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Tuesday September 11th, 2018

December closed down ½ at $3.66 ¾ and March 19 closed down ¾ at $3.78 ½.  November beans closed down 13 ½ at $8.31 ¾ and January 19 closed down 13 ½ at $8.45 ½.  December wheat closed down 9 ½ at $5.18 ¾ and July 19 closed down 8 at $5.52 ½. Crude oil closed up $1.63 at $69.04.

“USDA Report Eve” brought more of the same for corn quiet, consolidative trade, ultimately finishing Tuesday fractionally lower. Corn made its highs Monday night and its lows shortly after the day open. This is a familiar theme of late and spent most of the day flitting between unchanged and lower. Managed Money traders were viewed small net sellers today, and will head into the report net short close to 90,000 combined corn futures and options.

World numbers were a focus early. Brazil’s corn crop keeps trickling lower. CONAB pegged the full year (first and second crop) corn at 81.4 mmt, which compares to last month’s forecast of 82.2 and the prior crop of 97.8 mmt. They believe Brazil will export 25 mmt of corn. By contrast, the Ukraine grain harvest keeps working its way higher. The gov’t there raised the total grain harvest estimate (including other crops besides corn) by +3.1 mmt from prior to 63.1 mmt. This likely helped stimulate a “Turnaround Tuesday” lower in European grain markets after making encouraging stability trades Monday following a harsh break. Note most of the Ukraine crop will likely be consumed regionally, with European feed grain estimates back-tracking.  For example, the French corn crop output was pegged 400k lower to 12.4 mmt.

Weekly crop progress report found the expected 5% corn harvested tally, which is slightly ahead of normal. Both “dent” and “mature” progress metrics are running 11% and 14% ahead of average, respectively, indicating harvest will likely ramp up much quicker than usual. NOAA maps still promising a dry five day outlook, which should help fields dry out from recent heavy early Sept rains. Rain does indeed make grain, apparently; condition ratings this week improved contra-seasonally in corn, with national Good-Excellent ratings advancing +1% wk/wk to 68% (vs. 61% last year).  Tales on the ground still indicating the storms likely did more harm than good to US corn yields, but time will tell. The focus of the USDA crop report tomorrow will no doubt be US production. The gov’t has a mixed record on the Sept report relative to Aug, raising yields just as often as they reduce them. The average analyst expectation heading in is for a small reduction from the USDA’s record 178.4 bpa reported in August.  Note, this would still imply a record high yield. Given high ethanol production rates, we also would not be surprised to see a modest reduction in old crop (17/18) carryout, but perhaps they will save that for October. Most analysts are looking for small cuts to both world and domestic 18/19 carryout estimates.  We see world corn production as a mixed bag. USDA may be forced to raise Ukraine corn production, but trim both EU & Brazil.

The soybean market broke sharply as pre-report selling took over and ran sell stops down for a test of the lows in July. Beans are bracing for a soundly bearish crop report tomorrow where yields are est. on avg. to increase from 51.6 to 52.2 bpa inflating the domestic carryout from 426 mb in 17/18 to 830 mb in 18/19.  Global stocks are est. on avg. to increase from 95.5 mmt to 107.3 mmt. These numbers will not be a surprise but are a stark reminder of the supply situation we are mired in. The delayed crop progress report midmorning reinforced this big crop message by showing soybean crop ratings increased counter seasonally by 2% to 68% gte which compares to 60% gte this time last year and brought additional pressure.

On the demand front, the USDA flashed a cancellation of 192 tmt beans to unknown which helped set the negative tone early on.  US soybean exports have more than held their own on non-Chinese demand stepping in but on a longer term basis, we need them and they need us but there no indications of any progress in negotiations with China at this point. Without the Chinese market, it is a longer and more arduous task to chew through our supplies will require a significant shift in acreage this spring if nothing has changed. The products were weaker but held up better than the beans which popped board crush a nickel to settle at nearly a one-month high for margins which have now recovered 32 cents off the corrective lows from last month.

The wheat complex was unable to hold early overnight gains, weakened through the morning break, then remained on the defensive throughout the day. The reversal after the stronger start to the night, and subsequent defensive price action throughout the day, is a sign that traders are still skeptical that the USDA is not going to be as aggressive as they probably should be in Wednesday’s report. But tomorrow is not only about the crop report anymore as Egypt is back in for wheat.

After the close the GASC announced they were in for wheat for Oct 25 thru Nov 4 shipment. Their last purchase was just last week. They only bought one cargo (60 TMT) and it was of Russian origin. The purchase price was $235.00, which was $6.30 below their purchase price from their prior tender. The lowest FOB offer last week was $217.90, which was $3.61 below their purchase price from their prior tender. Crop Report will be out in the morning. The report is mostly a corn and bean report, but the USDA could make it an exciting report for wheat if they tweak their World numbers more than people expect. US ending stocks should be up slightly from August’s 935 mil estimate. As far as the World numbers, 2017/18 ending stocks will probably be up slightly, but 2018/19 ending stocks should see some sort of reduction. August’s estimate was a shade under 259 MMT, but we very easily could see a 255 MMT number or lower, depending how much of a slash we see in World production estimates.

Anna Kaverman

anna@mercerlandmark.com

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