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Market Report

Friday January 26th, 2018

March 17 corn closed up 1 ¼ at $3.56 ½ and July 18 closed up 1 ½ at $3.73 ¼. March soybeans closed down 6 ¾ at $9.85 ½ and July closed down 6 ¾ at $10.06 ½. March wheat closed up 6 ½ at $4.41 and July 18 closed up 6 ¾ at $4.66 ½. Crude oil closed up $.60 at $65.97.

FOR THE WEEK ENDED 1-26-18

CORN – Corn pushed into the upper third of the trading range thanks to a big mid-week rally. March corn posted its highest weekly close since early December.  However, it’s still stuck in the same range it’s traded since November 10th.  Fresh news for corn wasn’t prominent, but a weaker dollar, South American weather concerns, a strong soybean market, and good exports lent underlying support to the corn market.  The US dollar fell to its lowest level since December 2014 this past week.  Comments from the US Treasury Secretary that a weak US dollar would benefit the US pushed the dollar lower.  US corn is currently the cheapest source in the world.  There is talk about rains delaying early soybean harvest in Brazil.  The reason it affects corn is related to the planting of the safrinha corn crop.  If bean harvest is delayed, corn planting could also be pushed back.

The US attaché in Argentina lowered their corn production outlook to 40 mmt compared to the USDA’s 42 mmt forecast.  Brazil’s state agricultural institute, pegged Mato Grosso’s safrinha corn crop at 7.1% planted versus 10.2% last year and 4.1% on average.  They are also predicting a 10% decline in safrinha acreage, down 5 mmt from last year.  Weekly export sales were surprisingly large at 56.9 million bushels.  Sales are running 22% behind last year when the USDA is predicting a 16% decline in year/year exports at 1.925 billion bushels.  Weekly ethanol production was up 1,000 barrels at 1.062 million barrels.  Stocks were an all-time high at 23.8 million barrels, jumping 1.057 million barrels for the week that ended January 19th.

Speculators cut their net corn position on the latest COT report as of January 23rd.  They were net short 248,000 contracts.  The record short is 265,000 contracts.

OUTLOOK:  For the week, March corn moved 4 cents higher to $3.56 ½, July gained 4 ¼ cents to $3.73 ¼, and December corn was 3 ¾ cents higher at $3.89 ½ per bushel.  It’s been hard to get excited about much when the trading range has extended from the contract low of $3.45 ½ to $3.60 ½ since early November.  The magnitude of the speculator net short position makes sellers cautious, as does concern over possible delays in Brazil’s safrinha planting.  On the balance, there are ample supplies of corn in the world that overshadow any big rally potential.  If speculators decide to cover and/or South American weather prompts further production cuts, another dime to fifteen cents to the upside could be a possibility; if not, we stay likely stay anchored in the current trading range.

SOYBEANS – The $10 area came to pass this week, topping out at $10.02 per bushel.  March soybeans traded unchanged or higher for 9 consecutive sessions before settling lower ahead of the weekend.  This was the first lower close since the January 12th USDA reports.  Fund short covering continued as traders want perfect conditions in Argentina.  There have been rains, but it seems everyone wants more.

Mato Grosso, Brazil soybean harvest pace picked up this week to 12.4% complete compared to last year’s record pace of 16.4% and the average of 11.4%.  Nationally, Brazilian soybean harvest is 3.8% complete versus 4.3% last year.  The Brazilian real was up 1.6% during the week, slowing down grower sales, after former President Lula da Silva’s corruption sentence was upheld by the appeals court.

Weekly export sales were the third lowest of the marketing year at 22.6 million bushels.  Total export commitments are 13% behind last year.  The USDA is anticipating less than a 1% decline in year/year exports at 2.16 billion bushels.  Usually we have 88% of the year’s exports on the books by now.  This year, we’re at 74%.  China has only bought 25.8 mmt of US beans this year versus 32.7 mmt last year.  Even if our weekly export match the 2011/2012 record level of 14.7 million bushels from this date forward, our exports would only end up at approximately 2.035 billion bushels.  We need to average 18.6 million bushels/week to hit the USDA’s export forecast.   This would mean weekly sales must be 52% stronger than last year, and 27% stronger than the all-time record, for the rest of the marketing year.

The possibility of a cut in the export category on future balance sheets could have a significant impact on sending our ending stocks toward the 500-million-bushel level, or beyond.  US soybeans are presently a 20-25 cent/bushel premium to Brazilian origin into China.  China has committed to 25.8 mmt of US soybeans, down 6.9 mmt from last year.  For calendar year 2017, China imported 95.5 mmt of soybeans.  Of the total, Brazil accounted for 50.9 mmt or 53% of the total.  The US held 32.9 mmt of the business or 34%, the lowest percentage since 2006 and the second lowest on record.  Argentina captured 7% of China’s business.

OUTLOOK:  For the week, March and July soybeans each rallied 8 ¼ cents to $9.85 ½ and $10.06 ½ respectively.  New crop November soybeans were up 6 ¾ cents at $10.02 ¾ per bushel.  It’s a balancing act between how weather is impacting South American production and ideas that US ending stocks will climb on subsequent USDA reports.  The $10.02 level will need to be breached on a closing basis before moving resistance levels higher.  The short-term trend is slightly higher.

Wheat

Russian wheat exports are moving along at a rapid pace.  Exports at running 35% more year on year at 22.6 million tons.  The new Trans Pacific Partnership agreement that the US chose to leave, could have a harmful effect on wheat exports.  The agreement would make it more viable for Aussie and Canadian wheat to go to places like Japan when a $65/ton tariff is removed.  The new Trans Pacific Partnership agreement that the US chose to leave, could have a harmful effect on wheat exports.  The agreement would make it more viable for Aussie and Canadian wheat to go to places like Japan when a $65/ton tariff is removed.

Anna Kaverman

anna@mercerlandmark.com

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