Blogging by the Bushel
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Market Report

Tuesday September 12th, 2017

December 17 corn closed down 6 at $3.51 ½ and March 18 closed down 6 at $3.63 ¾. November beans closed down 9 ½ at $9.50 ½ and January 18 closed down 9 ¼ at $9.60 ¾. December wheat closed up 7 ¼ at $4.42 and July 18 closed up 5 ½ at $4.89.  Crude oil closed up $.13 at $48.75.

The USDA continued to play “Keep Away” with yield bulls, once again defying trade expectations by raising corn production estimates from August. The end result was a $.06 lower finish, though that was notably $.05 above the day’s lows. The market fully tested the reversal lows from two weeks ago, but was not able to erase it. The funds were believed net sellers of another 10,000 to 15,000 contracts today.

What did the report say? More of the same, really: big corn production, big domestic carryout, and comfy world supplies.  The report offered nothing earth-shatteringly new, but yet one more time disappointed bulls looking for data to support their case. The USDA raised US corn production forecasts by 30 MB from Aug to 14.184 billion. They accomplished this by inching yield projections higher to 169.9 bpa, from 169.5 bpa in August, while leaving the “cut” (harv acres) unchanged at 83.5 million.  Perhaps the most puzzling item was the net reduction in the USDA’s 17/18 demand forecast. They actually reduced it 50 mmt from Aug. How? Well, they reduced corn-for-ethanol demand by 25 and HCFS demand by 50? Why? Traders are not sure, particularly with weekly ethanol production nearly notching a new record high in August. The end result was a modest up-tick in 17/18 carryout projections to 2.335 billion, while 16/17 saw the expected small downtick to 2.35 billion on the larger export “true-up”.

Back to our regular reporting schedule, the EIA will issue their oil status report tomorrow.  The ethanol section will be interesting given continued Hurricane influences.  We would expect seasonal (fall) maintenance timings to begin to cut into ethanol run times.  Ethanol production should inch at least 2-3% lower this week.  With blender interest likely restrained due to the storm, we would not be surprised if ethanol stocks build a little?  The market does not seem to agree, though, as crush margins improved yet again to new recent highs?  We would estimate spot margins at 40-55 cents/bu processed, or 15-20 cents/gal, including all cash inputs and fixed costs.

In the options pit, volatility sold off by about 1%, particularly after it became clear corn was not going to zero post-report.  Selling of March Puts seemed to be the post-report trade of feature, though some used that premium to buy upside calls.  Calendar spreads were a touch weaker.  Note, Sept futures expire at noon on Thursday.  Corn was close to even on the beans, but lost to the wheat; the latter spread traded to a one month high after a July-Aug drubbing.  Technically, the report likely solidifies Dec Corn initial resistance in the $3.60 area.  Support in the $3.45-$3.50 area technically held the break today; should it fall by the wayside, we would project a ten cent continuation of the break.  The “real” trade tends to occur lately the day after the report – stay tuned?

The soybean market sold off sharply following the USDA crop report where the trade once again was looking for a reduction in yield but the government added a half bushel to add to their record US crop projection. With that said, the board closed $.13 off the day’s low demonstrating underlying support and that we potentially have already priced in these big crops. This would suggest that we could be looking at a more two-sided trade going forward.  Near term rallies should still be limited by excessive global and domestic supply while breaks stimulate consumptive interest and export demand.  Yield was raised by .5 to 49.9 bpa taking production up by 50 mb to a new record 4.431 bb. Old crop carryout was reduced by 25 mb to 345 mb on a 20 mb bigger export number and a 5 mb bigger crush.  The new crop carryout was left unchanged at 475 mb as the 50 mb production increase was offset by lower beginning stocks and a 25 mb increase in exports. On the WASDE report, world soybean old crop stocks tightened by 1 mmt to 95.96 mmt while new crop stocks tightened by 250 tmt to 97.53 mmt. These were both slightly bigger than pre-report trade estimates.

The wheat complex saw slightly lower price action for much of the night, but as it neared the morning break prices firmed and we entered the pause a little better across the board. During the first few hours of the morning, price action was mixed, with little momentum in either direction. There really was no big surprise in the crop report data for wheat. Whether it was buying wheat and selling corn, or buying Chicago and KC wheat and selling Mpls. As we look ahead to tomorrow, there was nothing friendly in the report, yet there was nothing really too negative either. That makes the wheat market a follower to the rest of the complex – unless of course we see more of the spread unwinds.

What the Crop Report said:

The USDA left US 2017/18 ending stocks unchanged from last month at 933 MB. After only lowering them 5 MB last month from July (938 down to 933 after many were looking for anywhere from a 30 to 100 MB reduction), once again most people were looking for some sort of reduction, with the average estimate for around a 10 to 15 mil reduction. This was the only surprise of the report, and weighed on futures initially. On the World side, after two consecutive months of small increases, the USDA finally lowered its 2016/17 World carryout numbers from 258.56 MMT down to 255.83 MMT. The USDA also lowered its 2017/18 numbers down to 263.14. Remember, last month they caught a lot of people off guard when they increased it over 4 MMT to 264.69 MMT. Trade should have no issues with either the 2016/17 or the 2017/18 numbers. On the World production side, there really were no surprises. They lowered Australia and the EU. They could have lowered maybe a couple other areas, but they definitely needed to lower these and they did. The USDA also raised Russia and the FSU’s wheat crop by 3.5 MMT each. Again, both areas needed to be raised, and the USDA acted accordingly.

Anna Kaverman

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