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Market Report

Wednesday January 3rd, 2018

March 17 corn closed down ¼ at $3.53 and July 18 closed down ¼ at $3.69 ½. March soybeans closed up 4 at $9.68 ¾ and July closed up 3 ¼ at $9.89 ¼. March wheat closed up 2 ½ at $4.36 and July 18 closed up 1 at $4.60 ¾. Crude oil closed up $1.17 at $61.55.

The corn market followed-up Tuesday’s uptick with a “sharply unchanged” performance today. Futures flitted between small gains and small losses of the session. Managed Money traders were viewed small net sellers of the day, which would take their combined futures/options net short to 235,000 contracts. There was not a lot new to talk about in corn this morning, and the relatively indecisive trade of the day fit that narrative.  The holidays once again have shifted the release timings of the various weekly gov’t reports. The weekly EIA report was pushed back a day to Thursday. Most are expecting ethanol production to ease back lower, as producers struggled to grapple with the start of the deep freeze plus poor margins. Stocks could build, as blender demand undergoes its typical Jan 1 swan-dive.  Argentina crop stress is expected to be significant over the next ten days, despite a scattered shower here and there. The driest and warmest conditions are expected this weekend through most of next week, which could keep traders on point somewhat. Production potentials are at risk in the north and south parts of Argentina, though we note not all of the crop is yet in the ground in the north in particular.

Soybeans rallied for a third consecutive session as the chart consolidates and corrects its near term oversold posture after the $.68 slide that satisfied the first downside Price Count.  The market has a few items that are providing support besides the need to correct the chart. Weather is not ideal in Argentina and Southern Brazil yet rain events have been frequent enough for much of the country to minimize critical stress during the hot/dry stretches in between but crop production prospects in Brazil and Argentina overall remain strong at this point with ‘the good’ likely offsetting ‘the bad’ for the most part and we could see some adjustments in the crop report coming on the 12th. In a La Nina season, the trade will opt for a more cautious approach to dryness threats. Now, here is the bad. US exports continue to trail USDA projections by a good margin.  Soybean shipments to date stand at 28.317 mmt vs. 33.002 mmt this time a year ago which represents a 172 mb deficit to last year’s pace while the USDA is currently projecting a 56 mb increase year over year. It appears that deficit could grow larger instead of narrowing (much less catching the government) with a lower protein US crop putting us at a disadvantage, the new FM requirements on exports to China likely to further inhibit trade, and Argentina’s export tax structure likely to release some of their substantial old crop supply into the pipeline. It won’t be long before new crop South American supplies are also competing. Even after the 25 mb cut in the December report, the crop report on the 12th could see another export reduction.

Price action overnight was better throughout the evening. Weather continues to be the theme behind trade, and there is more concern in hard wheat country, thus KC has been supported better. We also now have a little bit of a technical element, and even though it may not be large, we also have the index fund rebalancing to keep an eye on, and that starts on Monday. The fact that both Chicago and Mpls were only able to post marginal gains was a little disappointing, but we have to remind ourselves trying to justify a weather-related rally in early January in a World market such as wheat that has huge stocks is difficult to do, and buying into an already 20+ cent bounce (from its December lows) has not worked out well recently. Looking forward, keep an eye on Australia. The country is dealing with extreme hot and dry conditions as it wraps up its wheat harvest. It was mentioned Tuesday about the perception that wheat crops got hit with winter kill in some of the southern areas that did not have snow cover, and that was supported by the monthly condition reports that came out overnight. It showed Colorado, Oklahoma and Kansas hit the hardest, while snow covered South Dakota, Montana and Nebraska actually improved and North Dakota stayed around the same.

Anna Kaverman

anna@mercerlandmark.com

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