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FOR THE WEEK ENDED 9-14-18

CORN – The big bombshell in the corn market this week was the WASDE report so let’s get right to it.  The USDA increased the corn yield to a whopping 181.3 bpa.  This was almost 4 bpa higher than the average guess.  In the USDA’s Executive Briefing slides, they noted that corn weights and ears per acre were both at historic highs which generated the record yield.  Old crop corn stocks stayed above the 2 billion bushel mark.  The big yields also pushed new crop stocks up to a comfortable 1.774 billion bushels.  World stocks were bigger than analysts were guessing so that added to the burdensome domestic situation.  December corn futures lost 15 cents on report day and weren’t able to recover any of that loss the rest of the week.

The corn market is fundamentally bearish and technically bearish as well.  The July contract expired on contract lows. The September contract expired this week right on contract low as well.  This is not bullish scenario at all and would indicate that there is more downside potential for the December contract now. Corn harvest is underway.  The first harvest report of the season showed it at 5% complete.  This is slightly ahead of the 5 year average of 3%.  The weather looks conducive for harvest to really pick up over the next couple of weeks. Corn conditions improved this week with a 1% increase to 68% in the good/excellent category.

Export data was very weak for corn this week.  Inspections of only 30 million bushels were well below expectation of 40 to 55 million bushels. Export sales on Thursday’s report didn’t fare much better.  Sales of 30.5 million bushels were under the lowest expectation.  The USDA increased old crop exports by 25 million on the WASDE despite the weekly export data indicating a cut was warranted.

OUTLOOK – The direction of the corn market will come from harvest results in the next few weeks.  There are many out there who are in disbelief of the 181.3 bpa yield.  They will want to see big numbers off the combines in order to be converted.  If harvest numbers look small there are many who would love to see a rally.

SOYBEANS – The WASDE report for beans was a surprise to many as well.  The USDA increased the soybean yield to 52.8 bpa.  Although there were a few guesses above 53, this was still above the average guess of 52.3 bpa.  New crop ending stocks were pushed up to a record 845 million bushels.  South American production was also raised slightly. The USDA indicated that pod weights were the biggest ever by a big margin. You put all of these changes together, and one would think that the market would have sold off sharply with so much bearish news.  The bean market did go a little lower but rallied to close higher by about 8 cents.

The tariff war is ongoing, and President Trump is ready to impose sanctions on another $200 billion of Chinese exports to the US.  Soybeans continue to feel the pressure of those actions despite the tariff already being in place from the initial volley. There does not appear to be an urgency by either country to meet at the negotiating table. China’s ag minister said that they expect to import about 10 million tons fewer beans next year.  This is due to China finding alternative sources for their feed needs.

Soybean crop conditions showed a nice 2% increase to 68% in the good/excellent category.  This increase is helping to support the big yield in the latest WASDE report.  Export sales were ok this week with sales just over 25 million bushels.  Nopa crush numbers will be released on Monday and it is expected that we see another record crush.

OUTLOOK – The soybean market will be watching harvest results very closely to see if the current 52.8 bpa yield will be getting bigger or smaller.  Plus, there is always the wildcard with the tariff war.  If a true compromise looks likely the bean market will stage a rally. But the big question is whether or not that happens.

There is talk that Russia phyto-sanitary agreements/requirements may slow Russian exports. Asia is the world’s biggest wheat buyer. With a small Australian crop, they are looking for other sources of wheat and Argentina looks poised to fill the gap.  The September WASDE report was bearish for wheat.  The negative corn news weighed on the market along with a bearish world view.  World stocks were increased well above estimates as the USDA increased Russian production by 3 million tons.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday September 13th, 2018

December closed down 2 at $3.50 ½ and March 19 closed down 2 ¼ at $3.62 ¾. November beans closed down 6 ¾ at $8.33 ¼ and January 19 closed down 6 ½ at $8.47.  December wheat closed down 9 ¾ at $4.97 and July 19 closed down 6 ¾ at $5.38 ¼. Crude oil closed up $1.75 at $68.41.

To little real surprise, the corn market suffered a post-USDA report hangover. Futures tried to be a little firmer overnight and early in the day on profit-taking and bargain-hunting but struggled to hold up amid probable long liquidation from disappointed bulls. Corn finished the day lower into a new life-of-contract low. Managed Money traders were viewed net sellers of another 10,000 corn today and are estimated to head into tonight net short over 140,000 combined futures and options.  European traders apparently believe the USDA more than their own domestic analysts?  Analysts at Strategie Grains sharply reduced corn production estimates to 58.4 mmt, which was slightly below last year’s 59.3 mmt, and lower than the 61.3 mmt forecast in August. They also pegged the EU wheat harvest at the lowest level in six years, despite USDA assertions to the contrary yesterday.

