Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.
Archives

Market Report

Friday May 11th, 2018

July corn closed down 5 ½ at $3.96 ½ and December closed down 5 at $4.14 ½. July soybeans closed down 18 at $10.03 ¼ and November closed down 16 ¾ at $10.14 ¼. July wheat closed down 7 ¾ at $4.98 ¾ and September closed down 7 ¼ at $5.15 ¾. Crude oil closed down $.63 at $70.68.

FOR THE WEEK ENDED 5-11-18

CORN – Corn began the week with a defensive tone as growers hit the fields running.  The July contract continued to respect the $4.00 price level with funds willing to defend their long positions ahead of the USDA report.  Trading action in the first half of the week appeared to be a prelude to the May 10th WASDE report.  However, when the market didn’t find new buyers in the wake of a neutral to friendly report, profit taking ensued. July corn closed lower for the final three sessions of the week, settling the week at $3.94 ½, down 9 ¾ cents per bushel.  The December contract closed at $4.19 ½ per bushel Tuesday through Thursday, before tumbling to a weekly settlement at $4.14 ½, down 6 ½ cents per bushel for the week. Corn planting as of May 6th was 39% complete, marginally behind the 44% completion average.  The average planting progress for May 13th is 63% complete.

The USDA report did hold a couple of surprises for the market.  The 2017/2018 balance sheet was entirely untouched with ending stocks at 2.182 billion bushels.  This was very close to the pre-report estimate of 2.178 billion bushels.  Our first official 2018/2019 balance sheet used the prospective planting report 88 million planted acres and a trendline yield of 174 BPA.  Production of 14.04 BB is a year on year decline of 564 MB.  Other year on year changes included: feed/residual down 125 million bushels, FSI up 75 million, ethanol up 50 million at 5.625 billion bushels, exports down 125 million (5.6%) at 2.1 billion bushels, and ending stocks of 1.682 billion bushels.  The ending stocks number was 54 million bushels higher than the trade estimate but is down 500 million bushels year on year.  The stocks to use ratio for 2018/2019 is 11.5% versus 14.8% for 2017/2018.

The world ending stocks number for 2018/2019 of 159.2 mmt was well under the 186.4 mmt forecast.  The 2017/2018 figure of 194.9 mmt was close to the 195.2 mmt estimate.  This is a huge 35.7 mmt cut in stocks from crop year to crop year.  Of the decrease, 19 mmt is from China’s balance sheet and 13 mmt from the US.  If the 2018/2019 is true, it would be the lowest ending stocks number in the last six years and the second lowest on record going back to 1975/1976.   Brazil’s corn crop was lowered from 92 mmt to 87 mmt.  This was not a surprise, but early in the day Conab had increased their Brazilian corn number to 89.2 mmt!

Weekly export sales were a disappointment, which shouldn’t have been a shock with nothing announced on the daily export reports.  Old crop sales were at the low end of estimates at 27.4 million bushels.  Total old crop commitments are 2.03 billion bushels, down just 1% from last year.  However, total shipments are down 14% from last year.  The USDA is predicting a 3% decline in year on year exports to 2.225 billion bushels.  New crop sales were also on the low side at 3.5 million bushels.  Total new crop commitments are 82.7 million bushels versus 90.7 million last year.  The 2018/2019 export forecast is 2.1 billion bushels.

OUTLOOK: In general, the market feels we don’t have a lot of wiggle room on the balance sheets for problems with the US crop this year, but that didn’t stop it from posting a weekly loss.   Weather will become increasingly important element moving forward, just as it always is at this time of year.  The average weekly planting progress for May 13th is 63%, and we shouldn’t be more than 5%-10% behind.  If you are looking for downside protection for unsold new crop bushels, consider standard options and short-dated new crop options, if they fit into your risk profile.  These would provide downside protection for a known premium, consider it insurance.  The market will be watching the forecasts for any bumps in the crop development.  Brazil’s safrinha crop is expected to receive needed rain May 15th-20th.  If they don’t, the market may find a reason to limit further downside.  Weather in the US and South America, politics, and fund activity are the drivers of price direction for now.  Have we turned a corner and put in a short-term top?  We haven’t seen any daily export sales announcements in corn or beans this month, funds are still long, and technicals finished the week on a negative note.  However, weather and politics can turn things around quickly, be cautious.

