Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.
Archives

Archive for the ‘Grain Comments’ Category

Market Report

Monday January 14th, 2019

March 19 corn closed up ¼ at $3.78 ½ and December 2019 closed up ¾ at $4.02 ¼. March beans closed down 6 ¾ at $9.03 ½ and November 19 closed down 5 ½ at $9.46 ½. March wheat closed down 5 ¼ at $5.14 ¼ and July 19 closed down 5 at $5.24 ½. Crude oil closed down $1.11 at $50.80.

The corn market featured a mixed start to the week, trading both sides of unchanged at times, ultimately finishing fractionally better on the day. Though it was very quiet overall, it had to be encouraging for aspiring corn bulls to see the market assume the mantle of “upside leader” in the grain complex of the day, largely fending off weakness in beans and wheat. Managed Money traders were viewed small net buyers today, and will head into tonight net long just under 50,000 combined futures and options.

Fresh news remains hard to come by in corn, particularly with most gov’t reports on hiatus. World corn markets were mostly lower heading into the day. Matif Corn is continuing its recent corrective effort after rallying throughout Dec and into early Jan. China is perhaps more interesting. The Dalian market was weak overnight, and remains near contract lows for the most actively traded May contract. It is difficult to say whether this is due to expectations of ramped up imports (from the U.S.), or is a negative externality from the country’s ongoing battle with African Swine Fever. Possibly a combination of the two. Government procurement efforts on corn continue to lag behind what is typically the case (perhaps due to the lower prices).

The USDA did surprise some by offering up their mid-day grain inspections report. It was believed the release may be delayed due to a snowstorm in DC.  Much like many current market factors in corn, the report was a good/bad news prospect. Corn inspections more than doubled coming out of the holiday week, and was also 30% greater than the equivalent year ago week. The bad news is weekly inspections are still falling short of the level needed to achieve USDA sales goals (now roughly 1.3 mmt/wk). Still, the YTD inspection tallies are in good shape, seen at 19.5 mmt vs. 12.1 mmt shipped out this time last year.  There remains no lack of export interest around the corn market; but buyers are being aggressively courted by other suitors, such as Ukraine and South America.

The soybean market was the weak sister of the grains today (with meal a close second) as we revisit the $9.00 support level on March beans. January futures expired at noon. The weekly charts in the soy complex will get an early boost this week from the roll to March front month. That is particularly important for meal because it will close the gap lower to start the week. Trade volumes were minimal, cash was quiet with no farmer selling. Fresh inputs were sparse.

The primarily influences today were weather, poor Chinese economic data and African Swine Fever. Brazil saw some light weekend rains across the center-west of the country which are certainly welcomed even they don’t solve the overall drought.  Dryness in the center-west and the north-east along with flooding in north-east Argentina are issues to pay attention to but the weekend rains helped the market relax some today.  Chinese data published yesterday showed their economy continues to slow and this had world markets under pressure overnight and into today. Chinese soybean imports in 2018 were 8% lower year over year. Partly due to the trade war but also due to reduced feed demand. Yet another case of ASF has been reported in the Jiangsu province of China as this soy demand killer of a disease continues to spread throughout the country. The concern is that even with a trade war resolution, if you get one, China’s buying habits are being altered by this new reality. The next round of US-Chinese trade talks will take place in Washington on January 30-31 where high level trade representatives including Lighthizer and Liu. March 1 is the current deadline to reach a trade deal or else the US will raise existing tariffs from 10% to 25%.

After a lower finish to the overnight, the wheat complex did try to firm a bit once we moved into the day session. Thanks mostly to the early strength in corn, but as the corn rally fizzled there was nothing left to keep wheat prices firm, and wheat futures drifted aimlessly lower the rest of the day. Volume was very light. Reminiscent to Holiday themed trade, but it is hard to blame traders for sitting on the sidelines as the longer the government is shutdown, the longer we go with no USDA reports, and that makes it more difficult to maintain any enthusiasm.