Weekly export sales in corn were unspectacular. 774,200 metric tons, which was within expectations, but toward the low end of them. Most of the business was to Latin America and Japan. The data included 2.93 MMT of “carryover” sales from the now-defunct 17/18 marketing year. 17/18 accumulated exports were pegged 4% higher than 16/17. Not much story in the weather, other than Hurricane Florence, though that has broader implication for livestock than row crops. Late season and harvest weather is excellent for the Plains. A dry spell this week is helping to even out excessive early Sept moisture. Brazil early season planting weather said to be excellent.

The soybean market continues to digest the USDA crop report which was soundly bearish on just about all fronts including bigger yields, production and domestic and global stocks than expected. Beans were building on yesterday’s reversal momentum early on today until President Trump put out a tweet saying that ‘The Wall Street Journal has it wrong, we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. “We will soon be taking in Billions in Tariffs & making products at home. If we meet, we meet”. This statement threw cold water on the newly revived trade deal optimism and sent beans back into negative territory.

USDA weekly export sales fell within expectations with no real surprises at 694 tmt in old crop 18/19 sales. A total of 2.431 mmt in sales were carried over from the 2017/2018 marketing year, which ended Aug 31. There was 1 cargo shipped to China.   Accumulated exports for 17/18 were 56.381 mmt, down 3 percent from the prior year’s total of 58.117 mmt. Outstanding sales on the books for 18/19 stand at 16.119 mmt compared to 15.842 mmt this time a year ago. Hurricane Florence has slowed some as it moves over N Carolina’s outer banks bringing heavy winds and rain inland which is expected to last through the weekend and head up north the eastern US early next week as the system winds down.  Damage to corn, soybean and cotton crops is expected and there are concerns over the status of the swine and poultry operations in the coastal area.

A second round of tariff-related aid to U.S. farmers could be announced in December, according to the USDA. “The second part will be announced, if necessary, in December and may account for other factors, such as new tariff levels, regional basis effects, or other market conditions that may have mitigated some of the trade damages,” according to a white paper release today.  The explanation from the office of Chief Economist Rob Johansson noted that the “gross trade damage only reflects direct export losses due to the retaliatory tariff imposed on the U.S. commodity. Indirect or secondary effects from the tariff, such as cross-commodity effects, are not reflected in the gross trade damage estimate.

The repercussions from bearish crop report data continued to resonate around the market place today, with all three classes of wheat reversing after a slightly higher start to the overnight and trading on the defensive throughout most of the day. Chicago Dec traded through its support around $5.00 and eventually settled the poorest. For a second month in a row there were a couple parts of the USDA crop report that has baffled traders, which in turn has put a lid on any thought of a rally at least for the time being. Maybe by throwing out some questionable data the USDA is trying to keep our wheat prices in check so that by the end of the year when other parts of the World start looking for wheat, US prices will look enticing and those looking for wheat will have to come to us. That will surely give us the huge second half program everyone is looking for. There was plenty of business around this morning that one would have thought could have brought some stabilization to trade, including some that have already been booked. They will probably capture some of the Iraqi business, but Tunisia and Saudi Arabia are in as well. The most interesting of these tenders is the Saudi tender. The US has just too much of a freight disadvantage, and looking at the numbers, it does not look like US wheat will work.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday September 11th, 2018

December closed down ½ at $3.66 ¾ and March 19 closed down ¾ at $3.78 ½.  November beans closed down 13 ½ at $8.31 ¾ and January 19 closed down 13 ½ at $8.45 ½.  December wheat closed down 9 ½ at $5.18 ¾ and July 19 closed down 8 at $5.52 ½. Crude oil closed up $1.63 at $69.04.

“USDA Report Eve” brought more of the same for corn quiet, consolidative trade, ultimately finishing Tuesday fractionally lower. Corn made its highs Monday night and its lows shortly after the day open. This is a familiar theme of late and spent most of the day flitting between unchanged and lower. Managed Money traders were viewed small net sellers today, and will head into the report net short close to 90,000 combined corn futures and options.

World numbers were a focus early. Brazil’s corn crop keeps trickling lower. CONAB pegged the full year (first and second crop) corn at 81.4 mmt, which compares to last month’s forecast of 82.2 and the prior crop of 97.8 mmt. They believe Brazil will export 25 mmt of corn. By contrast, the Ukraine grain harvest keeps working its way higher. The gov’t there raised the total grain harvest estimate (including other crops besides corn) by +3.1 mmt from prior to 63.1 mmt. This likely helped stimulate a “Turnaround Tuesday” lower in European grain markets after making encouraging stability trades Monday following a harsh break. Note most of the Ukraine crop will likely be consumed regionally, with European feed grain estimates back-tracking.  For example, the French corn crop output was pegged 400k lower to 12.4 mmt.