SOYBEANS – Soybeans took a huge hit when traders returned from the weekend, and took another slap in the face to end the week.  Let’s face it, coming off a nice planting weekend, we were just killing time until the USDA report. After the sharp Monday sell-off, prices meandered higher into the WASDE May report. Post-report gains were short-lived, and ensuing profit taking sent prices plunging into the weekend. Friday saw heavy fund selling push prices to the low for the week at $10.02 per bushel in the July contract and $10.12 ¾ per bushel in the November contract.

The May 10th report was viewed as supportive to both old and new crop soybeans.  The 2017/2018 balance sheet’s only change was an increase in the crush of 20 million bushels.  This translated directly to a cut in ending stocks to 530 million bushels.  The trade’s estimate was 541 million bushels and we were at 550 million bushels in April.  The biggest shock was left for the 2018/2019 balance sheet with ending stocks of 415 million bushels.  This was 120 million bushels below the average trade estimate of 535 million bushels and a year on year decrease of 115 million bushels.  The USDA used 89 million planted acres with a yield of 48.5 BPA to come up with production of 4.28 billion bushels.  Other year on year changes for 2018/2019 included: crush up 5 million bushels to a record 1.995 billion bushels and exports up a tremendous 225 million to a record 2.29 billion bushels.  Total demand is forecasted at a record 4.42 billion bushels.  The ending stocks to use ratio for 18/19 is 9.4% versus 12.7% for 2017/2018.  It looked like the USDA did not assume any hiccup in the US/Chinese trade relationship.

The world balance sheets also were a surprise with 2018/2019 ending stocks at 86.7 mmt versus estimates for 90.52 mmt.  The 2017/2018 ending stocks number of 92.2 mmt was higher than the average estimate of 89.9 mmt.  All in all, world ending stocks are expected to fall 5.5 mmt from this year to next year.  Brazil’s soybean production was raised 2 mmt to 117 mmt, which is the same as Conab’s refreshed estimate.  For 2018/2019, Brazil’s bean crop was again projected at 117 mmt, which based on their recent history, may be too low.  Argentina’s 2017/2018 crop came in at 39 mmt and 56 mmt for 2018/2019.  The USDA left China’s soybean imports for this year at 97 mmt, but was aggressive in forecasting bean imports at a record 103 mmt next year.  China’s ag ministry this week said they would see a yearly decline in soybean imports next year for the first time in 15 years, pegging imports at just 95.65 mmt.  They are predicting soybean acres will be up nearly 9% this year.  This year from January through April, China has imported a total of 26.49 mmt, down nearly 4% from last year.  China’s soybean and meal purchases from everywhere have slowed recently.  Negative domestic feeding margins and earlier purchases were cited as factors.

Weekly export sales were dismal at 13 million bushels for old crop and 10.2 million bushels for new crop.  Old crop total commitments are running 3% behind last year, the USDA is forecasting a 5% decline, and shipments are down 12% from last year.  A big question mark is how many sales to China may be delayed until the next crop year, or won’t get shipped at all.

OUTLOOK: Now that the monthly crop report is behind us, attention will increasingly return to weather, US/Chinese trade relations, and fund action.  A trade delegation is expected to be in the US the week of May 14th for further trade talks.  Nothing is expected to result from the meeting, except to agree to another meeting.  Argentina should dry out this coming week, allowing for a better look at quality and quantity of the remaining one-third of unharvested acres.

At risk of being repetitious, the wheat markets were lower again today as KC HRW saw double digit losses to nearly 50 cents off last Friday’s highs. Chicago July filled a chart gap from April 25. The 100 and 200 day MAs are converging below at $4.81 and $4.82 respectively. The US HRW and HRS crop still experience dry conditions from Canada to Texas, but quite large stocks/use ratios act as an anchor for now.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

* Copy this password:

* Type or paste password here:

38,607 Spam Comments Blocked so far by Spam Free Wordpress

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>