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Archive for October, 2018

FOR THE WEKK ENDED 10-26-18

CORN – The corn market just keeps plugging along in a sideways trading range between 360 and 375.25. Since October 1st, the open or the close of December corn futures has been in that range every day. The weekly change for the December futures was a slim gain of just ¾ of a cent. Corn harvest advanced by just 10% to 49%.  It remains above the 5 year average of 47%. Weather has opened up a bit and we should see good progress on next week’s report.  The average for next week is 63% complete so harvest should remain on pace.  The good/excellent rating for corn held steady at 68%.

Corn inspections came in on the low end of expectations  and was the first time since February that inspections were under 1 million tons. The inspection pace is just a wee bit behind the USDA level by only 3 million bushels. Corn export sales were just terrible. Sales of just 13.7 million bushels is the lowest total of the marketing year and the lowest total since December 2017!  There were cancellations of 12.4 million bushels which really cut into this week’s sales. Weekly ethanol production rose 13,000 barrels/day to 1.02 million bpd, below the 1.068 million pace needed to meet USDA estimates. Ethanol stocks fell 233,000 barrels to 23.9 million barrels.

Brazil reports that the main corn production state of Parana has corn planting at 90% complete vs 89% a year ago. The state of Mato Grosso is 50% planted. AgRural says Brazil’s overall first season corn planting is 48% complete vs 45% average. Argentine corn planting is 34% complete vs 33% last year. Conditions there are 30% good-to-excellent, and 24% poor-to-very poor, with dryness in the state of Cordoba.

OUTLOOK – The next WASDE report is still two weeks away so harvest results should be the biggest driver for prices in the short run.  Results we have seen are overall pretty good but there is much more variability then we are seeing in soybeans.  This variability has some believing that the national yield could decline in the November report.

SOYBEANS – With the exception of a few days last week, soybeans have been stuck in an $8.40 to $8.70 trading range since late September.  Soybean inspections were pretty good this week at nearly 41 million bushels.  Argentina and Egypt were the two largest destinations this week.  Normally China dominates the top spot this time of the year. Inspection continue to lag the USDA pace by 44 million bushels. Export sales, however, were a disaster.  Sales were only 7.8 million bushels which is the lowest total of the marketing year.  This is also the lowest total since May 31st. China also cancelled another cargo of 2.2 million bushels this week. There was also a flash sale announcement of 200,000 tons to unknown.  This is the first positive flash sale we’ve seen since the huge bean sale to Mexico on September 26.

US soybean condition ratings were unchanged at 66% good/excellent. Soybean harvest made good progress this week and is 53% complete vs the 5 year average of 69%. This year remains the 2nd slowest bean harvest in 30 years. The weather remains favorable for harvest and we should see a big jump again next Monday bringing the harvest progress closer to average. The next big USDA report is still two weeks away. Until then, the market will get price direction from harvest results.  So far, we have been seeing really strong soybean yields which is in line with the USDA’s estimate of a record yield. The USDA is predicting that 12 US states will set a new soybean yield record this year.

Soybean planting in Brazil is moving along at record pace with roughly 45% of the crop in the ground. Weather remains good, maybe a touch to wet, and will keep the fast pace going.  The fast pace will mean Brazil will be harvesting in January and will be able to keep the pipeline to China relatively well supplied. Traders believe China has soybean coverage for 85% of November needs, 40% of Dec, and 10% of January needs.

The African Swine Fever continues to spread across China with several new cases reported this week.  There are some that believe that problem is way bigger that China is publicly acknowledging. The US is stepping up surveillance to keep the disease out of the US.  Scientists have said that a vaccine is at least 10 years away due to the complexity of this virus. Changes to genetics might be a quicker way to combat the disease. If this virus continues to spread and the killing of pigs expands this will factor into Chinese feed demand.

OUTLOOK – Larry Kudlow accused China of doing “nothing to defuse trade tensions,” saying a detailed list of U.S. demands has gone unaddressed. It doesn’t look like China will be returning to our markets anytime soon. That leaves the market to deal with the supply side of the market and bean yields look to be as good as advertised and worthy of the USDA record outlook.

WHEAT – We need to touch on wheat this week as that was the market that seemed to have the most activity and talking points. Egypt’s GASC is tendering for wheat, for Dec 11-20 shipment. The lowest offer was two cargoes of U.S. SRW at $219/MT FOB, offered by Cargill. When you add in freight costs US wheat was the first and third most expensive. However, Egypt pretty much bought all that was offered except the 2 most expensive offers which meant one cargo of US wheat was purchased. The futures market was quick to rally prices which immediately cut into the competitive we had in the world market.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday October 25th, 2018

December closed down 7 ¼ at $3.61 and March 19 closed down 7 at $3.73 ½. November beans closed down 8 ½ at $8.41 ¾ and January 19 closed down 9 at $8.54 ½. December wheat closed down 12 ¼ at $4.87 ¼ and July 19 closed down 11 at $5.28 ¼. Crude oil closed up $.48 at $67.44.

