Blogging by the Bushel
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Tuesday August 7th, 2018

September corn closed down ¼ at $3.70 ¾ and December closed down ¾ at $3.84 ¼. November beans closed up 12 ¼ at $9.05 ¾ and January 19 closed up 12 at $9.17. September wheat closed down 6 ¼ at $5.68 ¼ and July 19 closed down 5 ½ at $6.05 ¼.Crude oil closed up $.39 at $68.33.

Mixed flat price trade in the grain room today, as the first day of the Goldman Roll dominated volume and interest. Corn has almost seemed to be a bystander of late, taking a “wait and see” attitude toward more dynamic price action in wheat, along with Friday’s pending USDA report. Managed Money traders were viewed net sellers of about 10,000 corn today, which would take them back to a 65,000 net short when including futures and options.

Firm European markets were an early boon to overnight US grains, though Matif Corn gains in particular tended to ebb as the day progressed. In reality, short-run weather conditions are improving in Europe, likely too little too late for wheat, but immature corn and barley could benefit.

With U.S. weather lacking a cohesive story, the focus of domestic traders is on what the USDA may say Friday. The August crop report is frequently full of “curveballs”, given the rather incomplete look afforded at crops. Most traders expect at least some increase in US yields from the “trend-line” data assumed in May-July.  The average analyst guess is for a 176 bpa yield, which would be just below the prior year, but up from the 174 bpa “trend-line”. Such a yield would result in 14.411 BB of production (versus 14.604 billion last year). Minimal attention is being paid to the 17/18 (old crop) carryout. But most are looking for a modest increase in 18/19 carryout expectations given the larger production. The average 18/19 carryout guess is 1.636 billion vs. 1.552 billion in July and 2.027 for 17/18.  The world numbers will be important for wheat, though substantial changes for corn are not likely.

The soybean market bounced higher, gaining back more than what was lost in yesterday’s trade as the market continues to trade back and forth on either side of $9.00 for a moment. Volumes remain very light and farm selling remains sidelined as you would expect at current prices with a promise of government compensation of some amount due to trade tariff loss. Bean prices responded favorably to the lower than expected crop ratings where conditions reflected some of the recent heat and overall dryness notably in parts of IA, MO and the Dakotas with gte ratings off 3 to 67% gte but still strong overall compared to 60% last year.

The news wires picked up on comments by Oil World saying that China will need to buy US beans in the coming weeks as they are unable to displace US supply. The story made the rounds and added additional support prices as are reminded once again that the trade war headline risk can sway the market in both directions. With Brazil nearly sold out of their exportable supply the US has the market until new their new crop becomes available. There is talk that Argentina bought another package of US beans this week.

Linn & Associates published updated crop estimates today with a corn crop of 14.260 billion bushels, on a yield of 174.4 bpa and a bean crop of 4.237 billion bushels, on a yield of 47.7 bpa.  These are final crop estimates, not estimates of what the USDA will publish on Friday. These numbers will change based customer input, field observation, weather analysis, and satellite data.

Last week the market saw a reversal from new highs and it only took the markets three days to bounce right back. Not saying that is going to happen again. In fact, it just might not be the right time for the wheat market to make its next upside move. After all, all three markets have already rallied more than $1.00 off its July lows. The Spring wheat strength could have very easily been tied to the condition reports Monday afternoon which showed a 4% drop in the G&E ratings, well above the expected 1-2% decline. The European wheat contract remains firm, bolstered by more rhetoric about production downgrades. The latest coming out of the France Ag Ministry that downgraded its crop size by 1 MMT down to 35.1 MMT. World values continue to gain sharply on the lower production estimates.

The next crop report will be Friday morning. Analyst are looking for a roughly 30 MB reduction in overall 2018/19 US all wheat production from July’s 1.881 BB estimate. Keep in mind Informa came out with their estimates late last week and is looking for as much as a 56 MB reduction. It is hard to fathom that the USDA will be this aggressive. Spring wheat should see the biggest loss, especially after last month when the USDA gave us a very optimistic 614 MB number. But with the downgrades from the crop tour a few weeks ago, would not be surprised if this number is below 600 MB. Not expecting any big changes for all winter wheat production, but we should see some minor downgrades across the board. Will the USDA dare increase exports 25 MB for a third month in a row? Many traders think they might because of the production reductions around the World. If they do, look for 2018/19 US ending stocks to drop to at least 960 MB, maybe more.

The World numbers will probably be looked at and scrutinized the most. There should be huge production downgrades from several countries in this report, but how much will the USDA lower them. 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, China, FSU, Kazakhstan and Ukraine, just to name a few. Depending on how much the USDA reduces World wheat production numbers will determine where 2018/19 World wheat ending stocks come in at. Would not be surprised if we saw a 10 MMT reduction and this number comes in closer towards 250 MMT vs 260.88 MMT in July.

Anna Kaverman

anna@mercerlandmark.com

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