Without USDA reports, there are not many other influences around to spark a rally. Demand is the one constant motivator, but the export lineup is basically nil to start this week. A far cry from what we saw this time last week. Eventually Russian wheat exports will slow, and more business will come to the US, but no one can say for certain when that will be. Over the weekend the Russian Grain Minister confirmed its total grain export forecast of 42 MMT, and said they are not planning on holding another meeting on grain exports until February. Does not sound like they are too concerned about wheat exports and that was behind Friday’s rally. China can change the dynamic to trade if they commit to US wheat, but the next round of trade negotiation between the US and China is not until the end of the month.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Friday January 11th, 2019

March 19 corn closed up 2 at $3.78 ¼ and December 2019 closed up 2 ½ at $4.01 ½. March beans closed up 3 ½ at $9.10 ¼ and November 19 closed up 4 at $9.52. March wheat closed up 5 ¾ at $5.19 ½ and July 19 closed up 5 ¼ at $5.29 ½. Crude oil closed down $1.00 at $51.91.

FOR THE WEEK ENDED 1-11-19

CORN – Well, it’s official.  The January WASDE, quarterly grain stocks, and winter wheat seeding reports will all be delayed until after the government reopens.  The longest shutdown has been 21 days, which we matched on January 11th.  Add to that the absence of any export sales reports and here we sit in the $3.72 ½ to $3.84 ½ per bushel trading range we’ve been in since December 19th.  The sign up for the Market Facilitation Program will be extended for the same number of days the government was closed.

Demand news was scarce, but there was chatter China would be in the market for US ethanol or DDG’s.  Nothing materialized from the trade talks and there was nothing to suggest business was done in the export numbers.  Weekly ethanol production pulled back 1% to its lowest level in nine months, down 11,000 bpd to 1.0 million bpd.  Ethanol stocks increased 100,000 barrels to 23.3 million barrels.  Margins were down a penny to a negative 5 cents per gallon.

Conab refreshed their Brazilian corn production forecast this week with a small increase to 91.2 mmt.  Safras was higher at 93.4 mmt, and Agroconsult came in at 95.6 mmt.  The USDA in December was using 94.5 mmt. The Rosario Grain Exchanged put Argentina’s corn crop at 44 mmt versus 42-43 mmt last month and the USDA’s 42.5 mmt outlook. China’s corn estimate for this year’s crop caught up to their previous revisions, putting it at 257.3 mmt versus 215 mmt previously.  The last USDA estimate was 256 mmt. China cut their 2018/2019 corn import forecast from 2.5 mmt to 1.5 mmt.  Neither update was unexpected by the trade.

Weekly export inspections continue to be reported, despite the government shutdown.  Corn inspections were 19.7 million bushels, a big disappointment to trade expectations for 25.6-39.4 million bushels.  This was the lowest of the marketing year.  Cumulative exports are up 61% from last year, but for the last five weeks they have been below the 46 million bushels we need to average to hit the USDA’s 2.45 billion bushels export forecast.

If and when we get a WASDE report, the trade is anticipating the US corn carryout at 1.694 billion bushels, down from December’s 1.781 billion-bushel forecast.  World carryout is expected to average 307.32 mmt versus 308.8 mmt in December.  The average trade guess for Argentina’s corn crop is 42.39 mmt and for Brazil 94.31 mmt.

OUTLOOK: For the week, March corn gave back over half of last week’s gains.  This week, March corn was 4 ¾ cents lower at $3.78 ¼, July fell 4 cents to $3.94 ¼, and December dropped 2 ½ cents to $4.01 ½ per bushel.  South American weather and China will continue to be driving force in nearby price direction.

SOYBEANS – It’s sort of surprising how dependent we get on government reports, even though at times we question their accuracy.  Without any progress on getting the US government up and running, the market’s attention focused on South American crop estimates.  Conab published their newest Brazilian soybean production number at 118.8 mmt but left their export forecast at 75 mmt.  This was down 1.3 mmt from their previous estimate, but not low enough versus trade expectations.  Brazil last year produced a record 119.3 mmt of soybeans.  The market slumped lower on the figure and posted double digit losses on the day of the announcement.  For comparison, other Brazilian soybean production estimates also updated this week:  Safras at 115.7 mmt, Agroconsult at 117.6 mmt, and AgRural at 116.9 mmt.  The last USDA number was 122 mmt.  Southern Brazil’s rain profile is improving, but the northeast and central areas need more rain.  However, in Argentina the weather has been favorable for the corn and soybean crops, despite areas that received heavy rain and may need to be replanted.

