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Market Report

Thursday May 10th, 2018

July corn closed down ¾ at $4.02 and December closed unchanged at $4.19 ½. July soybeans closed up 5 ½ at $10.21 ¼ and November closed up 6 ¾ at $10.31. July wheat closed down 4 at $5.06 ½ and September closed down 4 ¼ at $5.23. Crude oil closed up $.26 at $71.31.

While there was certainly nothing bearish in the report for corn, futures still ended up stumbling a little, finishing fractionally lower on the day. Markets were lower in the run-up to the report as traders likely lightened positions a little, popped a little in the immediate aftermath, then proceeded to sell back off late. Managed Money traders were viewed small net sellers of the day, and are likely heading into tonight long roughly 200,000 combined corn futures and options.

The May WASDE will go down in history as a bullish report, though the results were not surprising enough to impact a market that was already leaning long. As broadly expected, 18/19 carryout forecasts for both U.S. and world represented sharp reductions from a little changed 17/18 balance sheet. The USDA’s first glance at 18/19 uncovered a 1.682 BB domestic carryout.  The average analyst guess ahead of the report was 1.628 billion.  The production side was largely pre-determined 174 bpa “trend line” yield with the 88 million acres from intentions. The USDA took considerable liberty with demand. Despite rising animal numbers and expanding ethanol capacity, they reduced total domestic demand 50 MB from 17/18.  They also trimmed 18/19 exports back to 2.1 bil from an unadjusted 2.225 billion this year (17/18).

The world S&D was perhaps a little more eye-opening. The first stab at 18/19 world carryout was 159 mmt, which was a whopping 35 mmt reduction from prior. The stats were heavily-influenced by China de-stocking in corn. The USDA has trimmed China corn ending stocks from 100 mmt two years ago to 80 in 17/18 to 60 in 18/19. Many argue the USDA needs to double their estimates of China corn ending stocks. The USDA is expecting large “reversion to the mean” increases for major world corn producers in 18/19 – time will tell. For 17/18, the USDA took Brazil’s full year corn to 87 mmt from 92 mmt prior. They left Argentina unchanged at 33 mmt (private analysts in the 31-32 mmt area).

The soybean market closed higher on a day that included a myriad of fresh data points to digest from CONAB to weekly export sales to USDA crop report/WASDE and more. With all the information out there, we had few real surprises and at the end of the day the market was supported by the lower US and world supply outlook for next year.

US old crop soybean carryout seen at 530 mb down from 550 mb last month – trade est. was 540 mb. This came on a 20 mb increase in crush to 1.990. The new crop soybean carryout is projected at 415 mb compared to the trade est. for 535 mb. They took exports up by 225 mb to 2.290 bb and increased crush by 5 mb to 1.995 bb.

In the world numbers, the old crop soybean carryout increased 1.3 mmt to 92.16 mmt while the new crop tightens to 86.7 mmt which was nearly 5 mmt below trade estimates. China soybean imports were projected up 6 mmt from 97 to 103 mmt. Argentina’s crop was lowered by 1 mmt to 39 mmt while Brazil’s crop was increased by 2 to 117 mmt. Weather forecast is warm and wet for the next couple of weeks where some planting delays in the upper Midwest should be expected. USDA weekly export sales came in on the low end of expectations for corn and beans (no China cancellations but unknown cancelled 45 mt old crop).

The wheat complex did not have the start to the day that it was hoping for after the export sales data this morning came in at 83 MT. We have reiterated all week how much the US has moved away from being competitive with the rest of the World, and this just re-iterates that idea. Price action was two-sided heading into the report, not too surprising consider the break the complex has been on. Coming into the report, expectations for US all wheat production varied greatly depending on who you talked to. We did not think the US was going to be as aggressive as many others, and that is what we thought was going to be the surprise of the report. The USDA obliged with that thought process, and the markets reacted with a flush to the downside. The initial break may have been worse if not for a strong soy complex and firm corn market post-report, but as those markets weakened, wheat prices drifted back to their lows. The $5.00 level in Chicago July held several times post-report and prices firmed a little over the final hour of the day.

What the crop report said: The USDA gave us an all winter wheat production estimate of 1.191 BB. Not too surprising as most did not think the USDA was going to be as aggressive. The USDA would give an all wheat production estimate of 1.821 BB, which was at the high end of expectations, but admittedly, some were worried that this number might be even larger. From this number one can imply a Spring wheat production number of around 630 MB.

On a side note. The USDA gave us their first look at state by state harvested, yield and production estimates. Of the top HRW wheat states, Kansas is the most baffling. In Kansas, they planted 7.7 MA, yet despite all the problems in western Kansas this year, the USDA thinks they are going to harvest 7.3 MA and have a 37 yield. One of those numbers must go down. In fact, look for Kansas, Montana and South Dakota production estimates to eventually fall as the USDA is just too high on either harvested acres or yield or both. Which brings us to yields. Several SRW wheat states projected yields are just too high – Arkansas, Illinois, Indiana and Michigan. Does anyone know when the last time Michigan had a winter wheat yield of 93? Keep guessing, because it has never happened. The highest was 89 a couple years ago. It was nice to be on the right side of the crop report, but as you can see, there will be some adjusting in the coming months that could easily take HRW wheat production to 600 MB or below and SRW wheat production lower as well.

That brings us to carryout. As most expected, there was very little change from April to the 2017/18 carryout, 1.070 BB vs 1.065 BB. USDA took old crop exports off 15 to 910 MB. May have a little more room to the down side. They took mill grind up 8 to 963 MB so that ending stocks were only up 6. The USDA also gave us our first outlook at 2018/19 carryout. There were some wild range of guesses for this number, but we thought the average analysts’ estimate was just a touch low.

Anna Kaverman

anna@mercerlandmark.com

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