numbers must go down. In fact, look for Kansas, Montana and South Dakota production estimates to eventually fall as the USDA is just too high on either harvested acres or yield or both. Which brings us to yields. Several SRW wheat states projected yields are just too high – Arkansas, Illinois, Indiana and Michigan. Does anyone know when the last time Michigan had a winter wheat yield of 93? Keep guessing, because it has never happened. The highest was 89 a couple years ago. It was nice to be on the right side of the crop report, but as you can see, there will be some adjusting in the coming months that could easily take HRW wheat production to 600 MB or below and SRW wheat production lower as well.

That brings us to carryout. As most expected, there was very little change from April to the 2017/18 carryout, 1.070 BB vs 1.065 BB. USDA took old crop exports off 15 to 910 MB. May have a little more room to the down side. They took mill grind up 8 to 963 MB so that ending stocks were only up 6. The USDA also gave us our first outlook at 2018/19 carryout. There were some wild range of guesses for this number, but we thought the average analysts’ estimate was just a touch low.

Anna Kaverman

anna@mercerlandmark.com

Bullish beans:

World 18/19 bean carryout at 86.7 mmt vs. 90.52 est.

US 18/19 bean carryout 415 vs. 535 est.

World corn numbers friendly, US neutral

World 18/19 corn carryout 159.2 vs. 186.35 est.

US 17/18 corn carryout 2.182, 18/19 1.682