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Friday June 29th, 2018

September corn closed up 5 ¼ at $3.59 ½ and December closed up 5 ¼ at $3.71 ¼. August soybeans closed down 3 ¼ at $8.63 ½ and November closed down 3 ½ at $8.80. September wheat closed up 17 ¾ at $5.01 ¼ and July 19 closed up 16 ½ at $5.48 ½. Crude oil closed up $.65 at $72.46.

FOR THE WEEK ENDED 6-29-18

CORN – Markets took a nose-dive as traders returned from the weekend with no resolution to any of the trade issues, no weather threats, high crop ratings and a rallying US dollar.  Bottom pickers and fund position squaring going into month/quarter end and the Planted Acreage and Grain Stocks reports seemed to limit the losses in corn.  Fundamentals have been termed friendly, but recent fund selling and poor trade news reigned supreme as corn stair-stepped lower through the week.  Growers and many traders went to the sidelines awaiting the June 29th reports.  The June reports didn’t result in the blow-out volatility we’ve seen over the last five years, but did provide a bounce to the market to end the week.  In the last 5 years, December corn has closed from 27 ½ cents lower to 29 ¼ cents higher on report day.  This year, we closed 5 ¼ cents higher.

The 2018 Planted Acreage report pegged corn acres at 89.13 million acres compared to trade expectations for 88.56 million acres.  This is up 1.1 million acres from the March estimate and down 1.04 million acres from last year.  This extended the history of actual June acreage coming in higher than estimates.  The June 1 corn stocks were spot on with estimates at 5.31 billion bushels.  This is the biggest June stocks number since 1988 and the third highest on record.  Last year’s June 1 stocks were 5.23 billion bushels. This also extended the streak of higher stocks than estimates. On-farm stocks at 2.75 billion bushels were down 3% from last year.  Off-farm stocks at 2.56 billion bushels were up 7% from last year.

2018 Planted Acreage for wheat results were: all wheat 47.82 million acres versus 47.1 million estimated and above the highest trade prediction; spring wheat 13.2 million versus 12.43 million estimated; all winter wheat 32.73 million versus 32.63 million estimated; durum 1.89 million versus 2.03 million estimated.  All wheat acres are up 4% from last year, but are still the second lowest since 1919.  June 1 wheat stocks were 1.1 billion bushels, right at the trade estimate and 7% lower than last year.  If anything, the jump in wheat acres was the most surprising thing on the reports.  However, the Chicago and Kansas City markets rallied sharply off the reports as Russian production is shrinking, as well as EU and Australian production.

Brazil’s safrinha early yields have been disappointing, which was expected.  Agroconsult cut their safrinha estimate from 57 mmt to 55.2 mmt, but left their corn exports at 28 mmt.  The USDA is projecting Brazil’s corn exports at 29 mmt.

Weekly export sales were good for old crop and excellent for new crop.  Old crop sales of 33.5 million bushels, pushing up 3% ahead of last year.  The USDA is carrying year on year exports at unchanged from the previous year at 2.3 billion bushels after the 75 million increase on the June WASDE report.  New crop export sales were outstanding at 25.1 million bushels.  Total new crop sales of 168.8 million bushels is 53 million bushels ahead of last year by this time.  The USDA is forecasting a decline of 8.7% in exports from 2017/2018 to 2018/2019.  We are off to a great start.

US weekly ethanol production was higher for a third consecutive week, up 8,000 bpd to 1.072 million bpd.  This is the biggest production since December 2017.  Ethanol stocks were up 100,000 barrels to 21.7 million barrels.  Gasoline demand is up 2% from the same week last year.

OUTLOOK: While weather wasn’t the single focus this week, there is increasing attention being paid to the forecast for warmer, drier conditions for the first half of July for the Midwest.  After the rain we’ve experienced, it’s believed it shouldn’t be that detrimental to the crop right away; however, the nighttime temperatures are going to be watched closely.  It temperatures stay high overnight, it may be perceived as yield limiting.  Trade tensions and the USDA reports were a feature as funds squared positions ahead of the reports, as well as month and quarter end.  On the continuous chart, corn posted its lowest settlement during the week since December 2017.  Short term direction hinges on the tariff situation with China and what happens July 6th, or before.  Trying to call the politics of it is futile. The market has taken most, if not all, of the weather premium out of the market.  We have a long July to get through as pollination is just starting.  Watch for opportunities to catch up on sales.  If weather and/or politics don’t provide a rally, we’re headed for a big crop.