It was a tough day for the grains with the markets under pressure all day. The weakness comes from a combination of harvest pressure on corn and soybeans, the dollar trading back near contract highs and a very poor export sales report underlining weakening demand. Technically, corn and beans were pushed to the edge at $3.60 and $8.40 respectively but managed to defend those levels into the close which is not so much a victory as we avoided a complete wipeout, for now. Light rains fell across parts of the western belt from NE and the Dakotas and moving into IA and MN as our brief stretch of dryness ends.  The forecasts show we will have some rain around for the next couple of weeks which may cause some harvest disruptions – at times – but nothing like we saw in the first half of the month in the western belt with only limited delays expected.

Today’s export sales report featured very underwhelming business for corn and beans both at just 350 mt old crop corn and 213 old crop beans. In the case of corn, this is a big change where we just about had the world market to ourselves for around 90 days and now we have some competition from the Ukraine who grew a record 31 mmt crop as well as some southern hemisphere supply available which is also competitive. Most of this week’s sales were destined to Mexico and Central America while the absence of far East trade was noticed with cancellations from unknown, South Korea and Vietnam 60. The recent push back to the year’s highs in the US Dollar is not helping matters. U.S. sales will eventually perk back up, though it could be more of a fight for business the balance of the year.

Elsewhere in the news, the International Grains Council left their world corn production estimate unchanged from last month at 1.074 compared to 1.048 in 2017 while lowering their soybean production est. by 1 mmt to 370 mmt compared to 340 mmt in 2017.  China will halt its tax rebate for soybean meal exports on November 1 in an effort to keep as much supply in country as possible.

For a second consecutive day we have seen an unraveling in the wheat complex, with today’s losses surpassing Wednesday’s dismal performance. At that point you knew it was just a matter of time before Chicago Dec would make a run at their summer lows of $4.90, especially since trade had moved to within only a nickel of those lows during the overnight session. Shortly into the day session, a headline came across that said the IGC raised their global wheat production estimates by more than 12 MMT up to 728.8 MMT. That was more than enough of an influence to give the Chicago market the power to push through their summer time lows, and once those lows were violated, trade remained below the $4.90 level the rest of the day. Trade tried to bounce late, but it was quickly met with selling and the markets finished down around their session’s lows. Chicago finished the poorest at twelve cents lower, while KC ended the day around ten cents lower and Mpls finished nine cents lower.

Export sales this morning were a little better than most thought they were going to be. To probably no one’s surprise, after the close the GASC announced they were in for wheat, and next week Taiwan is in for US wheat and with that we can probably expect to see the Asian Flour mill demand pick up more as our futures board goes lower. This week’s sales were at the high end of expectations coming in at 443 MT, with an additional 6 MT of new crop for combined sales of almost 449 MT. Total sales to date are 461 mil bu vs 557 mil bu last year.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Wednesday October 24th, 2018

December closed down 2 at $3.68 ¼ and March 19 closed down 2 at $3.80 ½. November beans closed down 7 ¼ at $8.50 ¼ and January 19 closed down 7 ½ at $8.63 ½. December wheat closed down 9 ½ at $4.99 ½ and July 19 closed down 9 ¼ at $5.39 ¼. Crude oil closed up $.34 at $66.96.

Corn featured a more defensive dynamic today, spending the day slightly lower in a very tight range. The market would ultimately close two cents lower, erasing a decent chunk of the week’s gains.  Managed Money traders were viewed net sellers of about 5,000 corn today, which would leave them net short 40,000 combined futures and options.  Cash markets were a little less dynamic Wed, though we saw more gainers than losers.  This may reflect the early week tendency to harvest more beans or lower-than-expected farmer selling across the scale in corn.

Today was another “macro day”, though we feel the ag complex was likely focused more on a rising dollar this particular day than position rebalancing tied to the stock market break. The Dollar appeared “headed to zero” in late September, but quickly snapped out of it, rallying 3% off that base to match recent highs for the year made in August. Such moves will do the exporter no favors, as he jockeys for position with Black Sea and South American sellers. South Korea was back in for more corn overnight, picking up a couple cargos for Dec/Jan; likely Brazil or Argy origin. They bought Ukraine origin yesterday for early spring ship. Export sales in the morning could be another subdued affair.

Soybeans continued to struggle as a combination of gut slot harvest pressure, excessive supply and insufficient demand weigh on prices. This has beans pressing $8.50 chart support and threatening to break down for a deeper retracement of the recent rally where a 62% target lies below at $8.42 ½. Western belt harvest has been slowed by an excessively wet fall to date while eastern harvest has been much more active. This was apparent today as LD Claypool announced they would stop taking in new bean deliveries starting Wednesday afternoon and reopen Sunday evening as space is chuck a block. They lowered their bids through the end of the month by $.18 to -60. There is talk of other plants following suit on slowing deliveries in the eastern belt but have not confirmed any others to this point.

Our open harvest window is going to close to some degree over the next couple of weeks as the return of rains in the forecast will create some delays at times for just about everybody although no washouts are expected this time around. There are still some parts of the Midwest that are fighting muddy and wet conditions from the last round of rains from late September through the first half of October. At this point, some are hoping for a hard freeze to firm up soils enough to get back into their fields.

There was nothing positive to come from today’s performance across the wheat complex. Overnight we saw both Chicago and KC trade through initial support, but again the second line of support held, and prices firmed into the morning pause. Algeria looked as if they bought mostly French, and maybe some Argentina. Bangladesh will most likely buy all Russian, with an outside chance of a cargo or two of European (remember, just a couple weeks ago they bought US). With the US probably missing out on most of this business, it was hard to imagine the rally into the morning break was going to continue once we moved into the day session. Prices quickly moved back down to its overnight lows, and shortly thereafter trade was testing the $5.00 level.