Weekly crop progress report found the expected 5% corn harvested tally, which is slightly ahead of normal. Both “dent” and “mature” progress metrics are running 11% and 14% ahead of average, respectively, indicating harvest will likely ramp up much quicker than usual. NOAA maps still promising a dry five day outlook, which should help fields dry out from recent heavy early Sept rains. Rain does indeed make grain, apparently; condition ratings this week improved contra-seasonally in corn, with national Good-Excellent ratings advancing +1% wk/wk to 68% (vs. 61% last year).  Tales on the ground still indicating the storms likely did more harm than good to US corn yields, but time will tell. The focus of the USDA crop report tomorrow will no doubt be US production. The gov’t has a mixed record on the Sept report relative to Aug, raising yields just as often as they reduce them. The average analyst expectation heading in is for a small reduction from the USDA’s record 178.4 bpa reported in August.  Note, this would still imply a record high yield. Given high ethanol production rates, we also would not be surprised to see a modest reduction in old crop (17/18) carryout, but perhaps they will save that for October. Most analysts are looking for small cuts to both world and domestic 18/19 carryout estimates.  We see world corn production as a mixed bag. USDA may be forced to raise Ukraine corn production, but trim both EU & Brazil.

The soybean market broke sharply as pre-report selling took over and ran sell stops down for a test of the lows in July. Beans are bracing for a soundly bearish crop report tomorrow where yields are est. on avg. to increase from 51.6 to 52.2 bpa inflating the domestic carryout from 426 mb in 17/18 to 830 mb in 18/19.  Global stocks are est. on avg. to increase from 95.5 mmt to 107.3 mmt. These numbers will not be a surprise but are a stark reminder of the supply situation we are mired in. The delayed crop progress report midmorning reinforced this big crop message by showing soybean crop ratings increased counter seasonally by 2% to 68% gte which compares to 60% gte this time last year and brought additional pressure.

On the demand front, the USDA flashed a cancellation of 192 tmt beans to unknown which helped set the negative tone early on.  US soybean exports have more than held their own on non-Chinese demand stepping in but on a longer term basis, we need them and they need us but there no indications of any progress in negotiations with China at this point. Without the Chinese market, it is a longer and more arduous task to chew through our supplies will require a significant shift in acreage this spring if nothing has changed. The products were weaker but held up better than the beans which popped board crush a nickel to settle at nearly a one-month high for margins which have now recovered 32 cents off the corrective lows from last month.

The wheat complex was unable to hold early overnight gains, weakened through the morning break, then remained on the defensive throughout the day. The reversal after the stronger start to the night, and subsequent defensive price action throughout the day, is a sign that traders are still skeptical that the USDA is not going to be as aggressive as they probably should be in Wednesday’s report. But tomorrow is not only about the crop report anymore as Egypt is back in for wheat.

After the close the GASC announced they were in for wheat for Oct 25 thru Nov 4 shipment. Their last purchase was just last week. They only bought one cargo (60 TMT) and it was of Russian origin. The purchase price was $235.00, which was $6.30 below their purchase price from their prior tender. The lowest FOB offer last week was $217.90, which was $3.61 below their purchase price from their prior tender. Crop Report will be out in the morning. The report is mostly a corn and bean report, but the USDA could make it an exciting report for wheat if they tweak their World numbers more than people expect. US ending stocks should be up slightly from August’s 935 mil estimate. As far as the World numbers, 2017/18 ending stocks will probably be up slightly, but 2018/19 ending stocks should see some sort of reduction. August’s estimate was a shade under 259 MMT, but we very easily could see a 255 MMT number or lower, depending how much of a slash we see in World production estimates.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Monday September 10th, 2018

December closed up ¼ at $3.67 ¼ and March 19 closed unchanged at $3.79 ¼.  November beans closed up 1 ¼ at $8.45 ¼ and January 19 closed up 1 ¾ at $8.59.  December wheat closed up 17 at $5.28 ¼ and July 19 closed up 17 ¾ at $5.60 ½. Crude oil closed down $.14 at $67.41.

The corn market was a bit of a snoozer Monday. Futures opened Sunday night lower and spent most of the day “in the red”, too.  Corn received a very small boost from an intraday rally in wheat, and the markets would end unchanged. Managed Money traders mostly stuck to their guns and will head into tonight net short about 85,000 combined corn futures and options. Most of the corn-specific news had to do with exports. First and foremost, U.S. trade negotiators have many balls in the air.  Canada is still trying to negotiate its way into “New NAFTA”, Trump stands ready to wield another $200 billion plus in new tariffs on China (but has not yet done so), and apparently Japan’s trade terms are next on the docket to be revisited.  U.S.-EU talks have been deathly-quiet, while South Korea eyes their earlier accord nervously. Speaking of the Koreans, all the heavy-hitter corn buyers were in for small cargos overnight.