SOYBEANS – Soybeans took a 20-cent hit to begin the week, but the losses didn’t stop there.  Prices drifted lower into report day as funds added to their net short position, tariffs loomed over the market, weather was favorable for crop development, and export demand was minimal.  Uncertainties were plentiful ahead of the June 29th reports, in addition to a short holiday-shortened week coming up, and the July 6th tariff implementation deadline.  The Chinese Academy of Agricultural Science estimates that bilateral taxation between the US and China could cause US agricultural exports to China to fall by 40% by the year 2035.  Month and quarter end coincided with the June 29th reports.  The extreme volatility we’ve experienced in previous years was absent this year.  In the last 5 years, November beans have closed on report day anywhere from 70 ¾ cents lower to 57 ¼ cents higher.  On report day this year, we closed 3 ½ cents lower.

The June 29th Planted Acreage report showed US soybean acres at 89.56 million acres.  This was close to the 89.7-million-acre estimate, but was up 575,000 acres from the March report.  This year’s number is a decrease of 585,000 acres from last year.  This is just the first time since 1983 US farmers have planted more soybean acres than corn acres and is just the second time in history.  The history of June acreage higher than the March estimate continues.  June 1 soybean stocks were a June record at 1.222 billion bushels and essentially spot on with the trade forecast.  This is 26% higher than last year at this time.  On farm stocks were up 13% from last year and off-farm 33% higher than a year ago.

In their efforts to diversify and source soybeans from other countries, China dropped their soybean, meal, rapeseed and fishmeal import tariffs from India, Bangladesh, Laos, South Korean and Sri Lanka effective July 1.  This has been in the works since March.  This will barely make a dent in what China needs, but it signals their willingness to reach out to other origins.  Coincidentally, a US bean cargo was switched from China to Bangladesh in this week’s USDA export sales report.  The USDA attaché in China is expecting China 2018 soybean imports to be 100.5 mmt, slightly lower than the last USDA forecast for 103 mmt.  The 2017/2018 projection is 97 mmt.

Agroconsult predicts Brazil’s 2018/2019 soybean acreage will increase 1 million hectares or 2.47 million acres.  Argentina’s President Macri confirmed they will not reinstate export taxes on corn and wheat and will proceed with the monthly 0.5% cut in soybean export taxes.

A possible light for soybeans was President Trump’s backing off his tough stance on Chinese companies’ investments in US companies.  Investments of overseas companies in US companies, and vice versa, will have to go through a government agency, but would be allowed.  USDA Secretary Perdue said he hopes to have a plan for protecting US farmers from tariff-related loses by Labor Day.  According to the USDA, China has 1.33 mmt of outstanding soybean purchases with the US for this marketing year and 1.45 mmt for next year.

Weekly export sales were at the low end of expectations for old crop, but well above estimates for new crop.  Old crop sales of 13.2 million bushels kept us 4% behind last year.  The USDA is forecasting a 5% decline in year on year exports.  For new crop, sales were unexpectedly high at 23.6 million bushels.  Total new crop sales are 276.4 million bushels versus 126.5 million last year at this time of year.  The USDA’s outlook projects exports to be up 10.9% from 2017/2018 to 2018/2019.

OUTLOOK:  We have a short trading week coming up due to the July 4th celebrations.  After the grain markets close early on Tuesday, they won’t reopen until Thursday morning.  The July 6th deadline for implementing trade tariffs against $34 billion worth of Chinese imports is right around the corner.  China has stated they will retaliate with their own tariffs, which include US soybeans.  This continues to cast a dark shadow over the soybean market.  On the continuous soybean chart, beans posted their lowest settlement during the week since March 2016.  July heat is garnering attention, but we’re in a good moisture situation going into that that time frame and it’s August weather that really makes or breaks the bean crop.  We’re basically removed any weather premium from the market, so any threat or perceived problem will be friendly.  But what is important in the short run is whether or not China imposes their 25% tariff on beans on July 6th.  Weather and politics, politics and weather.

Russia is on pace to export just over 40 million tons of wheat this year. That will easily cement their spot as the world’s largest exporter.  The world’s 2nd biggest exporter is the US at 25.5 million tons. One of the biggest surprises in the acreage report came from the wheat side. All wheat acreage was 700,000 acres above estimates but that was driven by spring wheat acreage which was 800,000 over estimates at 13.20 million acres. The rest of the wheat complex was about 20 cents higher but due to the acreage surprise, spring wheat was flat on report day.  The KC and Chicago wheat was higher on big cuts to the French, German, and Russian wheat crops.

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