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Market Report

Tuesday July 10th, 2018

September corn closed down 6 ¼ at $3.47 ¾ and December closed down 6 ¼ at $3.60 ¾. August soybeans closed unchanged at $8.55 ¾ and November closed down ½ at $8.71 ½. September wheat closed down 16 at $4.92 and July 19 closed down 11 ¾ at $5.43 ¼. Crude oil up $.58 at $72.56.

The corn market kept the bull at bay and finished lower. A combination of a Europe-inspired wheat shell-out and a confirmation of yesterday’s bear weather turn was all she wrote today. The Dec contract traded to new lows, but did not close into new lows. Managed Money traders were viewed net sellers of about 15,000 corn today, which would take their position to net short 50,000 combined futures and options.

Summer weather market volatility continues, as the trade lives and dies from model run to model run. Going home Friday, it sure looked like the broader Midwest was going to get a dose of hot and dry, just in time to impact pollinating crops. Fast forward to Monday/Tuesday; yes, it’s largely dry and getting warmer across the Midwest, but the forecasts suggest this will come to an abrupt end as soon as next week. That has been enough for a defensive market to “reabsorb” weather premium.

It wasn’t all bearish, though. Brazil’s gov’t (CONAB)crop report once again trimmed estimates of the country’s safrinha corn.  Second crop output was reduced 2 mmt from prior forecasts to 56 mmt. If correct, this would leave full year Brazil corn at 82.9 mmt vs. 97.8 mmt last year. If private analysts are correct, they still may have at least one more small downgrade to come?  A reduced crop and logistics issues may keep Brazil from realizing its normal corn export potential in the coming marketing year, which could help keep U.S. sellers in the driver’s seat into the 18/19 campaign.

The soybean market had a two-sided performance where the market initially tried to follow the lead of meal to the topside before the larger wave of wheat/corn selling dragged the market lower. It was a quiet day of trade with volume remaining light as we test Friday’s reversal trade which for now at least, has held.

Benign growing weather, fund selling and trade uncertainty continue to press beans. Meanwhile improved export demand thanks to premium priced Brazilian beans along with ongoing strong crush demand are helping to chew through our ample domestic supplies. The job of the market at this point is to identify a bottom and perhaps, perhaps we already have that low in place but it has yet to be confirmed and fund flows can certainly have their say if they continue to pile in with new shorts and buyers decide to stand aside. With many farmers looking at a lower $8 cash price fresh sales understandably are thin. It would help to have a trade deal with China to remove this cloud of demand uncertainty longer term, but that appears to be away off at this point with details of a government reimbursement plan to farmers not expected until Labor Day.

The overnight session was lower throughout, and it did not get any better during the day. The worst seemed to be over after the opening hour of the session. There has been a plethora of news for the wheat complex to look at over the past 24 hours, but it is crop report week, and it will be this data that will most likely determine how the markets finish the week. It is looking more and more likely that the USDA will not reduce harvested acres as much as we think, and with a Spring wheat crop looking monstrous, and a HRW and SRW crop that finished the season a little better than many expected, the outlook that the USDA will raise overall wheat production in this week’s report is pretty high. The wheat complex also had some added pressure today out of the European contract where Matif gapped lower to start the day. If strength in the Matif contract is a reason behind why our US markets rally on strong days, you also have to use it as a crutch on days it is down hard.

The next USDA crop report will be released Thursday morning. The headline out of this report will be what type of reduction we see in harvested wheat acreage this year (abandonment) and what the USDA will do as they plug in their view of what the tariffs do to US trade. Expectations are for 2018/19 All Winter Wheat production to come in around 1.195 BB, slight below last month’s 1.198 BB forecast, but this number could be a little lower. 2017/18 Global wheat stocks are expected to be similar to last month at 272.5 MMT vs 272.4 MMT in June. However, 2018/19 world wheat ending stocks will be lower, especially after production downgrades with EU and Black Sea wheat. Expectations are 265.1 MMT vs 266.2 MMT in June, but this number could be sub 260.

Anna Kaverman

anna@mercerlandmark.com

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