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FOR THE WEEK ENDED 2-15-19

CORN – The more things change, the more they stay the same.  I haven’t written this article for two weeks and this statement still rings true.  March corn has not broken out of the $3.71 to $3.85 trading range it has been in since December 19th.  If you go back to December 1st, it’s only traded a range of $3.71 to $3.87 ¾ per bushel.  It may test one end of the range or the other, but there hasn’t been enough push to break the sideways pattern.

Disappointing weekly export sales and inspections, along with improving Brazilian weather, pressured prices lower for the week.  The Chinese trade talks seemed to be making progress as the week ended and they will be extended into the week of February 18th. Whether an agreement is reached or not, President Trump has indicated he could postpone increasing tariffs on $200 billion worth of goods from 10% to 25% for 60 days if he deems progress is being made. China has asked for a 90-day extension. There are significant hurdles yet to be overcome concerning technology issues.  However, if something is worked out, there may be direct benefits for the corn market through increased purchases of DDGs and ethanol.

Weekly export sales this week were just through January 3rd.  They came in a disappointing 18.1 million bushels.  Total commitments are 19% higher than last year at 1.27 billion bushels.  We need 33.2 million bushels per week to ring the bell on the USDA’s 2.45-billion-bushel export outlook.  One bright side, there were new reported sales of 328 tmt this week.  The next weekly export sales report will cover sales made from January 10 through February 14. Weekly ethanol production was up 62,000 bpd to 1.029 million bpd, the second largest weekly increase on record.  This is still below what we need each week to hit the USDA target, suggesting the USDA may need to lower the ethanol line on subsequent reports.  Ethanol stocks fell 400,000 barrels to 23.5 million barrels.  Margins were up a nickel at a positive one cent per gallon, reversing 20 weeks of negative margins.

The USDA’s long-range outlook released this week indicated 2019/2020 US corn acreage at 92.0 million acres with carryout at 1.603 billion bushels. This year’s USDA corn carryout is estimated at 1.735 billion bushels. IEG Vantage, formerly Informa Economics, formerly Sparks, this week pegged 2019/2020 US corn acreage at 91.6 million acres.  This is 2.5 million acres higher than last year’s 89.1 million planted acres.  Their 2019/2020 corn carryout was forecasted at 1.714 billion bushels.

Conab increased their Brazilian corn outlook .5 mmt to 91.7 mmt versus the USDA’s 94.5 mmt.  In Argentina, the Rosario Grain Exchange increased their corn crop outlook 2.5 mmt to 46.5 mmt and the BAGE is pegging corn production at 45 mmt.  The USDA has Argentina at 46 mmt.

OUTLOOK:  Until we see a catalyst to push corn prices higher or lower, corn may be deemed to remain in its $3.71 to $3.85 per bushel trading range.  Recent action suggests if the path of least resistance for a move may be to the lower side.  For the week, March and July corn contracts were each ½ cent higher at $3.74 ¾ and $3.90 ½ respectively, and December corn was steady at $3.98 ¼ per bushel.

SOYBEANS – South American weather has been improving over the last few weeks, suggesting we may have seen the lowest Brazilian soybean production estimates of the year.  This week, Conab lowered their Brazilian bean forecast 3.5 mmt to 115.3 mmt. Safras cut their Brazilian projection from 115.7 mmt to 115.4 mmt. These are slightly higher than private outlooks.  Brazil’s soybean harvest was a record pace at 24% complete as of February 14 versus 11% complete on average.  In Argentina, the Rosario Grain Exchanged raised their outlook to 52 mmt and BAGE was at 53 mmt.  The USDA is carrying Argentina at 55 mmt.

This week’s weekly export sales announcement only covered through January 3rd.  It contained surprisingly large cancellations by China of 807 tmt and another 444 tmt of cancellations by unknown.  This put net sales at a negative 22.5 million bushels or 612 tmt.  The market reacted negatively, but there was chatter wondering if we will see Chinese purchases show up on next week’s report that will put us current on sales.  Total soybean export commitments at 1.11 billion bushels is down 27% from last year.  We need to average 23.4 million bushels of exports each week to hit the USDA export projection of 1.875 billion bushels. In January, China imported 7.4 mmt of soybeans.  This was an increase of 29% from December, but down 13% from January 2018.

Trade talks with China will be extended into the week of February 18th.  Higher levels sources seem to be more optimistic on the progress being made than at lower levels.  Regardless, this week’s export sales report makes one wonder what kind of soybean purchases could be expected if an agreement is reached.  We are uncompetitive with Brazilian beans into China and it’s unknown how much coverage China already has in place for the summer.  New African swine fever cases are still being discovered in China which will cut demand.

The USDA, in their long-term forecast, is expecting US soybean acreage at 82.5 million acres versus 89.2 million acres last year.  Their 2019/2020 soybean carryout is 723 million bushels. The January NOPA soybean crush report was a record 171.6 million bushels and the fourth largest crush ever.  It significantly exceeded the 169.5-million-bushel estimate.  The market treated it as mildly friendly news.  Soyoil stocks were 1.549 billion bushels versus 1.566 billion bushels estimated.  This was the smallest build in soyoil stocks in 22 years.

OUTLOOK:  For the week, March soybeans were down 7 cents at $9.70 ½, July dropped 7 ¼ cents to $9.35, and November fell a nickel to $9.52 per bushel.  Technical support in the March contract lies at the 100-day moving average of $9.02 per bushel as of the close on February 15th.  If the trade talks continue make progress, we could expect this to hold short-term, but without demand or a change in South American growing conditions, it’s difficult to make a long-term case for higher prices.

WHEAT – US Wheat is competitive again as Egypt bought some US soft wheat in its tender last week.  The interesting part of that transaction was that no Russian wheat was offered and that could be an indication that Russian supplies are now tightening up and raising their values.  The USDA is reporting wheat farmers have enrolled 44.954 million acres of wheat in 2019 subsidy programs. Texas’ wheat crop was rated 31% Good/Excellent, up 4 from last week and 26% was rated Poor/Very Poor, up 5 from last week.

Anna Kaverman

anna@mercerlandmark.com

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