The weekly crop progress report was unexpectedly delayed late afternoon. Trade cannot recall a time when the USDA was forced to delay a Crop Progress report with no prior notification. The trade was looking for solid early harvest progress of about 5-6%, along with a small seasonal downtick (-1% G-E) in national corn ratings. Weather watchers are eyeing Hurricane Florence, which is expected to wreak havoc on the U.S. East Coast, particularly the Carolinas. This theoretically could impact some corn and soy crops, but the area is a fairly minor producer at best. Over the weekend, the remnants of Tropical Storm Gordon brought heavy rain and some flooding to a large part of the lower and eastern Midwest. Fortunately, the next five days are expected to be bone dry for the Midwest.

The soybean market closed higher for a third consecutive session but struggled to hold gains above $8.50 and settled off the day’s high. You would expect this market to struggle in front of Wednesday’s crop report which will likely reinforce the bearish supply side realities. The lack of enthusiasm on the rally certainly reflects that. Meal extended its recovery, the absence of fresh swine fever headlines helped. Hurricane Florence was upgraded to a cat 4 storm today and is expected to make landfall near the Carolinas on Thursday. Forecasters are talking about 20+ inch rain totals similar to Hurricane Harvey in 2017.  The EU model hints at some 40-inch totals as the hurricane stalls near or over the coast. N Carolina is home to 1.6 million soybean acres, S Carolina 420k and Virginia 620k. There was a frost/freeze in NE China which may have hurt crops in that part of the country this caused Dalian soybean futures to rally and was a supportive feature to start the day. In export news, The USDA flashed 132 tmt of 18/19 soybeans sold to unknown.

After a back and forth night session that saw trade finish a little higher, the markets were able to extend those gains once we moved into the day session. By midday the rally had reached double figures. One of the bigger influences in today’s trade may have corm from ABARE. Even though most private expectations are for the Aussie crop to be between 18 and 19 MMT or less, when ABARE came out this morning and reduced the crop 2.8 MMT to 19.1 MMT, it increased speculation that the USDA is going to have to take down the Aussie wheat crop a notch or two come Wednesday morning. Keep in mind, we already know EU production will be lowered again, but September is when wheat yields are made or lost for our friends down under, so despite the USDA’s most recent forecast of 22 MMT, the thought was they may wait until the October report to adjust their Australian wheat production expectations. Lowering Australia probably means more shifting of export expectations.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 9-7-18

CORN – August went out with a bang and September ushered in additional gains.  There wasn’t much fresh news to drive the market.  One market moving item was Argentina’s move to reinstitute the export tax on corn and wheat, and readjust the soybean export tax. In their bid to keep IMF funding, they need to shore up their balance sheet.  Their export tax on corn and wheat was eliminated back in 2015.  The new tax is a floating tax related to the US dollar/Argentine peso ratio, equating at current levels to a 10% tax.  This should be friendly to US commodities.  A negative spillover effect from the wheat came from Russia confirming they see no need to limit their wheat exports at this time.

Moisture from Tropical Storm Gordon pushed up into the Midwest, delaying early harvest progress, and increased chatter of possible quality and/or lower yield concerns.  Informa Economics raised their 2018 US corn yield from 176 BPA to 178.8 BPA, and slightly higher than the current USDA forecast of 178.4 BPA.  Informa’s corn production was pegged at 14.621 billion bushels versus USDA at 14.586 billion bushels.  The next WASDE report will be released September 12th and may change this comparison.

Weekly export sales were delayed a day due to the Labor Day holiday.  They were okay at 1.2 million bushels for old crop and 40.7 million bushels for new crop. Old crop carryover sales look to be historically big at 132 million bushels.  Last year, we carried over just 40 million bushels of sales. New crop total commitments are 451.6 million bushels compared to just 334.1 million bushels last year.  Weekly ethanol production was up 17,000 bpd to 1.087 million bpd.  This was the second highest weekly production in the last 36 weeks.  Ethanol stocks declined 358,000 barrels to a record high level for the end of August at

On the political landscape, the US, Mexico, and Canada are closer to a trade deal.  One of the hold-ups with Canada is their wanting to keep the 300% dairy import tax in place.  There is chatter that the closer we come to a NAFTA deal, the less likely we’ll settle our issues with China at the November meetings.  If we are making deals with other countries, then possibly they will join the US in opposing Chinese trade policies.  There are new rumblings that President Trump wants to renegotiate trade policies with Japan, and not in a good way for Japan.

