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Market Report

Tuesday August 28th, 2018

September corn closed down 5 ¾ at $3.41 and December closed down 5 ¼ at $3.56 ¼.  November beans closed down 15 at $8.33 ¼ and January 19 closed down 15 ¼ at $8.46 ½. September wheat closed down 1 at $4.98 ¼ and July 19 closed down ¼ at $5.54 ¼. Crude oil closed down $.32 at $68.22.

No “Turnaround Tuesday” in the corn today. The markets were a little higher early, but steadily surrendered ground throughout the day. In the end, futures would finish lower. A rather light news day implied no change to the overall narrative of strong yield potential and ongoing challenging trade negotiations.  Managed Money traders were viewed net sellers of about 15,000 corn today, which would leave them net short an estimated 85,000 combined futures and options.

Apparently there was plenty of news around yesterday. News wires were quiet and traders equally so, as everyone hunkers down to receive another big crop. Finishing weather is relatively benign, though some of the models are building in a cooler look for mid-Sept. Given the advanced maturity of US corn this year, there is likely not a serious probability of great harm in a frost event.  Crop progress data last night maintained strong Good-Excellent ratings of 68% nationwide, which compares to the prior year’s 62%. 61% of U.S. corn is dented, which is 19% ahead of normal. Harvest has already begun in Missouri and Kansas.

After keeping everyone in suspense last week, Mexico and the U.S. finally announced a trade accommodation Monday. It’s important to note that a Mexican trade deal lies in the realm of “not bearish” rather than “bullish” for corn, as the deal will likely not lead to any increase in actual business done. If a deal with Mexico was not reached, however, it could have endangered up to 15 mmt/yr in corn business, which would have been ugly in the current “well-supplied” environment.  Canada arrives today to see if they want to get on board with the current deal?  Next up was the “Trade War” farm aid package.  The aid for corn is minimal, amounting to just a penny per bushel on 50% of production. Soybeans get the lion’s share ($3.6 billion out of $4.7 billion), but with the package less generous than expected, it likely will not alter producer selling behavior much.

The soybean market continues its slide with limited buying interest as we challenge our July lows and seek out just how cheap is cheap enough in order to discover demand to offset the substantial supply side pressure. The bear holds all the cards ranging from record yield potential, excessively burdensome ending stocks, weakening basis, lack of Chinese export demand, and record southern hemisphere acreage intentions.  Even the meal market, which had been a bull story that stood apart in the sea of bearishness, has been negated to a certain degree by the spread of African swine fever in China and Europe which has led to funds liquidating their length and driving the oil share into six and half month highs.

Where do we go from here? Even if a China deal is reached tomorrow, the resulting relief rally is likely smaller than it would have been 30 days ago thanks to our growing yield and domestic surplus which means that there will be heavy selling to meet and limit any rally potential. If the southern hemisphere doesn’t run into a weather problem this winter to alter the global supply situation materially, US new crop acreage will need to come down and somewhat dramatically too.  If you work with the numbers you will quickly find that this will not be an easy task.

The wheat complex tried to rebound after another rough start to a week yesterday, but only the Chicago Dec was able to muster marginal gains, while the rest of trade finished slightly lower. There was some optimism at the start of the day. Also, there was a seasonal trade recommendation that started today that was to buy wheat and sell beans. This may have given Chicago wheat some support and put some pressure on beans throughout the day. But there was nothing really friendly that came out of the GASC tender, and with the corn market struggling and the soy complex trading on the defensive, even with the seasonal trade recommendation today, there was little hope of much of a rally in wheat.

Stats Can will be out this Friday with their first crop report estimate. Yields have been hard to gauge as they have been up and down, but protein is high. A couple weeks ago, the USDA left the Canadian wheat crop at 32.50 MMT, but may private analysts think this number could be closer to 30.0 MMT. The average guess for all wheat production is around 30.6 MMT, but do not be surprised if that number is a little bigger, only because they may be slow in adjusting what their crop may be. If they do come in below expectations, that would only add fuel to the speculation as to how much the USDA will adjust their World wheat production estimates come the Sept report.  Keep in mind, EU production will be lowered again in the Sept report, and Australia most assuredly will at some point, but the September report might be too soon. September is when wheat yields are made or lost for our friends down under, and with the weather issues the country has already been having, they will be hoping Mother Nature is a little more cooperative over the next four weeks. The USDA decided not to touch their Aussie wheat production estimate in the August report and left it at 22 MMT, but that crop is at best 20 MMT, and some are thinking it could be as low as 15 MMT if weather does not improve.

Anna Kaverman

anna@mercerlandmark.com

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