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Wednesday October 10th, 2018

December closed down 1 ¾ at $3.62 ¾ and March 19 closed down 1 ¾ at $3.74 ¾. November beans closed down 10 ¾ at $8.52 ¼ and January 19 closed down 10 ¾ at $8.66. December wheat closed down 4 ½ at $5.10 ½ and July 19 closed down 3 ¼ at $5.48 ¾. Crude oil closed down $1.78 at $73.03.

Today was a “red day” for most commodities, and corn proved unable to fully shake off the negative macro tide. Corn trended a little lower overnight but spent most of the day trading at small losses, ultimately finishing the day lower. Managed Money funds were viewed net sellers of about 5,000 corn today, which would leave them net short just over 105,000 corn heading into tonight.

Get ready for another monthly update from the USDA. The November crop report will bring a fresh look at U.S. production, as more ‘real’ data flows in. The general theme ahead of the report is a resigned, “big crops will probably get bigger.” The average trade guess ahead of the number is for a 181.8 bpa corn yield (180.6-183.5 range), which compares to 181.3 bpa reported in Sept and 176.6 the prior season. Of note as well will be the incorporation of the Sept 1 Quarterly Stocks data, which will add another 140 million bushels to 17/18 carryout, and thus 18/19 carry-in. With that point in mind, the average 18/19 domestic carryout analyst forecast is 1.92 billion bushels, which compares to 1.774 billion estimated by the USDA in Sept.  World numbers will be an afterthought, but it would not be surprising to see minor upgrades to Brazil and downgrades to Ukraine. Though the odds are stacked against it, a decline in U.S. corn yields would likely provoke a more dynamic market reaction than another small uptick.

No E-15 headline pop in corn today, which is no surprise. That being said, if the EPA does indeed follow through on their proposed rule-making for an RVP Waiver exemption on E-15 blends, it is a solid political “win” for the ethanol crowd. Oil lobbyists have threatened lawsuits to prevent the resulting loss of market share, but the timing of the rulemaking is right, as it does not need to be completed until May-June of next year. Plenty of time to hash out details and fight legal battles.  On the weather front, forecasts are turning mercifully dryer for the water-logged Midwest. Unfortunately, it is also getting chillier, which will not help evaporation rates any, and could make it a slow slog at first for farmers to get back into the field. Expect plenty of chatter in coming days over quality concerns. Brazil early-season planting conditions have been almost ideal and they are not likely to change much for a while. Argentina needs rain in the west and north to support corn planting.

Soybeans continued to correct off its recovery highs as the market gets repositioned ahead of tomorrow’s USDA crop report. Look for the market to continue to struggle ahead of the report as the USDA reminds everybody of our burdensome supply side realities both domestically and globally but this is known and sets up a potential disappointing bear response to the number.

With the exception of the hurricane related rains in the South East and forecast for Texas this weekend, the Midwest will be entering a drying period although that also comes with much cooler temps that will slow the pace of drying. The resumption of harvest in some of the areas that saw the heavier rain totals over the past week or 10 days will take time. In some of the areas of KS and IA that have been inundated with rains over the past couple of weeks, we are hearing increasing reports of soybean sprout issues developing and bean pods cracking.

More back and forth on trade rhetoric with China where a finance ministry official told reporters at the IMF and World Bank meetings in Bali this morning that he felt “a little bit more optimistic” on the prospect of breaking an impasse in trade negotiations with the US, saying both sides are too economically integrated to tolerate a fallout.  The USDA announced that the $12 billion farmer aid package due to the trade tariffs could be reduced in size following the new trade deal struck with Canada and Mexico. They are holding the second half of that package on standby pending trade progress into the end of the year.

Early overnight gains started to fade after the start of the European session, and the light selling continued into the morning break with all three classes of wheat finishing slightly lower. Looking ahead, if the markets are going to take that next step forward, it is going to need a lot more announcements like we heard Tuesday morning. For now, they have been too far and few between, and because of that we will probably see US wheat ending stocks increase month over month in Thursday’s report.

The bull will be hoping for World production downgrades, and although it definitely may be warranted, there is no reason to believe that it is a given we will see that big of a slash in World production. Russia seems to be coming up to the US estimates, especially after the Russian Ag Ministry raised its wheat production estimate by around 4.5 MMT from its previous estimate, but the EU should be lowered a little, as should Australia. Depending on how much those are lowered will depend on whether we see World ending stocks increased or lowered vs last month. But even if we see a decrease in World production and World ending stocks, a significant increase in US ending stocks will offset any bullish enthusiasm the markets will get from the World numbers. And there is where the dilemma arises. We have repeatedly said over the past several months, until the US export program kicks in, rallies will probably be hard to hold. And if the US export program does not kick in until after the first of the year, it will be a long few months for the wheat complex.

Anna Kaverman

anna@mercerlandmark.com

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