It has been talked about over the past several months that the wheat market needs export demand to surface before it could have any thoughts of a sustained rally. Trade has had their fair share of bounces, but they have never been able to follow through and make that good trade. Early last week was the latest one of those moves. And early last week we mentioned US prices were still too high, and it may be too tough for the markets to rally too much more than where we were at, at that time. With a settle below $5.00 we are getting closer to where we need to be. That does not mean business will be knocking on the US door any time soon. Could the markets bounce, sure, but expect those rallies to be sold until some of that business finally surfaces.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday October 16th, 2018

December closed down 3 at $3.75 ¼ and March 19 closed down 3 at $3.87 ¼. November beans closed down 6 ¾ at $8.84 ¾ and January 19 closed down 6 ½ at $8.99 ¼. December wheat closed down 1 ½ at $5.23 ½ and July 19 closed down 1 at $5.59 ¼. Crude oil closed up $.15 at $71.76.

One way or the other, it was going to be a “Turnaround Tuesday” either the markets would reverse early weakness, or end a recent win streak by closing lower. Futures decided to tread the latter path, spending all day in the red. Technically, corn left Monday’s friendly close overnight, which is a slightly negative signal if not addressed in coming sessions. Managed Money traders were viewed small net sellers today, as they hang with a greatly-deflated net short in corn.

It was an extremely light news day, and with no fodder to feed the bull, the market was left to its own devices. There was a little tender business around, with both Israel and Korea in for small chunks of corn. Many Midwest farmers are waiting on Mother Nature to dry things down after a very wet week.  It is currently cool, but at least it is projected to stay mostly dry over the next ten days. Some light rains for parts of Missouri and the Eastern Belt entered the picture late this week, but it should be light. Oct 25-28 is expected to be the next major rain event?  Europe and parts of Argentina could use some rain, though the dry western half of Argentina is expected to receive just that this weekend. Brazil planting weather remains excellent, with first crop corn progress running ahead of normal.

After Monday’s relatively exciting pacing and price action, today’s market felt like an eternity as we set back from the recovery highs and volumes and farm selling were constrained.  Yesterday was the sugar high with just enough of a taste of fundamentals and chart action to raise the intensity a notch, today was the hangover. The rally in meal put flat price right back into our previous range and now we are trying to defend the gains although that swine revere continues to rear its ugly head in China with new cases reported nearly daily. Yesterday’s outbreak on the larger 20k head operation stood out and is bothersome because the larger operations also have the more stringent biometric protections that did not work in this case.

There are two more bean cargoes being loaded at the Gulf for November delivery to China but these are old sales already on the books to be executed for government buyers while new sales are still being discouraged. It was great to put some premium back on the board, but we shouldn’t forget that we have a record US crop being harvested, Brazil has record plantings that are ahead of normal, China trade remains unresolved and we are still lugging around a current projected carryout just shy of 900 mb which will require some significant acreage reductions this coming spring.  900 mb. Soybean prices on the board should maintain some risk premium as Southern Hemisphere beans are still going into the ground (rapidly) and China has placed all their eggs in one basket for the moment. Planting conditions are favorable, but the market will be very responsive to any threats.

The wheat contract battled both sides of unchanged throughout the day before succumbing late and finishing slightly lower. With very little influential news around the market place throughout the day, and corn, beans and soymeal all trading on the defensive, it would have been very easy for the wheat complex to fall apart today. At the very least give back Monday’s strong gains from the end of the day. But trade held in there pretty good, especially Chicago, and it makes you wonder if some positive, influential news develops over the next couple of days, what type of market reaction are we going to see. Trade has moved into an area where it has found some very tough resistance in the past. The fact that trade has done this much with such little news is truly remarkable. But I have to respect the move and look ahead.

There were a couple Reuters headlines today. Within the context of the articles are subtle hints that are not very positive to trade right now. In one article a chairman from the USDA talks about Russian exports slowing for multiple reasons, which we all feel will come at some point. But, he talks about how the US export program will eventually kick into gear over the second half of the year. That is not something very friendly short-term. The second article was about how Russia and Brazil are trying to be trading partners again. In fact, Russia is trying to open doors to several trading partners (including China), and those doors which were once slammed shut are now ajar, and more competition means less export business for the US.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 10-12-18

CORN – Let’s dive right into the biggest market influence this week which was the October WASDE report.  There were several adjustments to both the old crop and new crop balance sheets.  The biggest market surprise was the adjustment of the yield. The market was looking for an increase to 181.8 bpa and there was a bearish bias heading into the report.  The USDA surprised the market by dropping the yield from 181.3 to 180.7 bpa. Old crop saw a reduction to the feed category by 148 million bushels which contributed to an increase of ending stocks of 138 million.  The increased old crop stocks were largely offset by the reduction in the yield for new crop.  The USDA also bumped up new crop exports by 75 million bushels. The net result of the new crop adjustments was a slight increase in the end stocks number by 39 million bushels to 1.813 billion.  The bullishness of the yield drop helped push December futures prices up to 373.75 at weeks end which made for a gain of 5.5 cents on the week.

