Blogging by the Bushel
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Market Report

Friday July 27th, 2018

September corn closed up ½ at $3.62 and December closed up ½ at $3.76 ¼. August soybeans closed up 9 ¼ at $8.70 ½ and November closed up 9 ¼ at $8.85 ¼. September wheat closed down 6 at $5.30 ½ and July 19 closed down 3 at $5.73 ½. Crude oil closed down $.70 at $67.73.


CORN – Last week, we posed the question, “Have we finally turned a corner in corn?”  Based on this week’s price action, it does in fact look like we’ve found a short-term bottom.  Corn closed higher in nine out of the last ten sessions.  The contract low in December corn set July 12th at $3.50 ¼ per bushel brought end user pricing to the market, along with a modicum of fund short covering.  Demand for corn continues to be firm, while talk of a 180 BPA national corn average has lost steam.  Most still anticipate an increase from the current USDA 174 BPA outlook on the August 10th WASDE report, but chatter suggests the average trade estimate for the report won’t reach 180 BPA.

Trade news was more favorable this week with the US and the European Union making nice.  The EU promises to buy more US soybeans and import more LNG’s, and the US promised not to tax luxury car imports.  This was viewed as favorable for corn as a spillover effect.  The EU has a 25% tariff on US corn imports.  Could these overtures open the door for the corn tariff to be removed?  NAFTA news lent a positive air to the market this week as well.  Both the US and Mexico have indicated there could be a framework in place by the end of August and a deal done by the end of the year.  Where does this leave Canada?  No answer to this question, but having a deal with Mexico, the number one importer of US corn, doesn’t hurt.  The major surge in wheat this week also was a supportive factor to this week’s corn rally.  Disappointing wheat yields on the Wheat Quality Tour in North Dakota pushed prices higher, as well as shrinking world production due to dryness in various areas of the world.  President Trump indicated he was closer to getting year-round E15 gasoline approved.

The International Grains Council left their world corn production unchanged at 1,052 mmt.  They cut 2018/2019 world corn carryout from 253 mmt to 249 mmt.  The IGC cut world wheat production from 737 mmt to 721 mmt and dropped world wheat carryout from 256 mmt to 247 mmt.  The US ag attaché in Brazil cut the estimate for Brazil’s 2017/2018 corn crop 500 tmt to 83 mmt.  The official USDA number is 83.5 mmt.  His outlook for Brazil’s 2018/2019 corn crop is 95 mmt, 1 mmt lower than the USDA’s 96 mmt figure.

Demand for US corn remains robust.  Weekly exports were very good for old crop at 13.3 million bushels and very strong for new crop at 29.4 million bushels.  Old crop total sales are running 5% ahead of last year, which is on par with the USDA’s projection.  New crop commitments are 243 million bushels compared to 157.5 million bushels last year at this point.  At week’s end, US corn had lost its price advantage as Argentina’s corn price was slightly lower. Weekly ethanol production hit 1.074 million BPD, a 30-week high and up 10,000 BPD from the previous week.  Stocks fell 115,000 barrels to 21.65 million barrels.  Margins were steady at 5 cents per gallon.

Unchanged weekly corn condition ratings of 72% good/excellent as of July 20 were better than the 1%-2% decline expected by the trade.  81% of the crop was silking versus 62% on average.  18% was in the dough stage versus 8% on average.  These ratings will be closely watched as the US drought monitor showed an expansion of abnormally dry conditions in the Midwest from 22.4% to 35%.

OUTLOOK:  December corn has bounced nearly 30 cents off the contract low set at mid-month.  It is up against resistance near $3.80 in the December contract, but if broken, it could open the door for another dime rally.  August weather, the WASDE report, demand, and politics will drive the price action.  Funds are still holding short positions.  If we need to rebuild a weather premium back in the market, any short-covering from this sector could extend a rally.  The downside may be limited in the short term to the $3.50 per bushel area.

The next WASDE report will be released on August 10th.  Trade estimates should be out in the coming week.  How much the USDA will raise the corn yield will be closely watched.

SOYBEANS – November soybeans were slightly lower to begin the week, but then closed higher in each of the last four sessions.  After setting their contract low at $8.26 ¼ on July 16th, November soybeans have closed higher in nine out of the last ten sessions.  Soybean conditions improved 1% to 70% good/excellent.  This was unexpected by the trade, who were anticipating a 1%-2% weekly decline. 78% of the crop was blooming as of July 22 versus 63% on average.  44% of the crop was setting pods versus 23% on average.

The Trump administration announced a $12 billion aid package for US farmers.  No details were released, but reportedly it includes making direct payments to soybean farmers, a food purchase and distribution program, and a trade promotion program.  More details are expected around Labor Day.  News that the European Union promised to buy US beans was perceived and traded positively in the latter half of the week.  However, US soybeans are the cheapest in the world and we can logistically deliver them.  With China scooping up Brazil’s supplies, it makes sense any of the EU soybean purchases would be sourced from the US.  Last year, the US shipped the EU 4.1 mmt of soybeans.  So far this year, we have shipped them 4.5 mmt.  Last year, we shipped China 34 mmt of soybeans.   The gesture was nice, but I’m not sure it really added anything to our export outlook.  We’ll take any perceived friendly trade news we can get at this point.  There hasn’t been any movement on US-China trade relations, but there are three boats carrying US soybeans waiting off the coast of China to unload.  They are the first boats to hit China since the 25% import tariff went into effect.

Weekly export sales were huge for old crop soybeans, with no Chinese cancellations and including 70 tmt to Argentina. Old crop sales were 19.8 million bushels, bringing total yearly sales to 2.137 billion bushels.  The USDA’s forecast is 2.085 billion bushels.  The average rollover of sales from old crop to new crop is 61 million bushels, but last year we rolled over a record 87million bushels.  New crop sales were 35.4 million bushels.  Total new crop commitments are 361.2 million bushels, 63% ahead of last year. Earlier in the week we saw China cancel 165 tmt of new crop optional origin soybeans.  It’s estimated China still has 59-66 million bushels of US soybeans bought for this marketing year that have not shipped.

The IGC kept their world soybean production forecast at 359 mmt, but increased carryout stocks from 41 mmt to 44 mmt.  Brazil’s Abiove raised their 2018/2019 soybean production forecast from 118.4 mmt to 118.7 mmt.  The USDA is using 120.4 mmt.  Abiove put the export outlook at 73.5 mmt versus the USDA at 75 mmt.  One of the largest Chinese soybean crushers in Shandong filed for bankruptcy this week.  Margins have declined as the price of soybeans has increased and meal demand has waned.

OUTLOOK:  The soybean crop is normally made or lost in August.  The market has essentially removed any weather risk premium.  If it does turn hot and dry in August, soybeans may find a bid under the market; otherwise, without a resolution to the China situation, it will be difficult to build a case for a significant, extended rally in soybeans.

Egypt purchased a hefty 420,000 tons of wheat from Romania, Russia, and the Ukraine.  The were aggressive buyers on thoughts the global wheat market is tightening up.  They paid more the $15/ton more than their last tender two weeks ago. IGC lowered their world wheat production estimate by 16mmt to 721mmt, which would be 37mmt below last year.  The cut was mostly due to poor harvest reports in the EU and CIS countries – including Russia and Ukraine.

Spring wheat is rated 79% G/E, down 1% from last week, but the best rating for this date since 2010.  Winter wheat is 80% harvested, up 6% from last week. The final yield estimate from the Wheat Quality Council’s Spring wheat tour was 41.1 bu/acre, which is 3 bushels above last year, but below the 5 year average of 45.4 bu.

Anna Kaverman

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