OUTLOOK:   In the present political environment, most traders anticipate corn acres expanding next spring at the expense of soybean acres.  Keep an eye on the December 2019 corn price to establish a benchmark first sale.   Looking ahead to the September 12th WASDE report, the trade historically underestimates the September USDA corn and soybean yield. December 2018 corn feels comfortable ahead of the report in its $3.55 to $3.70 per bushel price range.  After the report, attention will focus on yield reports from the field for both corn and soybeans.  For the week, December corn was up 2 cents at $3.67, July up 2 ¼ cents at $3.92 ¾, and December 2019 up 1 ¾ cents at $3.96 ½ per bushel.

Average trade guess for the September 12th WASDE report:  US yield at 177.8 BPA vs. 178.4 BPA last month; production 14.529 billion bushels vs. 14.586 billion last month; US 2017/2018 ending stocks 2.028 billion bushels vs. 2.027 billion last month; US 2018/2019 ending stocks 1.639 billion bushels vs. 1.684 billion last month; world ending stocks for 2017/2018 at 192.24 mmt vs. 193.33 mmt last month; world 2018/2019 ending stocks 154.48 mmt vs. 155.49 mmt last month.

SOYBEANS – Soybeans continue to struggle under the absence of Chinese buying.  Prices drifted sideways during the week.  Support early in the week was generated from Argentina’s restructuring of their soybean export tax.  The tax was steady at 25.5%.  Under the new equation, the tax was lowered to 18%, but then a $4 peso/US dollar calculation brought it up to around 28% at current exchange rates.  The situation is fuzzy as traders untangle what the regulations mean to sales already on the books and how payments will be handled.  This should be supportive to US prices, but with no progress on ending the trade war with China and a huge crop at hand, the path of least resistance is lower.   In fact, the trade war may escalate as the comment period on 25% tariff on $200 billion worth of Chinese goods expired. The US, however, did not immediately implement the proposed tariff.  If they do, China is expected to retaliate with tariffs on $60 billion worth of US goods.  This equates to roughly 40% of the total value of all Chinese goods imported into the US in 2017.  As traders began heading home for the weekend, the US administration stated they could have an additional $267 billion in tariffs ready on short notice, if needed. In Brazil, the government raised the minimum freight rate by 5%, which will be passed on to producers in higher costs.

Put this on your “things to watch” list.  China has confirmed at least 13 cases of African Swine Fever in the country.  There is no cure for the disease.  The United Nations Food and Agriculture Organization held an emergency meeting to discuss the situation and determined it is highly likely the disease will spread to other Asian countries.  If China is forced to cull pig herds, it will negatively affect their meal and, to a lesser extent, corn demand.  This week, an executive with one of China’s top soybean crushers stated China wouldn’t need US soybeans until February/March.  He is forecasting China’s 2018/2019 soybean imports will decline 10.8 mmt to 84.7 mmt with only 700 tmt being sourced from the US, down from 27.85 mmt in 2017/2018.  They estimate they will import 71.1 mmt of Brazilian soybeans and 7.5 mmt of Argentine soybeans, with the balance from various countries.

Informa Economics raised their US soybean yield forecast to 52.9 BPA from 50 BPA last month.  The August USDA outlook was 51.6 BPA.  Informa’s soybean production estimate is 4.698 billion bushels versus USDA’s August number at 4.586 billion bushels. Weekly export sales were essentially nothing for old crop (but did include 35 tmt to Argentina) and 24.7 million bushels for new crop, which included 60 tmt to Argentina and China cancelling 66 tmt.  Old crop sales carryover to new crop looks to be 98 million bushels versus 87 million last year. New crop total commitments are 510.4 million bushels versus 478.5 million bushels last year by this date.

OUTLOOK: Any potential rally in soybean prices will be difficult with US soybean yields believed to be rising and no end in sight to the Chinese trade war.  Historically, November soybeans decline in the second half of September as harvest picks up.  November 2018 soybeans are expected to eventually take out the current $8.26 ¼ per bushel contract low, with rallies finding resistance in the $8.50 to $8.60 area.   For the week, November soybeans were up ½ cent at $8.44, July up ¾ cents at $8.91 ¾, and November 2019 a penny higher at $8.99 ¼ per bushel.  December meal jumped $9.80 higher to $317.00 per ton.