Export inspections numbers were very good for corn at just over 63 million bushels. This was the best inspection number of the year so far and the best going back to mid-July. The inspection pace is now just slightly above the USDA pace. Export sales for corn this week was 39.6 million bushels.  This was on the low end of expectations and was also the lowest sales total of the new marketing year.

President Trump is telling the EPA that they should allow for E15 gasoline to be sold all year long. He will need an act of Congress to change the current mandate.  Newly appointed Supreme Court Judge Kavanaugh wrote in 2012 that the EPA cannot change the rule unless Congress changes the law.  The ethanol industry is hoping that Trump’s political allies in ag related states will push Congress to make changes.  The refining industry has already promised to sue if the EPA tries to amend the current system.

OUTLOOK – The extremely wet and cool weather has slowed the pace of harvest down significantly.  The risk of loss, damage, or unharvested bushels will only rise.  A friendly WASDE report and strong demand makes it feel like the corn market may have found a bottom for now.  Not sure we have enough ammo to jump corn right to $4, but there is enough to support a gentle push higher.

SOYBEANS – The changes to the soybean balance sheet on the October WASDE report were not quite as dramatic or extensive as the changes to the corn balance sheet.  A very slight increase to LAST year’s yields and a reduction to the residual bumped up ending stocks for old crop by 43 million to 438 million bushels.  For new crop the yield was raised from 52.8 to 53.1 bpa but the increase wasn’t quite as big as pre-report expectations of 53.3 bpa.  The surprise on the bean side was the reduction to acreage of 500,000 planted and 600,000 harvested.  Between the lower acreage, and the increased yield, the change to production was a decrease of 3 million bushels.  New crop ending stocks increased by 40 million bushels which was just a pass through of the increase to old crop stocks.  Most analysts commented that the report was neutral to bearish, but the price action of the futures indicated otherwise.  November beans traded higher on report day and the day after to salvage just a 1.5 cent loss for the week.

Export inspections for soybeans were very weak at just 32.5 million bushels.  The pace is well behind last year obviously as China is not a buyer any longer. Because the USDA is not dropping the current export level of 2.060 billion bushels, the current inspection pace is lagging.  Export sales were dreadful at just over 16 million bushels.  This is the lowest total of the marketing year and the lowest total since early July.  We did see cancellation to China that totaled almost 7 million bushels.

Soybean harvest is extremely slow due to wet weather across most of the country.  Currently harvest progress stands at 32%, which was only a 9% advance from the previous week.  It doesn’t look like harvest pace will be any quicker this week as well.  The five year average is at 36% so we are now behind pace.  If things stay slow, we could be looking at the 2nd slowest harvest in the past 30 years.

The planting progress in Brazil continues to move along nicely with over 10% already planted.  Adequate early season rains are encouraging a fast start. Brazil’s SAFRAS reports 18/19 bean sales are well ahead of last year, with farmer taking advantage of the resulting strong prices from the US/China trade war. Farmers have sold 27.3% of their new crop soybean production vs 14.1% last year. Strong 17/18 sales are also confirmed with 92.9% sold vs 83.7% last year.

OUTLOOK – The fundamentals of the market are still bearish with no Chinese business and without an end in sight to the trade war. Brazil is off to a quick start, so they should have big production numbers unless a weather event occurs. If it is the funds covering up some shorts it might be good to look at some marketing opportunities on the pop higher.

Wheat

Russia’s 2018 wheat crop is expected to total 68 to 69 million tons. Previous projections were at 64.4 million tons. The Rosario Stock Exchange cut the Argentina wheat forecast from 21 million tons to 19 million tons due to drought in the central-western parts of Pampas, especially the Cordoba and Santa Fe provinces. Australian wheat production decreased 1.5 million tons to 18.5 million tons for 18/19, due to dry weather conditions.

Private exporters reported to the U.S. Department of Agriculture export sales of 120,000 tons of hard red spring wheat for delivery to Bangladesh during the 18/19 marketing year. Just one day later, the U.S. Department of Agriculture reported cancellations of export sales of 140,000 tons of corn for delivery to unknown destinations.  The October WASDE held very few changes for the wheat balance sheet.  The changes included only slight adjustments to several categories with a net change of a 21 million bushel increase to ending stocks.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday October 11th, 2018

December closed up 6 ½ at $3.69 ¼ and March 19 closed up 6 ½ at $3.81 ¼. November beans closed up 6 at $8.58 ¼ and January 19 closed up 6 ½ at $8.72 ½. December wheat closed down 2 ½ at $5.08 and July 19 closed down ¾ at $5.48. Crude oil closed down $2.22 at $70.81.

The USDA managed to flip the script on a market distracted by a continued “risk off” attitude across the financial spectrum.  Corn finished higher off of a monthly USDA report that likely couldn’t be considered “bullish” per se, but certainly was less bearish than expected. Managed Money funds were viewed net buyers of about 20,000 corn today, which would leave them net short just over 85,000 corn heading into tomorrow’s CFTC report.