Nothing concrete was announced at the conclusion of the three days of trade meetings (they were extended one day before the original time frame) in Beijing, but the word was good progress was being made.  Reportedly, a Chinese official will be traveling to the US in the coming week for additional talks, and again more talks are rumored to take place at the end of the month.  Some in the trade have already assumed China has bought up to 5 mmt of US.  But who knows without confirmation from the USDA.  If true, and we see the announcement at a later date, it may have limited impact on prices.  Others believe they not only have bought US beans, but they have bought all they will buy.  Even without the tariff in place, US soybeans are priced at a premium to Brazilian soybeans.  There is also the unanswered question of how much China’s demand has fallen due to the African swine fever across their country and their push to reduce protein feed levels.

Is China’s economy suffering more than ours from the trade war?  China’s PPI rose just 0.9% in December versus an increase of 2.7% in November.  This was the largest month to month decline since late 2015. Weekly export inspections were 24.7 million bushels and neutral to the trade.  Inspections need to average about 35 million bushels per week to achieve the USDA’s 1.9-billion-bushel export target.

The average trade guess for the next WASDE report, whenever that is, for US soybean carryout is 904 million bushels versus 955 million bushels in December.  World soybean carryout is estimated to average 114.36 mmt versus 115.33 mmt in December.  The average trade outlook for Brazil’s soybean crop is 120.13 mmt and 55.29 mmt for Argentina’s bean crop.

OUTLOOK:  The daily closes in March soybeans were like a seesaw this week, up one day, down the next, throughout the week.  For the week, March soybeans lost 11 ¼ cents to settle at $9.10 ¼, July dropped 9 ¾ cents to $9.36 ¼, and November declined a nickel to $9.52 per bushel.  There are many unanswered questions in the soybean market and it doesn’t look like we’ll get any firm answers anytime soon.  Until then, the bulls want to be fed daily.  March soybeans have set up a trading range of $8.80 to $9.30 per bushel awaiting something new to happen with South American weather or China.

Wheat- Egypt’s GASC bought 295,000 tons of Russian wheat for Feb 20-28 shipment, and 120,000 tons of Russian wheat for March 1-10 shipment. Lowest price was price was $263.45/ton C&F. US SRW was the cheapest FOB at $239/ton, which puts it at about a $7-10 premium to Black Sea with freight. The Russian Ag Ministry says their grain exports are up 5.1% from a year ago, at 28.2 million tons. Grain inventories are down 19.4% YoY at 42.4 million tons. US wheat inspections were very poor, coming in well under the low expectation this week. Inspections are be-hind the USDA total by 144 million bushels. Spring wheat made up just over half of the inspections.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday January 10th, 2019

March 19 corn closed down 5 ¾ at $3.76 ¼ and December 2019 closed down 5 at $3.99. March beans closed down 17 ¼ at $9.06 ¾ and November 19 closed down 14 ½ at $9.48. March wheat closed down 6 ¼ at $5.13 ¾ and July 19 closed down 6 ½ at $5.24 ¼. Crude oil closed up $.22 at $52.91.

The markets were clearly primed for good news; suffice to say, the bull did not get fed today. Futures slowly extended losses through the session, ultimately finishing five-plus cents lower.  The market closed into a one week low. Managed Money traders were viewed net sellers of about 10,000 corn today, which would leave them net long 45,000 combined futures and options.

Today was supposed to be “resolution Thursday”.  CONAB was the first to disappoint. Against the recent drumbeat of “hot and dry” in Brazil, many analysts were looking for a surprise reduction of crops. Brazil’s government did indeed reduce soy crop expectations, but perhaps not as much as many private analysts were hoping. They actually increased full year corn estimates fractionally, taking the first crop up to 27.45 mmt vs. 27.37 mmt prior estimate. They maintained a full 18/19 year corn export forecast of 31 mmt, which compares to 23.5 mmt last year, and the USDA currently at 29 mmt. Private analysts at AgroConsult later affirmed the export projection, despite recently reducing their crop estimates on the weather?  There was also some Argentine crop estimates around today; Rosario pegged the corn crop at 44 mmt, up from the prior range estimate of 42-43 (and well above last year’s drought-shortened crop of 32 mmt).  The corn crop is now said to be 86% planted, advancing 3.5% wk/wk.