Average trade estimates for the September 12th WASDE report: US yield at 52.2 BPA vs. 51.6 BPA last month; production at 4.649 billion bushels vs. 4.586 billion last month; US 2017/2018 ending stocks at 426 million bushels vs. 430 million last month; US 2018/2019 ending stocks 830 million vs. 785 million last month; world 2017/2018 ending stocks 95.57 mmt vs. 95.61 mmt last month; world 2018/2019 ending stocks 107.29 mmt vs. 105.94 mmt last month.  Interesting tidbit:  the average September soybean yield trade guess has underestimated the September USDA number in each of the last 5 years.

The wheat market is fractionally mixed, stabilizing after last week’s losses. This selloff has allowed the US to become more competitive on the global stage, now we just need to see the US get some business as a result. Overall US exports remain relatively slow and the strongest pace in 6+ years will be needed. We add to the world supply as Canada harvest continues with Alberta at a reported 13% complete. Meanwhile US begins to seed winter wheat in Montana with other areas expected to begin soon. Acres are overall expected to increase and an early corn/soy harvest may also benefit wheat seeding. Winter wheat areas are expected to see a dry weather pattern develop this week. The average trade estimate for US carryout stocks is 941 mb and the average world carryover stocks is 257.58 mmt, down slightly from 258.96 mmt last month.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday September 6th, 2018

December closed up 1 at $3.66 ¼ and March 19 closed up 1 at $3.78 ¼.  November beans closed up 1 ¼ at $8.39 ¼ and January 19 closed up 1 ½ at $8.52 ¼. December wheat closed down 8 at $5.13 ¾ and July 19 closed down 6 at $5.47 ¼. Crude oil closed down $.90 at $67.52.

A very quiet trade day on Thursday with less than 200,000 corn futures traded hands, even when including spreads. Action was fittingly choppy, moving up and down at will in a $.04 range, ultimately finishing higher. Managed Money traders were viewed net buyers of about 5,000 corn today, and will head into tonight net short about 60,000 combined corn futures and options. Price action appears to have stalled some as the trade awaits fresh production input from the USDA next week. More immediately, the public comment period on $200 billion in threatened China tariffs ends tonight. Theoretically, the U.S. could now “push all in” on its “Trade Wars” gambit. We would expect such a play to occur in the near future(though not necessarily tonight), particularly given China can no longer retaliate “tit for tat”, as China imported less than $200 billion in U.S. goods last year.

The weekly EIA report was neutral for ethanol, as expected, though the results played out differently. Production unexpectedly jumped +1.6% to a 1.087 mil bbl/day rate. Strong export flows during the reported week “absorbed” the extra supply, and ethanol inventories declined slightly. The report did no favors for the market, and the weak ethanol crush implies continued small losses for most Midwest producers. Elsewhere, China still busy battling periodic “African Swine Fever” outbreaks. Surprising the amount of demand for corn at this week’s auction, as authorities cleared 2.9 mmt from stocks, or 75% of offerings. In recent months, they had been lucky to clear 25%. NAFTA negotiations are on-going in an attempt to include Canada. The next several days are still expected to bring considerable precip to the Eastern Belt. Still some concern recent excessive rains in some areas of the Midwest may have taken a few decimals off yield potential.

Beans closed modestly higher although the market is just marking time ahead of next week’s report. The stabilizing price action is an accomplishment considering the supply side chatter around the trade including an Informa yield estimate of 52.9 bpa today.  Using a 52.9 bpa yield, it would grow the carryout to 900 million bushels which is more than double the 430 mb 17/18 carryout.  The feature today was the oil share correction with meal gaining sharply on oil. Meal was able to shrug off the growing spread of African swine fever in the headlines to close above Monday’s high which if confirmed tomorrow, is a positive technical trade.  It is hard to trust meal with the swine fever being somewhat of a wildcard on feed demand but the charts are giving positive signals.

A frost/freeze dipped down into N MN overnight. The impact on corn and soybean growing areas was not expected to be very significant. Additional 1 to 2 inch rains fell across portions of IA and N MO where they are already dealing with too much from the last round. The pattern shifts the rains further to the south and east which will spare these areas that have already seen big accumulations from the next round although parts of C IL, IN and OH could see some 6 inch + totals through the weekend. Next week most of the corn belt will be in a warm dry pattern allowing fields to dry back down and early corn harvest activity to resume with rains only lingering in the N Plains/MN.

The wheat complex continues to find no follow through on overnight rally attempts, and after trading slightly better during the early part of the evening, price action reversed and finished the night down around the session’s lows. The European wheat contract also reversed after a slightly better start, which did not improve the chances of the wheat complex rallying back today. Neither did the overnight news as the Russian Ag Ministry once again said they had no plans to impose a wheat export tax. Stats Can stocks data came in within the range of expectations and was uninfluential to price action.

