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Market Report

Wednesday November 7th, 2018

December closed down 1 at $3.72 ¼ and March 19 closed down 1 ½ at $3.83 ¾. January beans closed down 4 ¾ at $8.79 ½ and March 19 closed down 4 ¼ at $8.92 ¼. December wheat closed down 1 ¾ at $5.10 ¼ and July 19 closed down 4 ½ at $5.41 ¾. Crude oil closed down $.52 at $61.82.

Corn featured another disinterestedly lower session of trade, as the mid-terms offered no surprises and traders position for tomorrow’s major crop report. Managed Money traders were viewed net sellers of almost 10,000 corn today, which would likely leave them small net shorts heading into tomorrow.

Make no mistake it’s all about the report tomorrow. The November WASDE is normally a “tweaker” report, as everyone has been exposed to reams of “real” data on harvest since Aug/Sept. The average analyst guess is for the USDA to continue taking yields lower after surprising the trade with lower October numbers.   The forecast is for 180 bpa yields, which compares to 180.7 in Oct, and 176.6 final last year. This is expected to trim carryout back a notch too. Analyst guess for domestic 18/19 carryout is 1.77 billion vs. 1.81 bil in October and 2.14 bil the prior season. World carryout will likely also be an afterthought. Analysts are expecting world ending stocks to hold steady, as other countries offset the expected dip in US carryout expectations. For corn, at least, the focus will be on U.S. production, whereas for beans, by contrast, it will likely be equal split between U.S. supply and demand.

The U.S. mid-term elections are in the books, and offered little feature to the grains given the expected split verdict (GOP controls Senate, Dems control House). Outside markets reacted positively, with the Dollar trading to a two week low and equities firm. A surprise either way may have had a bearing on trade negotiations, potentially, but this likely changes nothing. Corn seemed to be more preoccupied today with some interesting revisions coming out of China. In one fell swoop, the gov’t there raised 2017 production to 259 mmt from 216 prior. Imagine if the USDA raised their estimates of US production by 20% on a random Wednesday morning – pandemonium!  The relative unreliability of Chinese statistics contained the reaction to this development.

The soybean market settled lower for a third consecutive day on pre-positioning ahead of tomorrow’s USDA report. Trade volumes continue to be very light with uncertainty over how to quantify near term risk/reward. On one hand you have potential for a breakthrough in trade negotiations with China starting with the G20 summit later this month that has the potential to spike prices and thus prevents an aggressive stance on new sales while the current statistical realities of the market keep fundamental buyers on the sidelines.

The grain markets’ focus of the moment is on tomorrow’s USDA crop report which will feature another look at the US corn and soybean yields where slight reductions are expected. This is more significant for corn considering the tighter supply situation while shaving a little off the bean yield doesn’t change the burdensome bean supply situation. On top of that, we are also expecting a cut in bean exports on the demand side of the ledger, so our carryout may still go up. There is no reason to downgrade Southern Hemisphere production prospects either with a favorable start to their planting and development. On a longer-term basis, we have to solve our acreage issue, most likely through lower prices. China tariffs or no, we would still be fighting this burdensome supply situation because we have planted 90 mln bean acres the past two years and grown near record and record yields.

Elsewhere in the news, the US is set to impose new duties on Chinese aluminum sheet products. China’s top grain producing province Heilongjiang is slashing subsidies for farmers to plant corn and nearly doubling the subsidy to plant beans. The 2018 subsidies are set at $25.79/acre for corn and a whopping $330/57/acre on beans. This is a dramatic effort to shift production in soybeans. Chinese Ag Ministry acknowledged another African swine fever outbreak was recorded in central province of Hubei.

The wheat complex saw mixed price action overnight. That trend continued throughout the day, with the spread between the classes extending. The Mpls/Chicago spread had a big outside day lower move today, maybe implying that in tomorrow’s report we will see similar adjustments in carryout in each class of wheat as we saw last month. Hard to imagine that the USDA will lower SRW carryout for a second consecutive month, but we could easily see HRW and HRS carryout go up a little again.

Looking ahead to the crop report tomorrow, the bull will be once again hoping for World production downgrades, but how much of a reduction could we possibly expect. Australia is the obvious reduction, as the USDA will no doubt lower production there by 1.5 to 2.0 MMT from 18.5 MMT down to maybe 17.0 or 16.5 MMT. Everywhere else though is a toss of the dice. Can they lower Argentina? Sure. Will they finally lower the EU that is so long overdue? They should, but they probably will not. Russia’s wheat production continues to rise. Look for the USDA to offset any reductions with an increase in Russia’s crop estimate and maybe give us slightly higher yields out of the FSU. With that being said, look for World wheat ending stocks to be similar to last month’s 260.18 MMT.

Anna Kaverman

anna@mercerlandmark.com

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