The second area of disappointment was China. They did release a joint statement following three days of mid-level trade negotiations with the U.S., but it provided no real specificity with regard to potential Chinese commodity purchases. That’s not to say they won’t buy any corn, but the waiting game continues, and commodity traders tend not to be the patient type!  U.S. corn export biz has no doubt slowed some, particularly relative to more rosy forecasts. Some floating the idea China may remove some import duties next month to get the ball rolling. South Korea was finally back in for corn today, picking up a cargo.  Add to that the lack of information amid the U.S. gov’t shutdown, and it is very difficult to rally a market such as corn in a vacuum. Export sales were not released this morning, nor will CFTC positioning data be released tomorrow afternoon.  End-user markets were mixed; spot hogs, spot cattle, and dairy, a little better, while ethanol and deferred hogs were a little lower.

The soybean market broke sharply where besides the well-known supply side realities you had a few developments that helped set the market back off its latest recovery high.

1)  The Chinese response to this week’s trade meeting lacked the specifics on Ag purchases that the market was anticipating would be revealed.  The comments were optimistic and in sync with the US response, but we didn’t get detail on the quantities of Ag to be purchased or the timing of those purchases.

2)  The CONAB estimate on Brazilian soybean production at 118.8 mmt was bigger than the trade is plugging in.  At only .5 mmt below last year’s record crop, the CONAB estimate told the market there are no disasters here. In the absence of a USDA WASDE update this report took on more significance than usual.  To be fair, their estimate as of Jan 1 and doesn’t account for the past 10 days were additional loss was likely in the center west and north east.

3)  The weather forecast continues to promote rains for the second week of the outlook across that key center west region of Brazil.  If they materialize it would help to stabilize production declines.

As the market began to liquidate its recent length in the first hour we found some stops took us down to our lows where we spent the balance of the session trading sideways for the most part.

The products were not immune to the selloff either and the combined meal and oil losses ended up going deeper than the beans so board crush margins lost 2 cents to settle at $1.00/bushel. Elsewhere in the news, AgroConsult estimated Brazil 18/19 Soybean production at 117.6 mmt, that compares to the group’s previous forecast at 122.8 mmt.  They lowered yields to 54 mt/hectare compared to the 57 mt/ha last season. It was noted that Mato Grosso and Parana drought conditions have damaged some 3.5 mln mt of soy. They see Brazil 18/19 Corn production at 95.6 mmt up from last season’s 80.8 mmt.  Brazilian bean exports were est. around 73.0 mmt, and corn exports around 31.0 mln mt

Wheat price action was slightly lower throughout the night and it did not get any better during the day. The optimism that surrounded trade since the first of the year came to a screeching halt today, and all three classes of wheat finished the day between six and seven cents lower. So, what was behind the weakness we saw today? The results of the GASC tender that closed Wednesday was not very encouraging, the plethora of tenders this week have now concluded, the China talks which wrapped up earlier this week resulted in nothing new, the break in the US Dollar has subsided for the time being and because of the government shutdown, we will not get a USDA acreage report tomorrow to possibly confirm expectations of lower acres year over year. When you throw in this morning’s CONAB’s data, which was probably in line with estimates, but still a couple million above where the market is probably trading thus negatively impacted price action in bean and meal, it created a perfect storm and the entire grain floor found selling all day.

Looking ahead to Friday, it will be important for the wheat complex to find some stabilization. From a technical standpoint, today’s break did very little, but another lower settle tomorrow probably changes that. Chicago March traded above but has not been able to settle above the Christmas week highs, and trade will need a settle above those highs to get the bull back to being enthused about wheat. That may be tougher said than done as the export lineup has dried up, the China talks have concluded and there is still no confirmation that China bought or is willing to buy any wheat, and with the government shut down, there are no USDA reports.

If we had a government report on Friday, the average estimates of traders and analysts for total winter wheat acres comes in at around 32.279 mil acres. The total includes 22.727 mil acres of HRW wheat, 6.019 mil acres of SRW wheat and 3.486 mil acres of White. Keep in mind, late last week Informa pegged total Winter wheat seedings much below this average guess – at 31.513 mil acres.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday January 8th, 2019

March 19 corn closed down 2 ¼ at $3.80 and December 2019 closed down 1 at $4.02 ¾. March beans closed down 5 ¾ at $9.18 ½ and November 19 closed down 3 ¼ at $9.57 ½. March wheat closed up 1 at $5.17 ¾ and July 19 closed up 2 at $5.29. Crude oil closed up $1.29 at $50.11.

