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Tuesday June 26th, 2018

July corn closed up 2 at $3.52 ½ and December closed up 1 ¾ at $3.73 ¼. July soybeans closed down 7 ¼ at $8.67 ¼ and November closed down 8 at $8.87 ½. July wheat closed down 7 ¼ at $4.69 ½ and September closed down 7 ½ at $4.83. Crude oil closed up $2.24 at $69.28.

Corn trade was extremely two-sided today, going between small intraday gains and losses. After an eye-opening plunge mid-day, futures were able to battle back, ultimately finishing with $.01-$.02 gains. Managed Money funds were believed net buyers of 5,000 corn, and when factoring in recent CFTC data, could still be net long a small quantity. Option traders believe the CFTC is “behind” in their reporting and that funds are actually large net shorts at this point.

Fund positioning, particularly within “trade war” discourse, continues to have an outsized impact on trade. Today, the headlines were mercifully more muted, if not somewhat conciliatory. Pres. Trump’s comments mid-day appeared to soothe nerves a little, as he hinted that recent dialogue with China on trade was going well. On the ground, export trade in corn continues to be quite brisk. Korea continues to be an active buyer on the break, taking in another batch of three new crop cargos today. Old crop shipments should continue to take 50-60 million bushels per week into the end of the 17/18 marketing year. Midwestern crops continue to enjoy a mostly favorable start to the growing season. Temps warm up and the rain clouds go away toward the end of this week, but most areas have plenty of subsoil moisture to carry through for a moment. Southern Corn Belt areas will generally fare worst. EU/FSU conditions remain more mixed.

The EPA ‘made it official’ today, publishing RFS mandate targets for 2019 today. The results were almost exactly in-line with the “leak” from last Friday. Corn ethanol mandates were unsurprisingly left unchanged at 15 billion gallons. There was a large boost to “advanced biofuels” this year and “biodiesel” in 2020. As expected, the EPA did not follow through with plans to “reallocate” blending obligations lost to the flurry of small refiner exemptions released this year.

The soybean market established a new low close as we make a deeper test of last week’s spike trade. Weather continues to favor high yield potential although it is very early and yields are determined in Aug/Sept and we also have areas where crops are struggling with some disease issues due to ‘wet feet’ notably in the NC, IA, Southern MN and Eastern NE region with more showing in the near term forecasts.

The feature trade today was board crush margins surging into new highs with nearby crush up 9 to $1.85/bushel and new crop up 5 to $1.70/bushel. What this means is that our record crush is likely to continue through the end of the year making lots of meal and oil with the demand base for meal later this summer/fall expected to heat up. Oil demand gets a boost too, but not until 2019. The official EPA 2019 biofuels mandate of 19.88 billion gallons under the Renewable Fuel Standard which was initially reported last week and is an increase from 19.29 billion gallons this year. 2019 soybean oil usage should increase by around 150 mln lbs with the USDA 18/19 carryout currently projected at 2.176 bln lbs.

Trade uncertainty remains a black cloud over this market and nobody knows how/when this will be resolved. The USDA reportedly will have a plan ready for farmers by July 7th to help compensate for the tariff impact with July 6th being the date those tariffs could be enacted. With that said, you could have a deal made at any time with China that includes a significant new crop sales commitment that elicit a sharp upside price response or you can have tariffs delayed to buy more time for talks. In seeking alternative sources for feedstocks, China’s Finance Ministry announced plans, which go into effect July 1, to lift import tariffs on soybeans, soymeal and rapeseed meal imports from five Asian nations.

So far, price action this week has been very similar to what we saw last week in that we have seen a hard day down on both Monday and Tuesday. In fact, the reasons behind such a defensive start to each week has been similar as well. Funds liquidating their long position. Poor economic news (US-China tariff talk) and a negative bias as World wheat values fall have also played influential roles in price action. After being over-priced last week and missing out on business, Russian wheat offers this week were just as aggressive as some thought they might be. The two lowest Russian offers in the GASC tender overnight were $4.35 cheaper than last week.

Looking ahead to the rest of the week, the markets will have plenty of data to look at and digest. Export sales is first up Thursday morning, and with prices in retreat mode, it might be one of our better weeks in a while. Stats Can planting intentions is Friday morning before the USDA crop report. Two things to look for: A gap higher start and subsequent strong day. Or, after a weak start and move taking out the previous day’s low, a reversal that rallies trade above the previous day’s highs and settlement above that high (outside day higher close). Then we would need a higher close the following day to signal the liquidation phase is over.

The US Crop Report is Friday morning. For acreage, average expectations is for the report to show all wheat to come in somewhere around 47.0 MA vs 47.339 mil on March 29. Keep in mind, this is planted acreage, not harvested, and with many of the HRW wheat states (Texas, Oklahoma and to a lesser extent Kansas and Colorado) looking at an abandonment rate much higher than in year’s past, it will be the harvested data that will be more relevant. The question is, will the USDA adjust any harvested acreage estimates in this report, or will they wait until July? Of the planted acreage, look for winter wheat planted acres to come in around 32.50 mil vs 32.69 mil in late March, with most of the reduction coming in HRW. We had a big Spring wheat acreage number at the end of March, and remember, even though things are looking great now, there were delays to their planting season. Look for Spring wheat planted acres to come in somewhere closer towards 12.227 mil vs the USDA’s most recent estimate of 12.627 mil. Remember, this was the surprise of the report last year.

That brings us to quarterly stocks. Remember, last year it was this data that was the bearish aspect to the report, and it might very well be again. Average expectation for US wheat stocks as of June 1st is 1.091 BB vs the 1.494 bil we saw as of March 1. Do not be surprised if this number Friday is at the high end of expectations and closer towards 1.15 BB or even higher.

Anna Kaverman

anna@mercerlandmark.com

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