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Friday March 9th, 2018

May 17 corn closed down 3 at $3.90 ½ and July 18 closed down 2 ½ at $3.98. May soybeans closed down 24 ¾ at $10.39 ¼ and July closed down 24 ¾ at $10.48 ¼. May wheat closed down 10 at $4.89 ¼ and July 18 closed down 9 ¾ at $5.05 ½.  Crude oil closed up $1.90 at $61.96.

FOR THE WEEK ENDED 3-9-18

CORN – Corn eased upward leading into the March WASDE report on little fresh news.  The report supplied food for the bulls and prices spiked higher.  Nearby corn traded to its highest level since July.   A bullish case can be made for corn.  Funds continue to be buyers and they haven’t been disappointed.  US corn is still the cheapest in the world and demand remains strong.  Uncertainty surrounds the corn crop size in Argentina and Brazil.  Soon US planting weather and acreage estimates will take center stage.  Overshadowing the friendly side to prices are big world supplies.

The March 8th WASDE report made few changes to the 2017/2018 US balance sheet: ethanol usage was raised 50 million bushels to 5.575 billion bushels and exports were increased a surprisingly large 175 million bushels to 2.225 billion bushels.  This cut ending stocks 225 million bushels to 2.127 billion bushels.  The average estimate was 2.312 billion bushels and in February it was 2.352 billion bushels.  World ending stocks were close to the pre-report projection at 119.17 mmt versus 199.63 mmt estimated and 203.1 mmt last month.  This would be the first-time global ending stocks are under 200 mmt since 2013/2014.  Argentina’s corn crop was pegged at 36 mmt, down from 39 mmt last month and 36.3 mmt estimated.  Brazil’s corn crop came in at 94.5 mmt, compared to 91.4 mmt estimated and 95 mmt last month.  The report was termed friendly for corn.  As of March 7th, Brazil’s first corn crop was 40% harvest, splitting last year’s 38% complete with 2016’s 42% complete.  Their safrinha or second corn crop was 65% planted, behind last year’s 79% complete and 86% complete in 2016.

Weekly export sales were the third highest of the marketing year at an impressive 73.1 million bushels, bringing total sales to 1.62 billion bushels.  The gap between last year’s commitments and this year’s is narrowing.  We are now just 7% behind last year compared to 12% behind just two weeks ago.  The USDA is calling for a 3% decline in year/year exports, based on the latest USDA number.  We need to average 23.1 million bushels of weekly sales to hit the USDA’s latest export figure.  Weekly ethanol production was up 13,000 barrels to 1.057 million bpd.  Stocks rose by 100,000 barrels to 23.1 million barrels.  The grind margin fell 4 cents per gallon to 10 cents per gallon.

OUTLOOK:  Looking ahead, the March 29th prospective planting report, South American weather, US spring weather forecasts, and whether the strong demand continues, will be the price drivers.  Traders also believe the USDA is overestimating the Brazilian corn crop.  The USDA took into consideration Conab’s Brazilian soybean estimate, but not their corn forecast.  Strong demand should limit any significant setback in corn, but Mother Nature’s actions will trump everything else.

SOYBEANS – After setting a contract high last Friday at $10.82 ½ per bushel, May beans retreated this week, closing down four out of the last five sessions on fund profit-taking ahead of the monthly crop report. The uptrend in the November contract was extended until the middle of the week, when a doji formation occurred.  A doji is when the contract opens and closes at the same price.  It usually indicates a change in direction.  In this case, that is what happened.  The mid-week high in November beans was a new contract high at $10.48 per bushel.  The contract edged lower the balance of the week.

The March WASDE report made just a couple of usage category changes.  It raised crush by 10 million bushels to 1.96 billion bushels and lowered exports by 35 million bushels to 2.065 billion bushels.  Exports now reflect a 5.1% decrease from last year.  Ending stocks climbed 25 million bushels from 530 million last month to 555 million bushels.  This was much higher than the 531-million-bushel estimate.  Global ending stocks of 94.4 mmt were slightly lower than the 95.3 mmt forecast and much lower than last month’s 98.1 mmt.  Argentina’s bean estimate fell from 54 mmt to 47 mmt, although the average trade estimate was 48.1 mmt.  Brazil’s bean production outlook increased from 112 mmt last month to 113 mmt but was slightly below the 114 mmt estimate. Argentina’s ending soybean stocks fell from 16 mmt to 13.5 mmt but would still be the second biggest in history.  In general, the reports were viewed as bearish for soybeans.

Weekly export sales were huge at 92.2 million bushels and the second highest of the marketing year.  So far this year, China has bought 27.7 mmt compared to 34.3 mmt last year at this time.  We are currently only 9% behind last year and compared to 14% behind two weeks ago.  The USDA is predicting a 5% decline in year/year exports based on the latest figures. Considering the March revisions, we need to average 12.5 million bushels of weekly sales to achieve the USDA’s 2.065-billion-bushel export target, which would be the second largest March-August export pace ever.

There is increasing concern over the new import tariffs that are set to go into effect March 23rd.  A 25% tariff on steel imports and a 10% import tariff on aluminum may spark trade retaliation from China.  For now, it looks like Canada and Mexico will temporarily be exempt from the tariffs.

OUTLOOK:  While this week’s USDA numbers looked bearish, weather in both South America and the US will continue to be monitored.  What the outcome on NAFTA will be is a negative issue with a Purdue University survey showing one-third of responding growers believing we could pull out of the agreement.  The new tariffs on steel and aluminum imports into the US may yet result in some sort of trade war.  South American weather will remain front and center of daily trade chatter.  Watch for any trade implications resulting from the new tariffs and how South American weather develops in the short run for price direction.  The funds are long, but seemingly need multiple reasons to liquidate.

Anna Kaverman

anna@mercerlandmark.com

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