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Market Report

Thursday August 9th, 2018

September corn closed down 2 at $3.69 ¼ and December closed down 2 ¼ at $3.82 ¾. November beans closed down 6 ½ at $9.04 and January 19 closed down 6 ¼ at $9.15 ½. September wheat closed down 5 ½ at $5.64 ½ and July 19 closed down 5 at $6.04 ¼. Crude oil closed down $.11 at $66.14.

Thursday was a “Red Day” in the markets, corn pushed as much as $.05 lower on the day, though that break tended to find a few commercial buyers. In the end, corn would finish $.02 lower. Managed Money traders were viewed net sellers of about 10,000 contracts today, which would leave them net short an estimated 70,000 combined futures and options tonight.

With European markets “pausing to refresh”, U.S. markets also lost one of their primary drivers. Most of the news around today was not bearish, but buyers remain somewhat cautious, only willing to buy corn on weakness in front of tomorrow’s important USDA report. The parade of world production downgrades continued unabated overnight, mostly centered around European and FSU wheat. Not to be outdone, CONAB (Brazil’s USDA) trimmed second crop corn estimates once again. Full year corn estimates seen 82.2 MMT, which compares to 82.9 mmt in prior estimates and 97.8 mmt last year.  No surprises here, and we would expect the USDA to do similar “damage” tomorrow.

Weekly USDA Export sales report was pretty good for corn. Old crop sales were better than expected, new crop sales a little worse. Old crop sales of 554,500 MT were mostly to Mexico and South Korea and were roughly double expectations. New crop sales were 657,700 MT, which was toward the low end of estimates, mostly to unknown, Japan, Mexico, and Korea. Combined old crop sales + ship are just under 60 mmt, which compares to USDA estimates of 58.3. Note, though, it will be a challenge to ship out the 7+ mmt in outstanding sales over the four remaining weeks of the marketing year, so there will no doubt be some carry-over sales to new crop.

The soybean market closed lower on the day on liquidation of some recent length ahead of tomorrow’s crop report. Trade volumes remained light. The USDA flashed a 135 tmt sale of meal to the Philippines following a record month of meal exports in July. We expect the strong pace of meal sales to continue as Argentina’s ability to meet commitments and demand is strained as bean supply tightens in that country. Recent rains were needed and beneficial for crops.  Now, we have entered a drier pattern where rains will mostly be limited to the eastern belt and S Plains. The Dakotas and MN appear to be most vulnerable to warming and drying conditions during this stretch of 10 days or so. Follow up rains will be counted on to maintain top end yield potentials in beans.

Weekly export sales report featured strong soybean (422 old and 533 new) business coming in on the top end of trade expectations. In the breakdown, there was 292 tmt of old crop beans cancelled by unknown and another 252 tmt resold to alternate destinations while China straight cancelled 74 tmt.   These cancellations and resales are not unexpected and overall sales are very good for this time of year.

There are two sides to this report, US crops and World crops. The US crop side of the report is expected to be bearish because the USDA is likely to increase their corn and soybean yields, adding to the new crop carryouts. This is a survey-based estimate by the USDA based off of stalk and ear counts, they will not pull back husks until the September estimate so tomorrow’s yield historically can be quite different than final yields. The average estimate on corn yield is 176.2 with the USDA last at 174.0 – the average estimate on bean yield is 49.6 with the USDA last at 48.5. The carryout in corn will go up, but it is still going to be well below last year’s and recent year’s carryouts. The soybean carryout will go up and be well above last year’s but part of that is due to the uncertain status of export demand longer term.

It was a mostly uneventful trading session today as the markets await the crop report Thursday morning. Most of the price action stayed between $.04-$.08 lower in Chicago. It also did not help that Matif was trading a couple Euro’s lower. With the report tomorrow, there was just not enough power to sustain the early run. US export wheat basis continues to drop. EU saw another production downgrade overnight Wednesday. This time from Strategie Grains as they put out a projection of 127.7 MMT. But keep in mind, their estimate is not including durum and that crop is probably around 8 MMT so their overall EU crop estimate would be roughly 135.5 MMT. That is in-line, and maybe even a little larger than some of the other private analysts estimates for the EU, and the Matif wheat reacted accordingly falling a couple Euros and remaining on the defensive throughout most of the session. Another disappointing export sales report this morning did not help prices today either.

It is hard to imagine Friday’s crop report data as anything but friendly. It is easy to say that with our markets having already rallied a dollar off its July lows, and Matif having rallied an astonishing 41 Euros over the past month that most of the World production reductions are already in the market, and there is a strong bias to the long side heading into Friday’s report. The thing is, there are just too many areas in this report that the USDA could give us friendly data, and the major downside risk is that the USDA is not as aggressive with the reductions as most people think.

Anna Kaverman

anna@mercerlandmark.com

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