Another month, another USDA report in the books. Unlike the prior three (Aug/Sept WASDE and Sept 1 Quarterly Stocks) universally bearish reports, this one leaned more in the neutral camp for corn. Defying the old trader adage of “big crops get bigger”, the USDA backtracked from their aggressive Sept yield projections, pegging it at a still-quite-large 180.7 bpa. This compares to 181.3 bpa in Sept and the prior record of 176.6 bpa in 2017. Despite 50 MB less production, 18/19 carryout expectations still inched another notch higher, pegged at 1.813 BB (versus 1.774 bil in Sept). This was due mostly to the inclusion of Sept 1 stocks data, which finalized 17/18 carryout at 2.140 BB versus 2.002 prior. The USDA continues to fine-tune demand expectations, down-ticking feed/residual 25 mil bu from prior, while increasing exports 75 mil bu from prior (to 2.475 bil bu vs. a final 2.438 bil in 17/18).

As expected, the world numbers were a virtual afterthought in the Oct WASDE. The USDA raised world carryout projections to 159.35 mmt, which compares to 157.03 mmt in Sept (and 198.2 last year). This was mostly due to the USDA raising initial carry-in (again, mostly a consequence of the Sept 1 stocks report). The only notable production downtick was non-Ukraine FSU (likely Russia)which was trimmed 1 mmt. As per usual, CONAB was out before the USDA in the early morning, offering their first glance at their 18/19 corn production expectations. They pegged total corn output for the year in a range between 89.7-91.1 mmt, which compares to the USDA’s 94.5.

Soybeans came into the day under pressure ahead of the crop report where the trade was anticipating a bear report. The report was bearish but not as bad as feared and beans benefited with a post report relief rally that was defended into the close.

Here’s what the report said. The USDA raised the soybean yield from 52.8 to 53.1 bpa compared to the avg. trade estimate of 53.3 bpa. They also lowered harvested acres by 600,000 to 88.3 million which offset the yield increase so production was off slightly to 4.690 bb where the trade was anticipating an increase to 4.730 bb. Beginning stocks were raised by 43 mb on a .2 increase in last year’s yield and a 24 mb reduction in residual use. The 18/19 usage stats were unchanged giving us a carryout of 885 mb, slightly below the 898 mb trade expectation.  In the world stats, there were no adjustments to the projected Brazilian and Argentine crops at 120.5 mmt and 57.0 mmt respectively. Chinese bean imports were unchanged at 94.0 mmt.  The world soybean carryout was raised from 108.26 mmt to 110.04 mmt. Midwest rains have finally cleared out and we are entering a welcomed dry stretch where farmers will get back out to harvest as soon as conditions allow.  Saturated fields and cool temps will test patience, particularly in the western half the of the corn belt.

Conab estimates the Brazilian soybean crop at 117.04 mmt to 119.42 mmt compared to 119.3 mmt last season. Yields are forecast at 3.302 mt/hectare, down from 3.394 last season.  Exports are projected at 75.0 mmt vs. 76.0 mmt last season.   They estimate the corn crop at 89.7 to 91.1  mmt combined with yields 5.408 mt/hectare, up from 4.890 last season.  Exports are projected at 31.0 mmt vs. 25.5 mmt last season.

Price action leading up to the report had a slightly negative bias. The thinking was, on one hand, how much of a slash in World production was the USDA finally going to give us. On the other hand, with the poor pace of export sales, how much of an increase in US ending stocks would we see. The initial knee-jerk reaction to the data was a shocking 12-cent rally. Some of this could have been attributed to somewhat friendly data coming out of corn and soy. Granted there was nothing overly bullish in corn and soy, but the report does probably tell you those September lows in corn are going to be really tough to take out, and the soy data was not nearly as negative as many thought, so we saw a modest bounce. The USDA did finally reduce World wheat production estimates, and thus we saw a slightly lower World carryout, but the larger concern is the growing US wheat carryout and the lack of demand. The rally was not very lasting, and trade spent the finally hour of the day trading lower. All three classes of wheat finished between two and three cents lower.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Wednesday October 10th, 2018

December closed down 1 ¾ at $3.62 ¾ and March 19 closed down 1 ¾ at $3.74 ¾. November beans closed down 10 ¾ at $8.52 ¼ and January 19 closed down 10 ¾ at $8.66. December wheat closed down 4 ½ at $5.10 ½ and July 19 closed down 3 ¼ at $5.48 ¾. Crude oil closed down $1.78 at $73.03.

Today was a “red day” for most commodities, and corn proved unable to fully shake off the negative macro tide. Corn trended a little lower overnight but spent most of the day trading at small losses, ultimately finishing the day lower. Managed Money funds were viewed net sellers of about 5,000 corn today, which would leave them net short just over 105,000 corn heading into tonight.

Get ready for another monthly update from the USDA. The November crop report will bring a fresh look at U.S. production, as more ‘real’ data flows in. The general theme ahead of the report is a resigned, “big crops will probably get bigger.” The average trade guess ahead of the number is for a 181.8 bpa corn yield (180.6-183.5 range), which compares to 181.3 bpa reported in Sept and 176.6 the prior season. Of note as well will be the incorporation of the Sept 1 Quarterly Stocks data, which will add another 140 million bushels to 17/18 carryout, and thus 18/19 carry-in. With that point in mind, the average 18/19 domestic carryout analyst forecast is 1.92 billion bushels, which compares to 1.774 billion estimated by the USDA in Sept.  World numbers will be an afterthought, but it would not be surprising to see minor upgrades to Brazil and downgrades to Ukraine. Though the odds are stacked against it, a decline in U.S. corn yields would likely provoke a more dynamic market reaction than another small uptick.