Corn bulls were revved up and ready for action as overnight and early trade erased the prior day’s (and Friday’s) highs.  Unfortunately, positive vibes don’t fill Panamax vessels, and the absence of a major statement out of U.S.-China trade negotiations promoted a late sell-off. Managed Money traders were viewed small net sellers again today, which would leave them net long about 45,000 combined futures and options.

China remains the subject. If you like the topic, get ready for more, as the talks have been extended another day through Wednesday. One would think the extension is a positive. But the continued absence of any tangible trade action in corn by the Chinese no doubt disappointed some of the weaker market bulls.  In an apparent concession, China approved six new GMO varieties, including one for corn. This likely adds some validity to the idea that the Chinese will be around our markets at some point for corn. A final pact is still likely many weeks away, but a “mini-deal” that at least spells out some of China’s intended commodity purchases would be welcomed by all.

One of the few government market reports still standing is the weekly EIA energy blast. Expect the report to have overall bearish feature for ethanol, as it so often does in the first week of January. Production will “revert to the mean” some after the prior 3% drop, likely bouncing 2% off of a three month low.  Producer margins have improved off the early December lows, but still remain in negative territory (20-30 cents/bu loss), when including all costs. Modest concern about Brazil and Argentina weather continues to be a feature. Even though most of Brazil has good moisture in place today, there is a good chance many important crop areas will become too dry in the second half of this month without better returning rainfall. The northeast is already dry and the next ten days will build a ridge of high pressure into the interior south drying out those areas next.  Argentina weather will continue to be very good.

The soybean market was unable to sustain its rally momentum and reversed lower off a test of the downtrend and 200 day moving average where the December rally also was turned away.  Fundamentally, there was very little around the market to talk about although volumes were slightly better with the reversal action and index fund roll. The trade talks in Beijing were extended by one more day through tomorrow, which is a positive sign, although the lack of any detail on progress or trade commitments worked against the futures today. Nothing in the cash or spread activity hinted at any new demand.

Nothing changes and for beans, no news is not good news in a market that is counting on new and desperately needed demand revelations to stimulate a rally in a soundly oversupplied fundamental stat scene. As far as the Southern Hemisphere outlook, the forecast continues to promote heat and dryness across Paraguay and a stretch of Brazil from Center-West to the North-East which is likely going to lead to further production declines. As long as that crop is shrinking, we shouldn’t roll over completely and that uncertainty keeps an underlying bid in the market. This afternoon, the USDA extended the deadline for Market Facilitation Program applications beyond January 15th due to the government shutdown. The deadline will be extended for a period of time equal to the number of business days FSA offices were closed, once the shutdown ends. Besides trade talks and hopefully results, the market will continue to key in on weather and in the absence of a USDA report we will sift through Brazil’s CONAB production report on Thursday.

The wheat complex was able to shrug off the weakness coming out of corn and soy and traded slightly higher throughout the day.  All grain markets rely on demand revelations to stimulate trade, and with government offices shut down, we are not going to get it from the USDA. Price action in wheat today was able to benefit from a plethora of tenders coming to fruition over the next 24 hours. Bangladesh is in for wheat, and although most of this business will probably go Russian, we can still win some of it. Algeria is in, and even though most of this business will most likely be French or Black Sea, we could grab a slice of it. Taiwan is in and it will be all US. Jordan is in, but they will probably pass. That is a TON of potential business, and probably the big reason the wheat complex separated itself from corn and soy today. The wheat complex is also still benefitting from the technical outlook on trade. Taking a look at Chicago March, after testing the $5.00 level last Wednesday the market reversed, made a higher high last week and today it was able to take out the weekly high made during Christmas week.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Tuesday January 7th, 2019

March 19 corn closed down ¾ at $3.82 ¼ and December 2019 closed down ¼ at $4.03 ¾.  March beans closed up 2 ¾ at $9.24 ¼ and November 19 closed up 3 ¾ at $9.60 ¾. March wheat closed down ¼ at $5.16 ¾ and July 19 closed down 2 ½ at $5.27. Crude oil closed up $.54 at $48.82.

