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FOR THE WEEK ENDED 9-7-18

CORN – August went out with a bang and September ushered in additional gains.  There wasn’t much fresh news to drive the market.  One market moving item was Argentina’s move to reinstitute the export tax on corn and wheat, and readjust the soybean export tax. In their bid to keep IMF funding, they need to shore up their balance sheet.  Their export tax on corn and wheat was eliminated back in 2015.  The new tax is a floating tax related to the US dollar/Argentine peso ratio, equating at current levels to a 10% tax.  This should be friendly to US commodities.  A negative spillover effect from the wheat came from Russia confirming they see no need to limit their wheat exports at this time.

Moisture from Tropical Storm Gordon pushed up into the Midwest, delaying early harvest progress, and increased chatter of possible quality and/or lower yield concerns.  Informa Economics raised their 2018 US corn yield from 176 BPA to 178.8 BPA, and slightly higher than the current USDA forecast of 178.4 BPA.  Informa’s corn production was pegged at 14.621 billion bushels versus USDA at 14.586 billion bushels.  The next WASDE report will be released September 12th and may change this comparison.

Weekly export sales were delayed a day due to the Labor Day holiday.  They were okay at 1.2 million bushels for old crop and 40.7 million bushels for new crop. Old crop carryover sales look to be historically big at 132 million bushels.  Last year, we carried over just 40 million bushels of sales. New crop total commitments are 451.6 million bushels compared to just 334.1 million bushels last year.  Weekly ethanol production was up 17,000 bpd to 1.087 million bpd.  This was the second highest weekly production in the last 36 weeks.  Ethanol stocks declined 358,000 barrels to a record high level for the end of August at

On the political landscape, the US, Mexico, and Canada are closer to a trade deal.  One of the hold-ups with Canada is their wanting to keep the 300% dairy import tax in place.  There is chatter that the closer we come to a NAFTA deal, the less likely we’ll settle our issues with China at the November meetings.  If we are making deals with other countries, then possibly they will join the US in opposing Chinese trade policies.  There are new rumblings that President Trump wants to renegotiate trade policies with Japan, and not in a good way for Japan.

OUTLOOK:   In the present political environment, most traders anticipate corn acres expanding next spring at the expense of soybean acres.  Keep an eye on the December 2019 corn price to establish a benchmark first sale.   Looking ahead to the September 12th WASDE report, the trade historically underestimates the September USDA corn and soybean yield. December 2018 corn feels comfortable ahead of the report in its $3.55 to $3.70 per bushel price range.  After the report, attention will focus on yield reports from the field for both corn and soybeans.  For the week, December corn was up 2 cents at $3.67, July up 2 ¼ cents at $3.92 ¾, and December 2019 up 1 ¾ cents at $3.96 ½ per bushel.

Average trade guess for the September 12th WASDE report:  US yield at 177.8 BPA vs. 178.4 BPA last month; production 14.529 billion bushels vs. 14.586 billion last month; US 2017/2018 ending stocks 2.028 billion bushels vs. 2.027 billion last month; US 2018/2019 ending stocks 1.639 billion bushels vs. 1.684 billion last month; world ending stocks for 2017/2018 at 192.24 mmt vs. 193.33 mmt last month; world 2018/2019 ending stocks 154.48 mmt vs. 155.49 mmt last month.

SOYBEANS – Soybeans continue to struggle under the absence of Chinese buying.  Prices drifted sideways during the week.  Support early in the week was generated from Argentina’s restructuring of their soybean export tax.  The tax was steady at 25.5%.  Under the new equation, the tax was lowered to 18%, but then a $4 peso/US dollar calculation brought it up to around 28% at current exchange rates.  The situation is fuzzy as traders untangle what the regulations mean to sales already on the books and how payments will be handled.  This should be supportive to US prices, but with no progress on ending the trade war with China and a huge crop at hand, the path of least resistance is lower.   In fact, the trade war may escalate as the comment period on 25% tariff on $200 billion worth of Chinese goods expired. The US, however, did not immediately implement the proposed tariff.  If they do, China is expected to retaliate with tariffs on $60 billion worth of US goods.  This equates to roughly 40% of the total value of all Chinese goods imported into the US in 2017.  As traders began heading home for the weekend, the US administration stated they could have an additional $267 billion in tariffs ready on short notice, if needed. In Brazil, the government raised the minimum freight rate by 5%, which will be passed on to producers in higher costs.