The next USDA crop report is Wednesday. It is a given that the USDA is going to have another round of EU production reductions in that report. The biggest question we thought the USDA was going to have to answer in the report was what it was going to do about their export expectations? They currently have Russian exports for this coming year pegged at 35 MMT. Over the past several weeks there have been much speculation on whether Russia will cap their wheat exports at 25 MMT. At least for now, that does not look to be the case. Just today their Ag Ministry reiterated that the ministry has no plans to curb imports or impose a wheat export tax. Meaning, in next week’s report the USDA does not need to adjust their export expectations much.

Sure, they will probably reduce Russian exports a couple million, but it will probably not be significant enough to be a market mover. EU exports will probably be slashed a little, but not enough to cause a stir. They may tweak Aussie production some, but a 2 MMT reduction would be enough for now. They may adjust Canada a little, but it will not raise any red flags. So, over the past few weeks, the prognosis of this report has gone from most likely very friendly, to a report that will probably offer little for the bull to sink its teeth into.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Wednesday September 5th, 2018

December closed down 3 at $3.65 ¼ and March 19 down 2 ½ at $3.77 ¼.  November beans closed down 6 ¼ at $8.38 and January 19 closed down 6 ¼ at $8.50 ¾. December wheat closed down 9 ¾ at $5.21 ¾ and July 19 closed down 8 ¾ at $5.53 ¼. Crude oil closed down $1.14 at $68.42.

The corn market raised a few eyebrows overnight, testing overhead chart resistance at $3.70. Traders during the day had other ideas, though, and the market spent practically all session trading a little lower. Synthetic “Turnaround Tuesday”, effectively undoing all of the prior day’s gains with a three cent lower finish Wed. Managed Money traders were viewed net sellers of the day and will likely head into tonight net short about 65,000 combined corn futures and options.

Yesterday, there was an over-abundance of news. Today, there was not enough. Early market weakness was likely precipitated by the reduction of rain coverage this week. The remnants of Tropical Storm Gordon are expected to impact fewer areas, though those that receive rain will get a fairly big soaking, still.  Starting Sunday in the west and Monday in the east, a drier weather pattern will occur and conditions for fieldwork should steadily improve. Temps are expected to remain above average for the time of year, with lows not expected to drop below 40 across the broader Midwest. Still some concern that recent storm activity could create some very spotty and very minor yield issues?  USDA publishes their first national harvest progress report next Monday.

Beans were back under pressure in an extremely light volume and light news trading session. An absence of fresh inputs leaves the market to focus on big crops and extremely burdensome supply which is expected to be highlighted and expanded in next week’s crop report. November soybean volume was half of what traded yesterday at just 52k which is the lightest volume for this contract since May the 25th. The light volume as an indicator that the market has checked out, unwilling to trade with too much politics and uncertainty that make it difficult to quantify risk and a farmer looking to store beans rather than sell. At these price levels with basis factored in you have beans that are trading with a $6 in front of the price in some northern cash markets and if we stay here, bean acres are going to take a significant cut in the spring. Even if the US and China come to an agreement, the size of our crop this year has compounded a bearish supply stat market to excessively burdensome that will require some extreme changes to crop rotation to fix, unless mother nature intervenes on the Southern Hemisphere crop this winter.

Weather forecast features rains moving out of the Gulf from Tropical Storm Gordon. The rains are expected to remain further south and east than the initial forecasts which is welcomed from the areas that received too much through last weekend. Next week a warm and dry pattern sets up for most which will allow fields to dry down and early corn harvest to pick up. Trade news was quiet but unlikely to remain that way. The Canadian trade representative is in Washington today to resume talks with the US and hopefully come to a trilateral agreement with the US and Mexico. This morning the US trade deficit reached a five-month high and an all-time high with China due to a combination of increased spending in the US and reduced exports due to tariffs on soybeans and airplanes. Tomorrow is the last day of the comment period for the additional tariffs threatened on $200 billion in Chinese goods so further escalation of the trade war with China appears likely. USDA crop report is next Wednesday and trade estimates are filtering across the wires.  Allendale farmer survey from late Aug pegged corn yield of 177.7 and beans 52.2 bpa. Informa reportedly will be out tomorrow.

The wheat complex was looking to try and rebound from its rough start to the week and enjoyed slightly higher price action throughout most of the night, but the evening ended with a thud and that pessimism resonated into the day. The offers in the GASC tender this morning were not favorable, and with the rest of the grain complex trading lower into the morning break, it made it that much more difficult for the wheat complex to find any footing once the day session began.

