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Friday June 1st, 2018

July corn closed down 2 ½ at $3.91 ½ and December closed down 2 at $4.11 ¾. July soybeans closed up 2 ¾ at $10.21 ¼ and November closed up 3 ½ at $10.37 ¾. July wheat closed down 3 at $5.23 ¼ and September closed down 2 ¼ at $5.40 ¾. Crude oil closed down $1.14 at $65.77.

FOR THE WEEK ENDED 6-1-18

CORN – It’s all about weather and politics, and each had their hand in this week’s price action.  Hot weekend weather initially supported prices, but comments from the White House weighed on prices as traders returned from the Memorial Day weekend.  The “trade truce” between the US and China was shattered by the White House announcement that the US would continue trade actions against China.  By June 15, a list of $50 billion worth of Chinese goods that will be subject to a 25% import tariff will be released.  By the end of June, the US will announce investment restrictions and “enhanced export controls” for Chinese individuals and entities “related to the acquisition of industrially significant technology.”  Concerns over Italy’s economy and whether they may leave the Eurozone was also a negative for world markets.  A key reversal lower resulted in corn and soybeans, which was extended by a bearish crop report.

As the week progressed, politics again reared their ugly head.  This time it was the announcement the US would not extend the 25% steel import tariff and 10% aluminum import tariff waiver for Canada, Mexico, and the European Union that expired May 31st.  All three countries quickly responded they were prepared to retaliate in kind.  Mexico said their import tariff targets would include some laminated steel and pipe products, lamps, berries, grapes, apples, cold cuts, pork chops, and various cheese products “up to an amount comparable to the level of damage” they believe will be caused by the US tariffs.  Canada indicated they would put on dollar-for-dollar tariffs on US goods, and the EU said they would also impose tariffs, although nothing was specified.  Canada is the largest supplier of steel and aluminum products to the US.  Mexico is the #1 importer of US corn, pork, and pork products.  They accounted for 25%-28% of US corn exports in 2017/2018.  The USDA ag attaché in Mexico expects Mexico to import 16.4 mmt of corn from the US in 2018/2019, with their total corn exports at 16.7 mmt.  Mexico imported an estimated 15.2 mmt of US corn in 2017/2018. This is all happening with NAFTA negotiations going on in the background.  The NAFTA negotiations hit a stumbling block when the US insisted upon a 5-year sunset clause.

Weekly export sales were very good at 39.1 million bushels for old crop and 5.8 million bushels for new crop.  Old crop total commitments at 2.1 billion bushels are 1% above last year! The USDA may need to increase their 2.225-billion-bushel export projection for this year. The USDA is forecasting a 3% decline in year on year exports.  We need to average 44.5 million bushels per week to hit the USDA’s 2.225 billion bushels export target.  Weekly ethanol production fell 13,000 bpd to 1.041 million bpd, while stocks dropped 800,000 barrels to 21.3 million barrels.  Net margins held steady for the third week in a row at 14 cents per gallon.

We will likely have some weather scares before the crop is made, but for now it’s looking pretty good.  In the first initial crop rating of the season, corn was rated 79% good/excellent.  This tied with the second highest initial rating in 27 years.  Keep in mind, the initial rating has no correlation to the final yield.  Last year, we were at just 65% good/excellent and went on to record yields.  In 2012, we had the second highest initial rating since 2000 and had a poor yield.  Emergence as of May 27 was 72% versus 69% on average.

OUTLOOK: Poor technical chart action this week and bulls want hot/dry weather before buying again.  Short-term forecasts look favorable for US crop development.  Politics will remain front and center in the action – NAFTA, China, Mexico, Canada, European Union! Demand for corn remains firm.   Based on history, we could see another rally in mid-June, usually weather inspired, to play catch up on sales.  The next monthly WASDE report will be June 12th, but more importantly will be the June 29th release of the Planted Acreage and Grain Stocks as of June 1 reports.  For the week, July corn tumbled 14 ½ cents to $3.91 ½ and the December contract dropped 13 ¼ cents to $4.11 ¾ per bushel.

SOYBEANS – As the trade issues between the US and China flared up again, prices plunged lower early in the week, but not before the November soybean contract set a new high at $10.60 ½ per bushel.  The plague of bad trade news continued later in the week when the US announced they would not extend the previous waiver from the new 25% import tariff on steel and 10% tariff on aluminum imports to Canada, Mexico, and European Union. Mexico is the second biggest buyer of US soybeans and meal.   Quick retaliation comments ensued from Canada and Mexico, all while NAFTA talks continue.  See the corn comments for further information.

The truckers strike in Brazil negatively affected their economy more than initially thought.  Poultry was being slaughtered for lack of feed, export houses ran low on bean and meal supplies, milk was being dumped for lack of transportation off the farm, fuel was scarce everywhere, grinding most everything to a halt.  The government announced last week they had given the truckers everything they had asked for, including dropping diesel prices 12% for 60 days, a minimum fare to be paid to truckers for freight, and toll operators would not charge for rear axles not in use, but the original motive for the strike seemed to expand to government corruption overall.  It took several days for all the roadblocks to be cleared.  It’s rumored China has been purchasing Brazilian soybeans for March/April/May 2019 time frame.

In Argentina, the government announced they will increase their export tax on biodiesel from 8% to 15%, effective July 1st.  There are still rumors the Argentine government is considering reinstating export tariffs on corn and wheat to raise revenue, and may pause their monthly 0.5% tax cut on soybean exports.  The USDA ag attaché in Argentina is projecting their 2017/2018 bean crop at 39 mmt (same as USDA), but has their 2018/2019 soybean crop at 57.5 mmt compared to the USDA’s 56 mmt outlook.

Weekly export sales were at the low end of expectations for old crop, but new crop sales were the second highest of the year.  Old crop sales were 10 million bushels, bringing total commitments to 2.038 billion bushels.  This is down 5% from last year, which is in-line with the USDA’s year on year forecast.  New crop sales were an impressive 28.3 million bushels.  Total new crop sales are 232.5 million bushels, over double last year’s 106.6 million bushels sold at this point.  Weekly export inspections were on the low end of expectations at 21.2 million bushels.  We need 21.5 million bushels of inspections per week to achieve the USDA’s 2.065 billion bushels export forecast. As of May 27th, soybean planting was 77% complete, well ahead of the 62% average.  Emergence was 47% versus 44% on average.  The first crop rating is expected June 4th.

OUTLOOK: What happens with the Chinese trade talks and NAFTA will be increasingly important to the direction of soybean prices.  Political winds come and go, and it has been extremely difficult to even try to predict the next turn. We need some good political news to inspire buyers, as the crop is off to a good start.  July soybeans plunged 20 ¼ cents this week to $10.21 ¼ and the November soybean contract slid 15 ¾ cents lower to $10.37 ¾ per bushel.

WHEAT

The Egyptians have rejected a Russian wheat shipment due to too much ergot fungus.  This resumes the saga of a country that imports a lot of wheat but their changing policies make it difficult for exporters.  The US hasn’t been caught up in any of this mess, but that it’s because US wheat hasn’t been competitive.  In the US, spring wheat planting has gone from well behind average to ahead of pace.  Planting is now at 91% and almost wrapped up.

Anna Kaverman

anna@mercerlandmark.com

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