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Friday January 25th, 2019

March 19 corn closed up 3 ¼ at $3.80 ¼ and December 2019 closed up 2 ½ at $4.03 ¼. March beans closed up 9 ¼ at $9.25 ¼ and November 19 closed up 7 ¾ at $9.64 ¼. March wheat closed down 1 ½ at $5.20 and July 19 closed down 1 at $5.33. Crude oil closed up $.56 at $53.98.

FOR THE WEEK ENDED 1-25-19

CORN – The more things change, the more they stay the same.  Corn was stagnant in the same trading range it’s been in since November and closed slightly lower for the week.  Corn closed lower for the first three days of the holiday shortened trading week before recovering on spillover strength from the soybean market.  This week was not much different from last week with traders trolling daily for headlines to act upon. On Friday, President Trump announced the government would reopen for three weeks until February 15th while negotiations continue on border security and immigration issues.  According to early reports, we will see both overdue and scheduled USDA reports on February 8th.

Weekly export inspections for corn were better than anticipated at 43.6 million bushels and the largest in eight weeks.  We need inspections to average 46 million bushels per week to hit the USDA’s 2.45-billion-bushel export outlook.  The weekly ethanol report showed production fell 20,000 barrels to 1.031 million barrels.  Over the last ten weeks, ethanol production is running 2.5% behind last year’s pace.  Weekly ethanol stocks were up 150,000 barrels to 23.5 million barrels.  Net ethanol margins were negative for the 18th week in a row at a negative 6 cents per gallon.  When the government finally issues updated balance sheets, it’s likely the corn usage for ethanol will be reduced.

A grower survey by Farm Futures projects corn acreage will increase from 89.1 million acres in 2018 to 90.3 million acres in 2019.  This is a 2.4 million acre or 1.3% year on year increase.  For soybeans, the survey indicated soybean acreage will fall 2.9 million acres or 5.5% year on year from 89.1 million acres to 84.6 million acres.  Wheat acreage in 2019 was forecasted to fall 2.5% to 46.6 million acres.  IEG Vantage, formerly Informa Economics, is currently forecasting 2019 US corn acreage at 91.5 million acres, soybeans at 86.2 million acres, and winter wheat at 31.5 million, other spring wheat at 13.8 million, and durum wheat at 1.88 million acres.  IEG Vantage is forecasting the corn carryout for 2018/2019 at 1.817 billion bushels versus USDA’s 1.781 billion bushels.  For 2019/2020, they predict the carryout at 1.824 billion bushels.  The International Grains Council increased its 2018/2019 world corn production forecast 3 mmt to 1.076 billion tons.  The 2018/2019 world corn carryout outlook was raised 5 mmt to 271 mmt but is down 33 mmt year on year.

China’s corn market posted its biggest one-day rally in over a year on news their strategic reserve administration for state firms would raise corn prices paid to farmers.  Growers there are said to be holding a larger than normal percentage of their old crop corn and the government would like to get it into better storage facilities.  This prompted talk that the government would push back corn auctions of state reserve corn from early summer until later to give farmers a longer selling period.

OUTLOOK:  Each day can hold its own surprises and this has kept traders cautious, but overall, it’s been a sideways, mostly boring market.  The US dollar index rallied to a 3-week high during the week, lending some pressure on commodities early in the week; however, the US dollar fell into the weekend, helping corn to break a string of 3 consecutive lower closes.  For the week, March corn was down 1 ½ cents to $3.80 ¼, July was off ¾ cents at $3.96 ½, and December fell ½ cent to settle at $4.03 ¼ per bushel. Now that the government is reopening, we could see USDA reports that will drive direction.  Did China buy any corn during the last month?  Stay tuned.

SOYBEANS – Soybean prices tested the $9.00 level when traders returned from the long holiday weekend.  Weekend weather in Brazil was as expected with rain in Brazil easing some dryness concerns.  Prices recovered in the days following, but a comment from US Commerce Secretary Ross that the US and China were “miles and miles” apart on resolving trade issues but believed eventually an agreement would be reached, limited the upside.  Rumors early in the week that the US had cancelled a preliminary meeting between the US and China before higher level meetings scheduled in the US for January 30-31 were rejected. The scheduled January 30-31 meetings between the US and China remain on the calendar.  According to US officials, there never was a preliminary meeting on the books, thus, there was no meeting to cancel.  Headlines and rumors continued to capture the market’s attention and drive daily direction.  Remember, the deadline to reach a deal with China and avoid raising the tariff on $200 billion worth of Chinese goods from 10% to 25% is March 1.  China’s economic growth in 2018 was just 6.6%, the lowest since 1990.

Brazil’s second largest soybean producing state of Parana lowered their soybean production estimate 2.3 mmt from 19.1 mmt to 16.8 mmt due to dryness in December.  Parana’s soybean harvest was estimated at 15% complete with 70% in good condition and 7% in poor condition.  On January 7, 58% of their beans were rated good and 12% of the crop was in poor condition.  It was said areas that have been hit the hardest by dryness in Brazil are the areas that had the earliest planted soybeans.  Later planted soybeans are believed to be in better condition.  The third leading soybean producing state of Rio Grande do Sul reduced their production estimate from 18.7 mmt to 18.4 mmt.  The International Grains Council cut their world 2018/2019 soybean production projection 4 mmt to 363 mmt.  2018/2019 carryout was increased 3 mmt to 54 mmt and is up 10 mmt year on year.

Weekly soybean export inspections were within expectations at 40.8 million bushels with cumulative exports down 40% from a year ago.  We need to average 35 million bushels per week to hit the USDA’s 1.9-billion-bushel export forecast.  China imported just one soybean cargo from the US in December.  They imported 4.39 mmt of soybeans from Brazil in December.  For all of 2018, China only imported 16.6 mmt of US beans versus 32.9 mmt in 2017.

The EU meets in Brussels on January 30th and will discuss waiving the import tax on Argentine biodiesel imports, with the possibility of adding an import quota.  If it happens, Argentina may crush beans for the biodiesel market.  This will put more meal on the market, which we don’t need, especially if China’s African swine fever culling has been underreported.

OUTLOOK:  Overall price direction will depend on the accuracy of rain for Brazil and updates on progress of trade talks with China.  March soybeans closed above the 200-day moving average technical resistance for the first time since June on Friday’s rally.  This may attract buyers to send prices to the $9.40 area if it continues to be dry in Brazil, prospects look better for a Chinese deal, or technical buyers reemerge.  For the week, March soybeans were 8 ½ cents higher at $9.25 ¼, July rallied 9 ¼ cents to $9.51 ¾, and November gained 8 ½ cents to close at $9.64 ¼ per bushel.

WHEAT – The International grain council raised its 18/19 wheat production outlook by 8 million tons to 737 million tons. US Wheat markets are keeping a close eye on Russian wheat activity.  Russian prices have crept higher and analysts are wondering if they slow their export pace due to a smaller than expected wheat crop this year.  US wheat is competitive in world markets now, but Russia still holds a sizeable freight advantage. Traders are also watching Ukrainian wheat exports.  Exports have almost hit the quota for shipping milling wheat for the year and have been asked to submit export plans for the rest of the year. Bloomberg is reporting a new wrinkle on the trade war front.  China might be willing to buy significant quantities of US wheat in order to improve the negotiations and to help offset the trade imbalance. Nothing official but bears watching. Wheat export inspections were ok this week, hitting the middle of expectations this week. Inspections are behind the USDA total by 143 million bushels. HRW wheat made up the largest portion of inspections.

Anna Kaverman

anna@mercerlandmark.com

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