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Market Report

Tuesday January 30th, 2018

March 17 corn closed up 2 ¾ at $3.61 ½ and July 18 closed up 2 ½ at $3.77 ½. March soybeans closed up 8 ¾ at $10.00 ¼ and July closed up 8 ½ at $10.21. March wheat closed up 8 at $4.57 ¼ and July 18 closed up 9 at $4.83 ½. Crude oil closed down $1.04 at $64.35.

The corn market held firm for a second day, buoyed this time by strength in wheat. Futures were steady/better overnight, stayed on the plus side of the ledger all day, and closed near session highs. The funds were viewed net buyers of just over 5,000 corn today, which would leave them short just over 200,000 combined futures and options.

Most of the intraday news excitement was reserved for wheat, which benefitted from weaker-than-expected state condition reports Monday night. In all honesty, fund buying and short-covering is likely the main driver of corn price action of late.  In the background, there remains some concern over Argentine corn. Private analysts are backing up production estimates by several percent. Crop stress there is growing amid another “hot and dry” week. The ridge is expected to break down by Feb 10th, though that could be too late for areas that did not have enough subsoil moisture heading into this week.  Brazil is the toggle and generally has more good areas than bad.  Far northern growing areas in Brazil may receive “too much” rain for the moment.

Elsewhere, the USDA reported another couple cargos of US corn sold abroad this morning to a non-traditional customer, this time to Spain. US Dollar trade remains choppy at three year lows, and overall remains a net positive to US export prospects.  Several news services running articles about new corn ethanol projects in Brazil, which makes sense, given the seasonal nature of cane ethanol production (they are inactive five months out of the year).

The soybean market resumed its rally establishing a new high close for the move. The market was bid up from the start but extended to session highs after the GFS mid-day weather update removed rains from the second week of the Argentina weather forecast. The combination of dry conditions for much of the C/S of Argentina, lack of rains over the next couple of week and hot temps will have analysts further trimming production potential.

World supplies will tighten some as Brazil’s stronger than forecasted production likely won’t offset Argentina’s shortfall.  The US has plenty of supply and as our export window starts to close ahead of Brazil’s gut slot harvest we could be counting on fill in export business to stimulate what has been a very underwhelming trade to date due to strong old crop competition from Brazil and a low protein crop. Maybe an Argentine shortfall helps with that but considering they hold around 13 mmt of old crop supply and Brazil is knocking on the door of another record crop, don’t expect a miracle.

There was not a whole lot of fresh fundamental news around but the broader grain complex rally continued as fund short covering and fresh money inflows support the markets.  Funds continue to short cover, today they were estimated buyers of 11,000 beans.  The next round of soybean sales likely shows in the $10.10 to $10.15 area basis March.

Cordonnier raised his Brazilian soybean production estimate by 1 mmt to 112 mmt and lowered his Argentine soybean estimate by 1 mmt to 51 mmt – USDA last is 110 mmt and 56 mmt respectively.  His corn estimate in Brazil is unchanged at 88 mmt and Argentina was off 1 mmt to 39 mmt – USDA last is 95 mmt and 42 mmt respectively.

Back to back gap higher starts for the wheat market. Today’s move was a direct result from the state by state winter wheat condition report from the USDA released Monday afternoon. The report showed marked deterioration, especially in Kansas and Oklahoma – which had the lowest ever rating for this time of year. Over the past 11 years, only the winter wheat season of 2013 started more poorly than this year. This season started around 42%, while in 2013 the season started around 22%. Yet, as of the end of January, the HRW wheat states this year have regressed so much that we are now trending very similarly to 2013. The crop by no means is lost. We have seen before how resilient wheat can be. The amount of rains come March through April could easily bring the crop back to life in most areas, but those rains will need to be abundant. The drought in the central and southern plains did not just start yesterday. It has been developing for the last two months. There has been plenty of conversation about loss of hard wheat acres. Even if it did get shelved for a couple of weeks when the USDA showed more hard wheat planted than the trade was expecting.

With Friday’s price action a technical element was added to trade today. That is what led to the gap higher start to Monday’s trade. A US Dollar falling into multi year lows only contributed to the recent rally across the wheat complex, and we cannot forget about the large spec, which the COT report on Friday showed them holding 24% of the open interest in Chicago and short around 166,000 contracts. Chicago is still where most of the shorts reside, but KC could continue to gain as concern about quality wheat is confirmed.

Below is a recap of winter wheat conditions from the USDA over the past three months from several states.

North Carolina wheat conditions were similar to last month, coming in at 73% G&E in Jan vs 7% in Dec and 86% in Nov and P&VP was 3% in Jan vs 4% in Dec and 1% in Nov.

Illinois wheat conditions fell to 38% G&E in Jan vs 56% in Dec and 62% in Nov and P&VP rose to 18% in Jan vs 15% vs in Dec and 11% in Nov.

Colorado wheat conditions fell to 37% G&E in Jan vs 48% in Dec and 66% in Nov and P&VP rose to 28% in Jan vs 21% in Dec and 7% in Nov.

Kansas wheat conditions fell to only 14% G&E in Jan vs 37% in Dec and 51% in Nov and P&VP jumped to 44% in Jan vs 22% in Dec and 14% in Nov.

Nebraska wheat conditions fell to 48% G&E in Jan vs 64% in Dec and 59% in Nov and P&VP rose slightly to 8% in Jan vs 7% in Dec and 10% in Nov.

Anna Kaverman

anna@mercerlandmark.com

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