Put this on your “things to watch” list.  China has confirmed at least 13 cases of African Swine Fever in the country.  There is no cure for the disease.  The United Nations Food and Agriculture Organization held an emergency meeting to discuss the situation and determined it is highly likely the disease will spread to other Asian countries.  If China is forced to cull pig herds, it will negatively affect their meal and, to a lesser extent, corn demand.  This week, an executive with one of China’s top soybean crushers stated China wouldn’t need US soybeans until February/March.  He is forecasting China’s 2018/2019 soybean imports will decline 10.8 mmt to 84.7 mmt with only 700 tmt being sourced from the US, down from 27.85 mmt in 2017/2018.  They estimate they will import 71.1 mmt of Brazilian soybeans and 7.5 mmt of Argentine soybeans, with the balance from various countries.

Informa Economics raised their US soybean yield forecast to 52.9 BPA from 50 BPA last month.  The August USDA outlook was 51.6 BPA.  Informa’s soybean production estimate is 4.698 billion bushels versus USDA’s August number at 4.586 billion bushels. Weekly export sales were essentially nothing for old crop (but did include 35 tmt to Argentina) and 24.7 million bushels for new crop, which included 60 tmt to Argentina and China cancelling 66 tmt.  Old crop sales carryover to new crop looks to be 98 million bushels versus 87 million last year. New crop total commitments are 510.4 million bushels versus 478.5 million bushels last year by this date.

OUTLOOK: Any potential rally in soybean prices will be difficult with US soybean yields believed to be rising and no end in sight to the Chinese trade war.  Historically, November soybeans decline in the second half of September as harvest picks up.  November 2018 soybeans are expected to eventually take out the current $8.26 ¼ per bushel contract low, with rallies finding resistance in the $8.50 to $8.60 area.   For the week, November soybeans were up ½ cent at $8.44, July up ¾ cents at $8.91 ¾, and November 2019 a penny higher at $8.99 ¼ per bushel.  December meal jumped $9.80 higher to $317.00 per ton.

Average trade estimates for the September 12th WASDE report: US yield at 52.2 BPA vs. 51.6 BPA last month; production at 4.649 billion bushels vs. 4.586 billion last month; US 2017/2018 ending stocks at 426 million bushels vs. 430 million last month; US 2018/2019 ending stocks 830 million vs. 785 million last month; world 2017/2018 ending stocks 95.57 mmt vs. 95.61 mmt last month; world 2018/2019 ending stocks 107.29 mmt vs. 105.94 mmt last month.  Interesting tidbit:  the average September soybean yield trade guess has underestimated the September USDA number in each of the last 5 years.

The wheat market is fractionally mixed, stabilizing after last week’s losses. This selloff has allowed the US to become more competitive on the global stage, now we just need to see the US get some business as a result. Overall US exports remain relatively slow and the strongest pace in 6+ years will be needed. We add to the world supply as Canada harvest continues with Alberta at a reported 13% complete. Meanwhile US begins to seed winter wheat in Montana with other areas expected to begin soon. Acres are overall expected to increase and an early corn/soy harvest may also benefit wheat seeding. Winter wheat areas are expected to see a dry weather pattern develop this week. The average trade estimate for US carryout stocks is 941 mb and the average world carryover stocks is 257.58 mmt, down slightly from 258.96 mmt last month.

Anna Kaverman

anna@mercerlandmark.com

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