No E-15 headline pop in corn today, which is no surprise. That being said, if the EPA does indeed follow through on their proposed rule-making for an RVP Waiver exemption on E-15 blends, it is a solid political “win” for the ethanol crowd. Oil lobbyists have threatened lawsuits to prevent the resulting loss of market share, but the timing of the rulemaking is right, as it does not need to be completed until May-June of next year. Plenty of time to hash out details and fight legal battles.  On the weather front, forecasts are turning mercifully dryer for the water-logged Midwest. Unfortunately, it is also getting chillier, which will not help evaporation rates any, and could make it a slow slog at first for farmers to get back into the field. Expect plenty of chatter in coming days over quality concerns. Brazil early-season planting conditions have been almost ideal and they are not likely to change much for a while. Argentina needs rain in the west and north to support corn planting.

Soybeans continued to correct off its recovery highs as the market gets repositioned ahead of tomorrow’s USDA crop report. Look for the market to continue to struggle ahead of the report as the USDA reminds everybody of our burdensome supply side realities both domestically and globally but this is known and sets up a potential disappointing bear response to the number.

With the exception of the hurricane related rains in the South East and forecast for Texas this weekend, the Midwest will be entering a drying period although that also comes with much cooler temps that will slow the pace of drying. The resumption of harvest in some of the areas that saw the heavier rain totals over the past week or 10 days will take time. In some of the areas of KS and IA that have been inundated with rains over the past couple of weeks, we are hearing increasing reports of soybean sprout issues developing and bean pods cracking.

More back and forth on trade rhetoric with China where a finance ministry official told reporters at the IMF and World Bank meetings in Bali this morning that he felt “a little bit more optimistic” on the prospect of breaking an impasse in trade negotiations with the US, saying both sides are too economically integrated to tolerate a fallout.  The USDA announced that the $12 billion farmer aid package due to the trade tariffs could be reduced in size following the new trade deal struck with Canada and Mexico. They are holding the second half of that package on standby pending trade progress into the end of the year.

Early overnight gains started to fade after the start of the European session, and the light selling continued into the morning break with all three classes of wheat finishing slightly lower. Looking ahead, if the markets are going to take that next step forward, it is going to need a lot more announcements like we heard Tuesday morning. For now, they have been too far and few between, and because of that we will probably see US wheat ending stocks increase month over month in Thursday’s report.

The bull will be hoping for World production downgrades, and although it definitely may be warranted, there is no reason to believe that it is a given we will see that big of a slash in World production. Russia seems to be coming up to the US estimates, especially after the Russian Ag Ministry raised its wheat production estimate by around 4.5 MMT from its previous estimate, but the EU should be lowered a little, as should Australia. Depending on how much those are lowered will depend on whether we see World ending stocks increased or lowered vs last month. But even if we see a decrease in World production and World ending stocks, a significant increase in US ending stocks will offset any bullish enthusiasm the markets will get from the World numbers. And there is where the dilemma arises. We have repeatedly said over the past several months, until the US export program kicks in, rallies will probably be hard to hold. And if the US export program does not kick in until after the first of the year, it will be a long few months for the wheat complex.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 10-5-18

CORN – In a surprise development, the US and Canada reached a last minute deal late Sunday on a new NAFTA accord. This agreement should lead to a late November signing ceremony sealing the accords with both Canada and Mexico. The Crop Progress Report on Monday afternoon pegged 86% of the corn crop mature.  Harvest progress showed 26% of the crop in the bin vs 16% last week, and 17% for the 5-year average. Harvest progress should very quickly come back to average as the weather forecast is wet, wet, wet. Corn conditions held steady this week at 69% good/excellent.

Ethanol production dipped this week to the lowest level of the month old marketing year. In 4 of the past 5 years, the lowest production week of the year occurred within 5 weeks of the start of the marketing year.  Seasonally we should start seeing a bounce in production going forward.  The big thing that could derail the bounce would be the margin situation.  Margins are currently at a negative 5 cents, with margins staying in the red since the end of August. Export sales were very good again this week at just over 56 million bushels.  Our newly refreshed NAFTA partners of Mexico and Canada were the two biggest buyers this week. Last year in the first month of the marketing year sales averaged 19.5 million bushels.  This year sales are much stronger and are averaging 59.4 million bushels.

OUTLOOK – The market will be turning its attention to the October WASDE report which is due out on Thursday October 11th.  The range for ending corn stocks is wide enough to drive a truck through.  The range is between 1.7 and 2.3 billion bushels. The other factor is the excess rain the continues to hamper harvest. This has been a story long enough that the market feels like it wants to put in a little bit of risk premium for the delays.

SOYBEANS – The 11th hour NAFTA agreement was a positive input for the market, but that sentiment is not carrying over to the Chinese trade war. President Trump says it is “too soon” for Washington to talk to Beijing about working out a deal on trade as the new tariffs have not yet exerted enough pressure on China to come to the table ready to make concessions. USDA Agriculture Secretary Sonny Perdue says the “US probably made a mistake“ allowing the trade to become too dependent on the Chinese market and that the administration is pursuing new trade deals with many countries.