The corn market was quietly mixed Monday, spending some time on both sides of unchanged on below-normal volume. Markets were steady/better to start but failed to generate much enthusiasm, eventually finishing fractionally lower. Managed Money traders were viewed small net sellers on the day, which would leave them net long about 50,000 combined futures and options. Once again, no CFTC data to tighten this up until the gov’t shutdown is resolved. Index fund rebalancing “officially” starts tomorrow.

The focus early today (and tomorrow) will no doubt be on the U.S.-China trade negotiations. A resolution on the bigger-picture structural issues is highly unlikely, but some suspect the smaller stage could be the perfect stage for the Chinese to offer more details on unspecified pledges to buy more U.S. ag and energy products. Other than a smattering of U.S. bean purchases, official confirmations of activity in other potential target markets. China was rumored to have purchased more beans today but remained mum on all else. Progress reports from the talks have largely been positive.

Weekly Grain Inspections continue to be one of the few remaining USDA reports to make their regularly-scheduled appearance.  Unfortunately for the bulls, they have not been particularly bountiful, though that may have more to do with the holiday timings. For the week ended 1/3, exporters shipped 501,541 metric tons of grain, which was roughly half the prior week, and was actually below the year ago week too. YTD corn shipments remain comfortably ahead of year ago (18.5 mmt vs. 11.4 mmt), but have not been keeping up with the pace (roughly 1.2-1.3 mmt/wk) needed to meet USDA sales projections for 18/19.   Plenty of time left, but strong harvests in Ukraine and lingering stocks in South America are not helping U.S. exports in the short-run.

The soybean market extended its rally into a new high for the move although the price action was somewhat disappointing considering weather and China are the two key inputs of the moment. Those are the two magic names in our markets that can most often create velocity but today’s anemic push into new highs suggests that the market doesn’t see the weather threat as significant and/or the Chinese demand is not big enough/officially confirmed.

US-Chinese trade talks are underway in Beijing through tomorrow.   It was reported today that China bought anywhere from 3-15 cargoes of US bean out of the Gulf and the PNW for Feb-March. That trade will not be confirmed by the USDA during the partial government shutdown. Some of the selling in beans today could be tied to the Chinese lifting long hedges as they purchased the physical beans which was the case last month when the rally peaked as the anticipated China purchases were confirmed. There is continued talk that China could also agree to buy US corn, sorghum and other ag products which would be an easy way for them to reduce their trade deficit with the US and advance larger trade negotiations.

While most USDA reports are delayed indefinitely, they continue to report the weekly export inspections data. Soybean inspections totaled just 673 mt compared to 756 mt a week ago and 1.214 mmt this week a year ago. In addition to the usual destinations, there was 74 mt headed to China. Soybean inspections to date stand at 17.299 mmt compared to 29.608 mmt this time last year representing a shortfall of 452 million bushels relative to last year’s pace. This data also contributed to flat price beans coming off their highs.

The forecast is concerning with heat and dryness prevailing in an area stretching from Paraguay and West-Central Brazil into Northeastern Brazil over the next couple of weeks. In this scenario, look for additional production cuts to Brazil’s soybeans and if the dry pattern persists into Safrinha corn planting season, it will be a bigger deal for corn as well.

A late rally was not enough to save the wheat complex, and for the first time this year, all three classes of wheat finished slightly lower. Some of the rally last week was being tied to demand surfacing off the lower board. Another supportive influence came from talk that winter wheat plantings are much lower than most expectations, which was re-enforced when Informa pegged Winter wheat seedings at 31.513 mil acres, which would be more than one mil below the USDA estimate of 32.535 mil acres last year. Unfortunately, we do not get a USDA crop report this Friday to confirm their synopsis or anybody else’s. For now, the wheat complex still has both technical and fundamental support behind it. However, talk could, and will, only rally the market so much. Eventually, it will need some confirmation – whether it be fresh business or lower acres.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 1-4-19

CORN – The trade is flying somewhat blind without some of the government reports, including export sales, commitment of traders, etc.  Corn prices crept higher this week out of their tight $3.72 ½ to $3.80 trading range on the back of soybean and wheat strength.  There were some rumors about China having buying interest in US corn, but no export values or freight numbers supported the chatter.  China stated they wouldn’t be interested in purchasing US corn or sorghum until at least after the January 7-8 meetings in Beijing.

