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FOR THE WEEK ENDED 8-3-18

CORN – Corn benefitted this week from uncertain yield potential and the rally in the wheat market, which was a result of shrinking world wheat production.  Dryness in Ukraine, European Union, Russia, Australia, and Canada have resulted in lower world wheat production forecasts.  Europe’s Matiff wheat hit five-year highs during the week.  A big boom to wheat came late in the week on an initial report that Ukraine was going to limit wheat exports.  Wheat prices shot to calendar year highs.  A short time later during that trading session, subsequent explanation that the Ukraine government wasn’t going to unilaterally set an export limit, but would be working as usual with traders on export targets, saw wheat prices recoil $.25-$.30 off the day’s high.  Ukraine is the world’s fifth largest wheat exporter.

Trade chatter about the rush in corn to ear weight reducing early maturation, and increasing talk of yield reducing tip-back on ears, did push corn prices through resistance to its highest level in six weeks.  Corn was 38% in the dough stage as of July 29th versus 20% on average.  92% of the crop was silked compared to 82% on average. Corn conditions were steady at 72% good/excellent.  Corn garnered spillover support from the wheat, but didn’t take out the recent high set earlier in the week at $3.88 ½ in the December contract.  Uncertainty on how little the USDA may increase the corn yield on the August 10th report provided underlying support to prices.  Informa Economics left their US corn yield at 176 BPA with production at 14.392 billion bushels.  Farm Futures did a farmer survey which estimated US corn yield at 175.4 BPA and production at 14.36 billion bushels.  On the July WASDE report, the USDA was using 174 BPA with production at 14.23 billion bushels.  In each of the last three years, the USDA August corn production number has been higher than the average trade guess.

On a bright note, it looks like the US and Mexico are making progress on a NAFTA agreement.  Both sides are hopeful a plan will be in place by the end of the month.  Glaringly, Canada has not been invited to the table.

Weekly corn exports were good at 11.5 million bushels for old crop and 38.8 million bushels for new crop.  Total old crop sales are 97% of the USDA target versus 103% on average.  New crop total commitments at 281.7 million bushels are 61% higher than a year ago.  Weekly ethanol production fell by 10,000 bpd to 1.064 million bpd.  Stocks rose 300,000 barrels to 22 million barrels.  Ethanol crush margins rose be 2 cents to 7 cents per gallon.

OUTLOOK:  Underlying demand for corn should continue to be supportive, as well as spillover from a stronger wheat market.  The August 10th WASDE report will be focused on the yield change and its effect on carryout.  It may take a political or weather event to push December corn closer to $4.00 per bushel ahead of the USDA report.

For the week, September corn was 7 ¾ cents higher at $3.69 ¾ per bushel.  December corn rallied 8 cents to close at $3.84 ¼ per bushel.  The high this week in the September contract was $3.74 ¼ and in December it was $3.88 ½ per bushel.  December 2019 corn settled the week at $4.10 ¾ per bushel.  If the trade war with China doesn’t get resolved, how many bean acres will switch to corn next year?  Something to be thinking about.

SOYBEANS – Just to show how sensitive the soybean market is to the Chinese tariff situation, soybeans rallied over 31 cents on Tuesday to a new recent high of $9.22 ¾ per bushel, before settling at $9.19 per bushel, in response to talk that the US and China were going back to the negotiation table. The next day, the US administration rumbled they may raise the tariff percentage from 10% to 25% on the next $200 billion in proposed tariffs on Chinese imports. These new tariffs would go into effect September 5th.   This erased over half of the previous day’s gains.  China responded, saying they are ready with 5%-25% retaliatory tariffs on $60 billion worth of US imports, if the US goes ahead with the next $200 billion in tariffs.  The negative attitude carried over into Thursday and losses were extended on less than stellar weekly export sales.  However, the soybean market maintained its recent reputation as nearly “untradeable” when Friday ended the week with a key reversal higher.

