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Market Report

Wednesday January 16th, 2019

March 19 corn closed up 2 ¾ at $3.74 and December 2019 closed down 5 ¾ at up 2 ¾ at $3.99 ¼. March beans closed up 1 ¼ at $8.94 ½ and November 19 closed unchanged at $9.37 ½. March wheat closed up 1 ½ at $5.12 ½ and July 19 closed up 2 ½ at $5.23. Crude oil closed up $.22 at $52.61.

The corn market managed a somewhat anemic bounce, recovering one-third of the prior day’s losses. To be fair, the market did defend those gains all day, which is a minor victory, and the higher overnight open did leave behind Tuesday’s close. Managed Money traders bought at least 5,000 corn today, which would take their net length back up to an estimated 40,000 combined futures and options. Today was clearly “buy the break” day, particularly for world corn buyers. The most notable was South Korea. Their various major grain buyers picked up 266,000 MT, which was their largest purchase in at least one month. Prices paid suggest U.S. origin.  Turkey and Iran are both in for a good chunk of corn, too. The former will likely go Black Sea, the latter will, too, assuming they can get around sanctions.

The weekly EIA report played out relatively close to our expectations. The surprise was a larger-than-expected bump in production, which rebounded with a vengeance, surging 5% higher after making a nine month low in the prior report.  We were looking for a 3% increase. Weather has receded to a background issue given the variability in Brazil crop conditions.  The dry pockets are mostly in the center south, interior far-south production areas, and the northeast.  Argentina summer crop areas remain in mostly good shape, while South Africa still needs more rain.  Parts of the U.S. Midwest buckling up for another winter storm this weekend.

The soybean market continued to test its key chart support but was unable to break down and instead reversed higher late in the session. It felt like they were trying to break the market into stops but couldn’t get it done. This can be seen as a minor victory of sorts that could promote another short term recovery while the underlying fundamentals have long term demons that have yet to play out. Meal similarly found support and reversed as it approached its uptrend.

The ongoing bullish factors for soybeans are the optimism for a trade agreement with China that removes tariffs and includes sizeable sales commitments. Spotty weather in Brazil has taken off the top end of that crop likely reducing production potential below last year’s record. US crush demand continues to produce monthly records thanks to plentiful bean supplies and profitable margins. The recent slowdown in ethanol demand has firmed distillers values leaving soybean meal as a cheaper alternative protein for feed rations. This has firmed demand for meal in domestic feed channels.

The ongoing bearish factors for soybeans are the supply side realities with US carryout stock most recently projected by the USDA at 955 million bushels, more than double last year’s carryout of 438 million bushels. This is partly due to the trade war which has hit export demand but also and importantly due to overproduction where planting around 90 million acres the past two years with record/near record yields outproducing even the most optimistic demand scenarios. Current price relationships do not imply a sizeable shift away from soybean acres in the US this spring, potentially further inflating US supplies into next year. World supply side realities with Global soybean stocks most recently estimated by the USDA at 115.33 mmt compared to 101.3 mmt last year. Argentina soybean production expected to rebound with recent trade estimates generally falling in a 53-55 mmt range compared to 37.8 mmt last year taking Southern Hemisphere combined production up year over year despite challenges in Brazil and Paraguay. Demand from the world’s biggest soybean buyer, China, is weakening significantly partly due to diversified protein usage during trade war but also, increasingly, due to the expansion of African Swine Fever that has led to a culling of hog herd.

After a rough stretch to the start the week, the wheat complex was able to post marginal gains overnight, and more gratifying, was able to hold those gains during the day. It wasn’t always pretty, but all three classes of wheat were able to post some sort of gains. For wheat, trade is entering a very important time frame. For the past six months the USDA has kept telling us that demand for US wheat will pick up during the second half of the marketing year. Well, here we are. Any wheat purchased now will not get to its destination until mid-March. Wheat futures have drifted back down towards the lower end of its recent range and into an area where the past several times we have seen demand surface. Have not seen it yet, but it is imperative that this trend continues, especially now as we await the government to re-open, so we can start getting USDA reports.

The most significant of the reports being the acreage data. Regardless of what the Russian Ag Minister says, whether they will monitor their wheat exports or whether they say they are not discussing limits on grain exports abroad, as their wheat stocks diminish they will eventually price themselves out of competition. It will be at this time when the US will have to be competitive enough to win some of that business. We already have seen it with the GASC tenders, we now need to start seeing it elsewhere. The longer the US is uncompetitive and/or is unable to win any business, the bigger the chance that wheat futures will find selling on rallies and will be unable to extend. There are no guarantees that China will buy US wheat, and although there are expectations, there is no promise that winter wheat acres will be lower year over year.

Anna Kaverman

anna@mercerlandmark.com

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