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Friday February 23rd, 2018

March 17 corn closed down ½ at $3.66 ¼ and July 18 closed down ¼ at $3.82 ¼. March soybeans closed up 4 ¼ at $10.36 ¼ and July closed up 3 ½ at $10.56. March wheat closed up 1 at $4.52 ¼ and July 18 closed unchanged at $4.79. Crude oil closed up $.81 at $63.41.

FOR THE WEEK ENDED 2-23-18

CORN – March corn challenged the $3.70 level this week, but was unable to push any higher. Both May and December corn posted key reversals lower on the charts when trading resumed after President’s Day.  In the May contract, $3.78 per bushel was the stumbling block.  The contract high in May corn is $4.31 ¾ set all the way back in July 2016.  The high for this contract in 2017 was $4.30 per bushel, hit in July 2017.  The news in this holiday-shortened week was essentially the same as it has been for weeks.  Traders are taking their cues from every weather forecast for South America.  Lately, the crop estimates have been declining due to dryness in Argentina and excess moisture in Brazil.  In Brazil, the concern is safrinha corn acres won’t get planted in a timely fashion, or at all, due to a delayed soybean harvest.  The Rosario Grain Exchange slashed their Argentine corn estimate 5 mmt to 35 mmt.  The USDA is carrying their crop at 39 mmt.   The Buenos Aires Grain Exchange is slightly higher than the Rosario number at 37 mmt.  The IGC lowered their Brazilian corn crop projection from 90.2 mmt to 87.5 mmt.  Safras has Brazil’s corn crop slated at 89.5 mmt.  The USDA has Brazil’s corn at 95 mmt.  Brazil’s first corn harvest was 25% complete as of February 16th versus 24% complete last year.  The safrinha corn crop was 33% planted, well below last year’s 50% complete pace.

The USDA Ag Forum this week indicated their non-survey forecast for 2018/2019 corn acreage at 90 million acres.  The actual acreage survey will be taken March 1-15.  This is just a minimal drop from last year’s 90.2 million planted acres.  Private traders are anticipating 89.9 million acres to be planted to corn this spring.  The USDA expects a crop production of 14.39 billion bushels using a 174.0 BPA yield.  2018/2019 ending stocks were pegged at 2.272 billion bushels versus this year’s 2.352 billion bushels.   Their average farm price came in at $3.40 per bushel versus $3.30 this year.  The USDA Ag Forum carryout prediction has been below the final number in 6 out of the last 11 years.  Nothing from these numbers got the market excited.

Weekly export sales were fabulous at 61.2 million bushels and above expectations.  With total commitments at 1.5 billion bushels, we are only 12% behind last year.  The USDA is anticipating a 10.5% decline in year on year exports, so we are gaining ground.  The USDA’s 2.05-billion-bushel export number looks realistic.  Weekly ethanol production rose 52,000 barrels per day to 1.068 million bpd.  Stocks were down 100,000 barrels to 22.8 million barrels.  Crush margins were unchanged week/week at 18 cents per gallon.  Gasoline demand over the past four weeks has averaged 5.4% higher than a year ago.

OUTLOOK:  Corn continues to be well supported by good demand and concerns over South American crops.  The USDA Ag Forum’s outlook for a slightly lower year/year carryout number was slightly supportive.  Limiting the upside would be ample world stocks, including in the US.  For the week, March corn fell 1 ¼ cents to $3.66 ¼, July was off ½ cent at $3.82 ¼, and December corn gained ¼ cent at $3.97 ¼ per bushel.  The March contract did put in a fresh high for the move early in the week at $3.70 per bushel.  This will be the next upside resistance level.  March corn has traded between $3.64 ¼ to $3.70 since February 12th.  At this time, it feels like a pretty comfortable range.

SOYBEANS – Traders haven’t tired of that call yet, as was shown again this week with another upswing in prices.  Is the contract high of $10.50 ½ in March soybeans in the crosshairs?  As February closes, we’ll be switching to the May contract for key points.  The contract high in the May soybeans is $10.53 per bushel, set last July.

The USDA’s Ag Forum put 2018/2019 planted acreage at 90 million acres.  This is a small decrease from last year’s 90.1 million acres, and lower than private trade estimates for 90.6 million planted acres.  On the 2018/2019 balance sheet, they predicted production at 4.32 billion bushels when a 48.5 BPA yield is factored in.  Carryout for 2018/2019 was projected at 460 million bushels, down from this year’s 530-million-bushel estimate.  They pegged the average farm price for soybeans at $9.25 per bushel versus $9.30 this year.  The USDA’s Ag Forum soybean carryout number has been higher than the final figure in 9 out of the last 11 years by an average of 136 million bushels.

The production forecasts for Argentina continue to shrink.  This week, the Rosario Grain Exchange cut their bean estimate 5.5 mmt to 46.5 mmt.  This compares to the USDA’s 54 mmt projection (which no one really believes is accurate).  The BAGE is at 47 mmt and Agroconsult is at 49 mmt.  The trade is likely factoring in a 47-48 mmt number.  In Brazil, Safras & Mercado is predicting a record 115.6 mmt soybean crop.  AgRural is even more optimistic with a 116.2 mmt expectation.  But Agroconsult takes the prize with a 117.5 mmt outlook!  The USDA’s latest Brazilian number is 112 mmt.  Brazil’s soybean harvest was 16% complete as of February 16th.  The average pace is 20% complete.

Weekly export sales were unexpected with net cancellations of 4 million bushels.  China cancelled 13.3 million bushels, with other smaller cancellations coming from unknown.  We are back to being 14% behind last year on total commitments.  We have sold 1.6 billion bushels and the USDA is forecasting exports of 2.1 billion bushels, just a 3.5% decline year/year.  We need to average an impressive 17.2 million bushels per week of sales to hit the USDA’s target. This would be an increase of 56% from last year’s March to August exports.  Are we looking at the possibility that ending stocks this year could be north of 600 million bushels?  Argentina’s truckers are back on strike, blocking roads and limiting soybeans access to ports.  If this is a short-lived strike, we shouldn’t feel any long-term effects to shipments.  They are protesting lower heating and gas subsidies, among other things.  It’s a possibility the strike could continue into harvest season.  Argentina’s soybean harvest usually begins the third or fourth week of March and hits the 50% mark the beginning of May.

OUTLOOK:  November soybeans posted a new contract high this week at $10.32 ½ per bushel, as did March meal at $385.50 per ton.  An underlying attitude of “buy breaks” has served the soybean bull well.  This week, March soybeans jumped 14 ¾ cents higher to settle at $10.36 ¼, July rallied 13 ¾ cents to $10.56, and November beans settled 6 cents higher at $10.28 per bushel.   The balancing act between how small Argentina’s bean crop may be and how large Brazil’s bean crop could be has not been resolved; however, traders are focusing on the problems and continue to add to their net long position.  Dismal demand for US soybeans and a tremendous 2017/2018 carryout have been designated as tier two news.  How high do we need to go to have factored in South American crop losses?  Good question, and one that hasn’t been answered yet.  The next target for March soybeans may be their contract high of $10.50 ½ per bushel, set last July.  But be prepared for a swift reversal if crop conditions change.

Wheat

Russian ag consultancy IKAR has increased their estimate of Russian wheat exports to 37.5 million tons.  The USDA recently raised their estimate to 36 million tons.  Russia is now the world’s biggest wheat exporter and that gap is increasing.  Some of the dryer areas in the Southern Plains are going to get much need precip in the form of either snow or rain. This should help out the winter wheat crop and pasture areas a lot.

Anna Kaverman

anna@mercerlandmark.com

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