Where the US and China currently stand is questionable.  Depending on which official is talking (it doesn’t matter from which country), one sounds like they want to return to the negotiation table, and the other talks of more tariffs.  China did say they could risk running short on soybeans in the fourth quarter when South American supplies get tight, if they relationship with the US isn’t fixed.

Informa Economics updated their US soybean yield forecast to 50 BPA, an increase of 0.2 BPA from their last refresh.  Their soybean production number was a record 4.445 billion bushels.  A Farm Futures grower survey put the US soybean yield at 49.8 BPA and production at 4.42 billion bushels. In July, the USDA was using 48.5 BPA and 4.31 billion bushels of production.   In each of the last three years, the USDA soybean production forecast has been higher than the average trade estimate.  As of July 29th, 60% of the soybean crop was setting pods versus 4% on average.  Soybean conditions were unchanged at 70% good/excellent, up 11% from last year.

There are a few more details on the government’s plan to help US soybean farmers who have been hurt by the trade war with China. US farmers can begin signing up for direct aid payments in early September.  Of the $12 billion in aid, $7-$8 billion will be available in the form of direct payments. Payments will be based on a formula using this year’s actual production, so growers will have to wait until after harvest before applying.  China may allow soymeal imports from Argentina in the coming months, which are currently not allowed.  Brazilian farmers are facing about a 20% increase in year/year fertilizer and pesticide costs this year.

Weekly export sales were disappointing for old crop at 3.4 million bushels and okay for new crop at 20 million bushels.  Old crop total sales of 2.14 billion bushels have exceed the USDA forecast for 2.085 billion bushels.  China cancelled 120 tmt and unknown cancelled 316 tmt of old crop corn purchases. China still has an estimated 51.5 – 58.8 million bushels on the books with the US for this year.  How much gets rolled of cancelled is yet to be seen with five weeks left in the marketing year.  Next year’s total commitments are running nearly 63% ahead of last year.  The NASS June Crush Report showed 169.6 million bushels of soybeans were crushed during the month, slightly higher than the 168.8-million-bushel estimate.  This was a record for the month of June.

OUTLOOK:  August weather makes the soybean yield.  Whether soybeans can extend this week’s gains into the August crop report without positive political or weather news is uncertain as ending stocks edge closer to 700 million bushels than 600 million bushels.  While it doesn’t look like China will increase the soybean tariff on US soybeans, this week’s action indicated we’re not getting any closer to a resolution to the trade war.  The upside to any price rally in the coming week will have to come from a friendlier relationship with China, or a change to hotter, drier forecasts for the Corn Belt.

The high this week in November soybeans was $9.22 ¼ per bushel.  For the week, it was up 17 cents to close at $9.02 ¼ per bushel.  September meal was down $1.20 for the week at $330.60 per ton and September soyoil was off 15 ticks at $28.52 per pound.

Germany will harvest about 18 mmt of winter wheat in 218 according to DBV president Joachim Rukwied, that’s down about 25% from last year. SovEcon cut the Russian wheat exports forecast by 5.1% to 35 mmt, down from 36.9 mmt. The US wheat crop was rated 78% Good/Excellent, down 1% from last week. It’s 4% harvested, which is 4% behind last year. Spring wheat harvest is expected to get underway next week sometime. Informa economics pegged the “Other Spring Wheat” yield at 45.4 bushels per acre versus the wheat tour at 41.1 and the USDA at 47.05 bushels per acre. Wheat futures were up roughly 30 cents on the week.  The worries over world production have pushed the wheat markets higher.  Contract changes for the week ended August 3, 2018:  Minneapolis September wheat jumped 20 ¼ cents higher to $6.12 ¾, Chicago rallied 25 ¾ cents to $5.56 ¼, and Kansas City was the leader with a 34 ¾ cent surge higher to $5.67 ¼ per bushel.

Anna Kaverman

anna@mercerlandmark.com

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