South America is the big focus right now as their growing season is getting underway. AgRural estimates that Brazil’s 18-19 soybean crop is 4.6 % planted vs 1.5% at the same time last year vs a 2.1% 5-year average. Soybean planting in Brazil’s number 2 soy producing state of Parana is well ahead at 29% complete vs 16% complete last year. A new Reuters poll of analysts and consultants pegs the 18-19 Brazilian soybean crop @ 120.4 million tons, up from an earlier estimate from the same group in August of 119.76 million tons. The group also expects the total soybean planted area in Brazil to rise 3.8% in 18-19 to 36.14 million hectares.  Brazil’s soybean exports could be 79 million tons in the 19/20 marketing year which covers February 2019 to January 2020. Given the high prices Brazil receives from China due to no one else being able to supply them with beans, Brazilian exports will be almost exclusively destined for China.

The Crop Progress Report on Monday afternoon showed 83% of soybeans are dropping leaves vs 71% last week with the 5-year average at 75%. Soybeans are 23% harvested vs 14% last week and the 5-year average at 20%. Harvest is going to slow way down with all of the rain.  We are hearing about some significant damage to beans ranging from 4 to 8% which makes them grade 3 or even 4.  Plus, it is hard to blend them off without a good export program moving beans through the system. So far not a widespread issue, but definitely something to watch.

Export sales for soybeans were surprisingly high this week. Sales of 55.9 million bushels was the highest total of the young marketing year and the best total going all the way back to April. We also saw cancellations to China which is not a surprise at this point.

OUTLOOK – The questions for the bean market next week mirror the corn outlook.  Will the wet weather and further damage reports spur a rally?  For the WASDE report the only question is will the USDA give us a big yield number or a really really big yield number.  Estimates range between 51.8 and 55 bpa.

Wheat

Australia just suffered the country’s driest September on record. Some rain is forecast for the eastern portion of Australia this week but is predicted to offer very little relief from the prolonged drought. Extended forecasts do not offer much, if any precipitation for the majority of the country. Additional frost and freezes occurred in southeastern Australia last weekend that may have caused new damage to wheat, barley and canola. The potential damage is seen as much lighter than what was caused earlier in September.

Russia continues to push to become an exported of wheat to Algeria. After discussions between the two countries last week, several Russian firms interested in exporting wheat to Algeria, hope to submit wheat samples to Algeria for analysis in hopes of gaining registration access by the end of calendar year 2018. BAGE estimated the Argentine 18/19 wheat crop at a record-high 19.7 million tons, with rains improving conditions last week. 54% of the crop is estimated to have adequate to optimal soil moisture condition. Egypt has tendered for wheat again this week. No surprise that US wheat was not offered as prices remain too high.  There is still no shortage of wheat in the world as a whopping 17 offers were submitted from Russia, Romania, France and the Ukraine.

Crop Progress Report pegged Winter Wheat plantings @ 43% complete vs 28% last week vs the 5-year average of 40%. Winter Wheat plantings for the 5 key HRW states are as follows with the 5-year average noted in ( ): Colorado 67% (65%), Kansas 41% (32%), Nebraska 72% (74 %), Oklahoma 41% (39%), Texas 42% (38%). Winter wheat is 14 % emerged, equaling the 5-year average. Emergence by state with the 5-year average in (): Colorado 39% (31%), Kansas 17 % (11%), Nebraska 31% (41%), Oklahoma 5% (9%), Texas 4% (14%).

Market Report

Wednesday October 3rd, 2018

December closed down 2 ¾ at $3.64 ¾ and March 19 closed down 2 ¾ at $3.76 ¾. November beans closed down 4 ½ at $8.61 ½ and January 19 closed down 4 ¾ at $8.75 ¾. December wheat closed down 4 at $5.15 ¼ and July 19 closed down 2 ¼ at $5.52 ¼. Crude oil closed up $1.20 at $76.24.

After defying gravity for most of the week, the corn market fell back, finishing the day with losses. The market spent most of the day straddling unchanged but seemed to succumb to mid-day hedge pressure. Interest was apparent today in the December 2019 contract, with that contract crossing the magic $4 barrier yesterday. Managed Money traders were viewed net sellers of about 8,000 corn, which would leave them net short just under 150,000 futures and options.

The USDA tried to offer the corn market an assist early, reporting a sizable daily announced sale of 230,000 MT of corn to Japan. Not that many doubt strong interest in U.S. corn exports at this point. The weekly report tomorrow morning should find a “less exciting” week than the last, though still quite good at an estimated 1.0 to 1.3 MMT. The usual suspects remain around for U.S. corn. The report of the day was the weekly EIA, and it ended up with modestly bearish feature. Production slipped -2% this week, which was right in-line with our forecast, and would imply yearly corn-for-ethanol usage of 5.46 BB. The surprise came in the stocks data. The EIA found a +3.6% increase in ethanol

On the weather front, much of the Midwest was dry Tuesday and harvesting likely advanced well in areas that have not seen significant rain this week. The two-week outlook has not changed much since Tuesday and many areas will see another one or two days of good harvest progress before a period of wet weather begins Thursday into Friday and lasts into Oct. 13. Some heavy rain and flooding are expected in the Central Midwest. The remainder of the Corn Belt will see less rain and shorter interruptions to fieldwork. An important period of mostly dry weather is advertised for Oct. 13-17. Meanwhile, South American first crop corn planting continues to run ahead of normal.