The January 11th WASDE, quarterly grain stocks, and winter wheat seeding reports will be delayed indefinitely until the US government departments go back to work.  They say it will take a week to put the reports together once the departments resume operations.  Traders are expecting the US corn yield and ending stocks to show a small decline when the WASDE report is released.  Weekly ethanol production continues to be reported.  This week, production slipped 31,000 bpd to match the lowest production of the year at 1.011 million bpd.  Stocks rose 100,000 barrels to 23.2 million barrels.  Margins improved a penny but were still a negative 4 cents per gallon.

South American has not been ideal, but it hasn’t been a disaster either.  Top end production ideas have been lowered closer to a “normal” yield crop.  Argentina has been too wet in areas and Brazil has struggled with areas of dryness.  The most recent forecasts, however, show improvement to favorable conditions for areas of each country.

OUTLOOK: For the week, March corn rallied 7 ½ cents to $3.83, July was 7 ¾ cents higher at $3.98 ¼, and December closed 6 ½ cents higher at $4.04 per bushel.  Corn has closed higher every day in 2019!  Ethanol margins are slowing improving, but we still hear of cutbacks and shutdowns.  This may lead to a small cut on the next balance sheets, but a decline in production will mostly offset any decrease.  Since November 20th, March corn has traded a $3.72 ½ to $3.87 ½ per bushel range, and I don’t see a standout reason for it to move much outside of that range.

SOYBEANS –  Soybeans got off to a slow start before welcoming 2019! Returning to a fresh slate/New Year, soybeans rallied on trade talk of China was returning to the US soybean market looking for offers for the February-March time frame.  Based on values, US beans are more expensive than Brazil for that time slot.  However, if the Chinese government says “Buy!,” we’ll see some purchases made.  Cofco was the firm mentioned as making inquiries, which means it’s the government.  If so, those bushels will likely be bound for state grain reserves.  Without the USDA in their offices, we have no confirmation that anything has been done.  China did not import any US soybeans during November.  In November 2017, they imported 4.7 mmt.  Brazil’s soybean shipments to China in November were 5.1 mmt, up 84% from last year.  In December, Brazil exported 4.23 mmt of soybeans, a record for the month.  China’s African swine fever problem has not abated.  They continue to find new cases.  Although they have reported 100 cases, many believe this number is underreported.

A US delegation will head to Beijing for January 7-8 meetings.  These will be the first face to face meetings since a trade war truce was announced at the beginning of December.  Phone conversations between the two countries have been reportedly been going very well.  If the in-person meetings go well, it’s expected a Chinese delegation will be in the US the following week.  A wariness over whether these talks will result in any substantive agreements has kept traders cautious about reading too much into the talks.  China’s Purchasing Managers’ Index for December fell to 49.4, the first time it’s been under 50 since June 2016.  A number under 50 signals contraction in the economy.  China’s central back is lowering their reserve requirement ratio by 50 basis points on both January 15 and January 25 as they try to prevent further economic slowdown.

South American weather has become a more closely watched event, which it always seems to be this time of year.  Brazil has areas that have been adversely affected due to a lack of rain, but it’s unclear what lasting effect it has had on yield potential.  Brazilian soybean production ideas have mostly dropped from the 125 mmt and up area into the 116 mmt to 120 mmt range.  A Brazilian grower group even slashed their crop estimate to the 110-115 mmt range, down 4 mmt from their previous outlook!  Well-respected consultant Dr. Cordonnier has cut his Brazilian soybean production forecast to 119 mmt and Conab is at 120.1 mmt.  IEG Vantage, the former Informa Economics, and the USDA are pegging Brazil’s soybean production at 122 mmt.  Changes in the value of Brazil’s currency has helped support US soybean prices.  Argentina has areas that have received too much rain, causing delays to planting and potentially hurting yields.