Despite what the Russian Ag Minister says, there are still many traders that feel at some point there will be a curb to Russian exports, and with that in mind, this year’s Russian wheat export program has been very front-end loaded. Just Tuesday the Russian Ag Ministry said their wheat exports are 60% higher when compared to this time last year. So, we were looking for Russian offers this morning in the GASC tender to be aggressive, lower than last week and plenty to choose from. They were all three. There were twelve offers this morning, with the lowest eleven all Russian. In fact, the lone offer that was not Russian was around $10 above all the Russian offers. In last week’s GASC tender, US SRW wheat was within $5.00 of what traded, but US HRW wheat was more than $45 out. With today’s purchase more than $6.00 below last week’s purchase, the US is just that much farther out. The positive spin to today’s GASC purchase is that it was only one Russian offer that was so cheap. All others were at least seven dollars higher. Maybe the Stats Can data can spark a rally tomorrow.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday September 4th, 2018

December closed up 3 ¼ at $3.68 ¼ and March 19 up 2 ½ at $3.79 ¾.  November beans closed up ¾ at $8.44 ¼ and January 19 closed up ¼ at $8.57. December wheat closed down 14 at $5.31 ½ and July 19 closed down 8 ¼ at $5.62. Crude oil closed down $.19 at $69.56.

Solid start to the week in corn, fighting off an “early down” to close out the day higher. Corn was the sole survivor in the grains. Managed Money funds were viewed net sellers of 5,000 corn, which would leave them net short 55,000 combined futures and options.

In a departure from the “light news” days of the past couple weeks, there was an over-abundance of headlines around this morning. The most interesting of the bunch is the situation in South America. Reports the Argentine gov’t would re-impose corn export taxes to raise funds amid a currency crisis sent the market scurrying higher Friday. Though the direct impact of the 10.5% tax can be debated some believe “new lows” in the Argy Peso and close to it in the Brazil real are the story here. All other things equal, a falling currency makes a country’s exports more appealing, but it also significantly raises the cost of imported goods. Given that corn typically has much higher input costs (fertilizer)than beans, this could serve to reduce incentives to plant corn acres in South America. Analysts are broadly looking for 2-3% yr/yr increases in Brazil, and were looking for larger gains in Argentina, so there is certainly room to backtrack in coming weeks.

After the close, Crop Progress data uncovered a small downtick in corn ratings, along with continued rapid maturation of the crop. U.S. corn ratings slipped 1% wk/wk to 67%, which still compares favorably to 61% last year. The national decline may have been a surprise within the context of the state-by-states, which generally had more improvements than not. The USDA may still be catching up with the imbalance between state and national ratings in prior reports. At any rate, we are in the waning days of condition reporting, as farmers begin to gas up their combines in the southern reaches of the Midwest. 75% of the corn crop has dented, which is 15% greater than average.  First national harvest report is due out next week.

Beans were a two-sided market but managed a second consecutive higher close for the first time in three weeks. The feature trade was meal which was well supported through the session. Argentina’s export tax restructuring was a positive input implying additional US export demand and we also saw fund flows coming back in with the start of the month. Managed money had sold out of nearly half of their long position in the latest COT report that encapsulates trade through last Tuesday (sold 25.2k, net long 27.4k). This all helped to overshadow the eighth confirmed outbreak of African swine fever in China. The break to the $300 area satisfied daily and weekly Price Count objectives and, for the moment, is proving to be a value area one more time.

Weekly soybean export inspections totaled 769 tmt down from 908 tmt last week but up from 712 tmt this week last year. This concludes the old crop marketing year (there will be some adjustments to the numbers) with total bean exports of 56.279 mmt vs. 57.848 mmt a year ago. This represents a 58 million bushel reduction in exports year over year which is darn close to the current USDA projection falling short of last year by 56 million. African swine fever continues to spread with China reporting its eight outbreak in the country since the disease was first discovered in hog herds last month.  Chinese agriculture researcher recently was quoted saying the outbreaks will only have short term impact on pork supplies and pork sales, but expects those effects to decline over time as quality control improves in the industry

What a difference a weekend makes. Going home Friday trade across the wheat complex was becoming a bit more optimistic that two meetings slated for Monday afternoon in two different regions of the World was going to possibly start providing some stability to a market place that was yearning for just that – some stability. The result of the Argentine meeting was exactly what was expected, a four-peso per dollar export tax (basically 10%) but it is a specialty tax that fluctuates as their currency strengthens or weakens. This export tax is designed to raise funds amid a currency crisis in Argentina and will stay in effect until December of 2020. Keep in mind, Argentina is expected to export between 14-15 MMT of wheat this coming year (export program starts late Dec or early Jan). The outcome of the meeting held Monday afternoon between the Russian Ag Minister and exporters was almost identical to the Ministry’s prior meetings with exporters, in that for the time being there will be no curbs on wheat exports and they were still waiting for permission to sell 1.5 MMT of grain from state stocks.

Anna Kaverman

anna@mercerlandmark.com