The soybean market was unable to hold new highs and reversed lower after the break. This price action could give us a deeper test of support as charts were due for a correction and we are heading into the October crop report a week from tomorrow with expectations for a bearish supply side re-enforcement in the stats. Fresh news was very limited and trade volumes were holiday-like. Prices this week have been supported from a soybean oil break out that continued today, a wet weather forecast, and strong technical action (daily and weekly) that encouraged short covering.  US farmer is more interested in storing as many beans as possible and prying those bushels loose will come with a cost.  There is talk that some IL growers are even turning to ag bags for storage as space is at a premium. The Brazilian real rallied to a two-month high before settling back, strength in the currency futures takes away from farmer margins in that country and in the macro sense is supportive to our prices but Brazil’s exportable old crop is about exhausted and the currency move more applies to new crop profitability which is still robust thanks to the big fob premiums. Brazil’s presidential election is Sunday. Soybean oil printed a bottom a couple weeks ago and has not looked back since. Oil has been the forgotten product for the better part of a calendar year as meal took center stage on Argentina’s crop issues, record crush built up domestic supply, and funds were heavy sellers of the oil share. Now, oil is sitting up and the market is caught short with managed money holding 87k shorts as of last Tuesday.

Early overnight wheat gains were unable to carry through the night, and after a two-sided start to the day it was pretty evident that the enthusiasm from Tuesday was not going to be there today and prices retreated into the close. The big story on Tuesday was the Reuters headline that came out around noon which stated several Russian export loading points were faced with a potential suspension. All and all, there were 30 facilities involved in which they could be closed for 90 days if they were shown to have shipped wheat with phytosanitary issues. This one headline was thought to be not enough to get trade over the 5.30 level basis the Chicago, and it was not. When the Russian Ag safety watchdog came out this morning and said it had no immediate plans to suspend work of grain loading points in the Krasnodar ports it surely led to some of the weakness leading up to the morning pause and it gave trade more confidence that price action would probably lack the energy or power to even make a run at its overnight highs. That is the problem with chasing Russian headlines, usually within 24 hours they get rebuked.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday October 2nd, 2018

December closed up 1 ¾ at $3.67 ½ and March 19 closed up 1 ¾ at $3.79 ½. November beans closed up 8 ¼ at $8.66 and January 19 closed up 8 ¼ at $8.80. December wheat closed up 9 ¾ at $5.19 ¼ and July 19 closed up 10 at $5.54 ½. Crude oil closed down $.10 at $75.04.

The corn market nursed small gains for most of the day but began to run into some turbulence close to the noon hour. Cue the wheat market, which rode to the rescue, rallying double-digits on another round of Russian export limit rumors. Managed Money traders were viewed net buyers of just over 5,000 corn today, which would leave them net short an estimated 140,000 combined futures and options.

As discussed yesterday, we feel money flows at the start of a new quarter have unduly influenced price action early this week.  Some progress should have been made early this week, but mid-week, a wetter pattern is expected for the Center and Eastern Midwest, in particular. Up to 3+ inch totals are expected for a band that stretches from Eastern Kansas up to Southern Wisconsin. Flooding could be a concern, particularly with the 6-10 & 8-14 day maps suggesting no change in the existing wet pattern for most of the country. Note, next week, the USDA will update their thoughts on the crop with more “real” harvest data. A big brokerage house last night ‘genuflected at the altar of the USDA’, raising their estimates from the mid 170′s in Sept to 182.7 bpa for Oct, resulting in a 14.94 billion bushel crop.

The soybean market sustained its rally into a new recovery high on a day with very limited fresh news around. What was behind today’s strength?  A combination of soybean oil breaking out into three-month highs, a touch of weather, and strong technical action (daily and weekly) that is encouraging short covering.  Money flows are also present and supportive at the start of the month with traders talking about bullish commodity recommendations coming out of the banking sector which has funds stepping in and buying grains and other commodities from meats to energies to metals to softs in a combination of short covering and bargain hunting.

Weather has been a growing a topic of conversations to start the week as our early maturing crops and a generally early start to harvest is about to give way to delays as rains move in later this week. Soybean harvest overall stands at 23% complete, up from 14% a week ago and compares to 20% this time last year. A key area to pay attention to is Iowa where harvest is also ahead of the normal schedule as crops have matured early with 11% of its corn and 15% of its beans harvested in yesterday’s progress report but the weather pattern change suggests once the rains get started with IA somewhat in the epicenter, it could be awhile before we get back into the field and turn a wheel.

For much of the day, wheat trade battled both sides of unchanged. That all changed around noon when a Reuters headline came out and said several Russian export loading points were faced with a potential suspension. All and all, there were 30 facilities involved in which they could be closed for 90 days if they were shown to have shipped wheat with phytosanitary issues. The news sparked a rally that took trade from lower to more than $.14 higher before the move stalled. Usually when we see sharp moves such as the one we saw today, Chicago usually leads. Initially, that was again the case today, but both KC and Mpls quickly caught up to the strength in Chicago.

The question going forward is can the rally carry through. Looking at Chicago, trade over the past month has had problems on moves above $5.30. This one headline is probably not enough to get trade over that hump. But today’s headline could be just the beginning of things to come for the Russian export trade. There are a lot of uncertainties with the quality of the Russian crop, the size of the crop and what quantity they will have to export.

Anna Kaverman

anna@mercerlandmark.com