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Thursday August 2nd, 2018

September corn closed up 1 ¾ at $3.66 ¾ and December closed up 1 ¾ at $3.81 ¼. November beans closed down 4 ¼ at $8.97 ½ and January 19 closed down 4 at $9.08 ¾. September wheat closed up 2 ¼ at $5.60 ½ and July 19 closed up ¾ at $5.97 ½. Crude oil closed up $1.16 at $67.66.

Another European grain rally had U.S. markets primed for gains early. Corn traded nearly $.08 higher at one point mid-day and wheat was within a few cents of “limit-up”. The markets struggled to hold the froth together late, though, and corn mustered up a $.02 better close. Funds were viewed net buyers of about 5,000 corn today, which would leave them net short 115,000 combined corn futures and options.

Corn export sales this morning were quite good, though they were fully within our expectations. Old crop sales totaled just 292,000 MT, but new crop business very nearly topped 1 mmt for the first time (986,100 mt). “Unknown” and Mexico were the two big buyers of record. Old crop sales plus shipped are easily on a trajectory to meet USDA 17/18 sales goals, while 18/19 forward bookings of 7.16 mmt compare favorably to the 4.44 mmt on the new crop books this time last year. No news on the trade war situation, other than measured progress toward a NAFTA deal.  U.S. saber-rattling on China trade was in the markets today, though by our understanding, the new public comment period for the larger tariff rates also affords additional time for negotiation before they can be imposed?

The major feature of world weather is the continued “hot and dry” in portions of Europe, particularly the north, which is stressing crops and impeding river logistics. Since July 11th, Matif Corn has rallied 16%, or about $1.40/bu equivalent. US weather has featured a slightly bearish element to trade over the past couple of days. The extreme heat built into the early August forecast has been moderated considerably, and the center of the Belt will get a nice drink into the weekend. Argentina’s harvest-that-never-ends moved up to 84% complete, advancing nearly 5% wk/wk. Informa analysts will opine on U.S. corn production tomorrow late morning.

The soybean market closed lower for a second day in a row as the chart works to correct its recent rally. November completed a 38% fib retracement and managed to close $.12 off that low which will act as initial support while the $9.00 offers resistance for now. Tomorrow the weekly chart will be looking for a third consecutive higher close, going home we are up $.12 on the week.   The products didn’t fare any better with meal and oil both under pressure while the wheat and corn markets have separated themselves for a moment due to the European feed grain issue where hot and dry conditions have reduced supplies and sparked world wheat values to multi-year highs.

The bean stats do not have any supply tightness and while US demand is very good right now, the longer-term uncertainty of Chinese trade and overall favorable growing conditions to this point keep a cloud over this market. There were no new developments on the US Chinese trade talks. We get a crop report one-week from today which is likely to include a bump in yield and assumes zero Chinese export demand so in the absence of a positive trade deal announcement or a shift to more threatening weather, the rally should be coming into some stiff headwinds.  Informa will publish their yield estimates tomorrow.

It was a tumultuous day for the wheat complex today, and even though trade was able to post modest gains. Matif wheat futures led the charge overnight and during the early part of the day, before finishing off its highs. That was the theme across the US markets as well. Chicago Sept traded to within one tick of limit up, but just as fast as trade raced up that level, it was equally as quick at giving back those gains and finished the day only a couple cents higher. Part of the huge late morning rally in wheat today was tied to rumors that Ukraine was talking about limiting their wheat exports as their production estimates had been dwindling. However, in a rather quick response, the Ukraine Ag Minister told reporters that there are currently no discussions to limit milling wheat exports. May have been part of the reversal off new highs as well.

Talk of World wheat production reductions have been the talk of trade over the past few weeks, and this has led to World wheat prices soaring, which in turn has led the European contract to race into new contract highs. To put this in better perspective in a time span of only three weeks Egypt has gone from paying an average of $220.27 in its tenders, to an average of $253.31. Another dilemma which has not really surfaced yet has been the tightening supply of good quality wheat stocks. China’s wheat production estimates are down more than 5% from a year ago, and their need to import good quality variety wheat will increase by more than 5.0 MMT for the upcoming year.

For the time being it will not come from the US. Where will the Asian flour millers turn to supply their needs? With Aussie wheat ending stocks this year only half of what it was last year, the Asian demand for wheat probably won’t come from there either. China has opened the door to start importing wheat from Russia, and there is talk that China is going to lift its import tariff-rate quotas for Kazakhstan wheat, but those countries are having production issues as well. With so many countries having production reductions over the past few weeks, the better question may be which country will benefit the most? Eventually, that very well could be the US. We first have to get a little more competitive in price. The wheat complex has settled higher every day this week, and today’s settle puts Chicago wheat $.90 above its July lows and KC $1.00 above its July lows.

A week from Friday is the next USDA crop production and S&D report, and that may very well be the next day of reckoning. There should be huge production downgrades from several countries in this report. In fact, the current estimate for the EU crop is roughly 135 MMT, or 10 MMT below the most recent USDA estimate. Not to mention Russia, Australia, Kazakhstan and Ukraine. I do not envy the USDA as they will have a hard time making this report very believable to many people.

Anna Kaverman

anna@mercerlandmark.com

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