OUTLOOK:  March soybeans have closed higher every day of 2019!  The US government shutdown, upcoming Chinese talks, and South American weather will be the focus in the coming week.  If rain is less than expected for southern Brazil, it will be viewed as friendly to the market.  If the rain develops and/or is greater than anticipated, a retracement of recent gains will be expected.  The trade is anticipating a good outcome to the Chinese talks, which could extend recent gains.  Keep in mind that agricultural won’t be the only topic of these talks.  Disagreement over intellectual property rights may be a sticking point to any meaningful agreement.  Overall, the world still has plenty of soybeans. For the week, March soybeans gained 26 cents at $9.21 ½, July was 25 cents higher at $9.46, and November beans were up 21 ¼ cents at $9.57 per bushel.

WHEAT – The global wheat market is quiet as Ethiopia is the only country to currently have a tender for wheat. US wheat is competitively priced at current levels and exports are expected to pick up. Russia is still on holiday until the middle of next week. Japan, Egypt, Algeria, Saudi Arabia are all expected to be in the market for wheat next week. Argentina’s wheat harvest is estimated at 91% complete. The Buenos Aires Grain Exchange pegs their total production at 19.0 mmt. There are quality concerns from rain events. Wheat export inspections were poor at just 376,000 tons.  Inspections are well off the USDA pace by 134 million bushels.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Wednesday January 2nd, 2019

March 19 corn closed up ¾ at $3.75 ¾ and December 2019 closed up ¾ at $3.98 ¼. March beans closed up 12 at $9.07 and November 19 closed up 8 ½ at $9.43 ¾. March wheat closed up 3 ½ at $5.06 ¾ and July 19 closed up 1 ¾ at $5.20 ¼. Crude oil closed up $1.14 at $46.86.

The corn market struggled to define itself on the first trading day of 2019, generally leaning steady/firm, but spending some time on both sides of the ledger intraday. Corn would close fractionally better. Managed Money traders did not alter their position much, as they hang with a small net long in the corn market. Index funds may be another matter, though, as corn was one of the few commodities ending the year in the “plus” column.  They may need to sell out a few longs in coming days to rebalance their position.

The mixed sentiment in trade likely represented some moderate commercial buy interest and gains in wheat/soy, offset by headwinds from a sharply higher Dollar and weak Chinese economic data. Weather is similarly wishy-washy. Recent rains in Brazil were a godsend to some but missed a number of dry pockets.  Overall, record bean crops are still projected, but this has brought back to earth some of the more wild projections bantered around a month ago. Argentina is mostly in good shape. Farmers there are on the home stretch of planting their first (and only) corn crop. South Africa could continue to use more precip.

To small surprise, the USDA released weekly grain inspections Monday. They were fairly non-descript, perhaps even leaning a little disappointing. Exporters shipped out 914k metric tons of corn for the week ended 12/27, which was slightly below the prior week, but still a fair amount above the previous year’s 726k. This takes YTD corn inspections to 17.9 mmt, which compares to 10.6 mmt shipped in the year ago period. Decent start, but keep in mind, the U.S. needs to ship over 1.2 mmt per week to meet current USDA sales projections. The U.S. government remains shut down, shelving many important market reports.

President Trump reassured today that positive on-going discussion between U.S. and Chinese officials continue as we approach closer to the March 1st deadline. Soybean prices reacted and climbed double digits today on optimism over U.S.-China trade negotiations, coupled with dry weather for the past two or more weeks in some key production areas in Brazil. Governmental estimates still predict a massive 2018/19 crop production of around 4.409 billion bushels for now, however.  Brazil’s soybean exports in December topped 155 million bushels, which moved 16.5% below November exports but still trend more than 79% higher year-over-year. China has purchased massive amounts of Brazilian soybeans in recent months amid its ongoing trade feud with the U.S.

After a sluggish start the wheat complex caught a bid and traded higher throughout the day. Prices did set back a bit during the final hour of the day. There has not been much in the way of influential news around this week for wheat, so much of today’s firmness may have been just tied to a strong rally coming out of soy. Technically, the markets can build some upward momentum with a strong close on Thursday but that would mean a settle above $5.14 in Chicago March, and we saw how rallies fizzled today. What influence is around that would change that and help the markets extend gains?   The export lineup has improved a little, but it is still not very impressive. Jordan is in, but that should mean very little since they always seem to struggle to get offers, and when they do they are not US anyways. Taiwan is in, and that will be all US, which is a positive. Bangladesh is in this week, and recent inspections reports have shown some US wheat heading out to Bangladesh, so as long as prices do not firm too much we have a legitimate chance of winning more of that business. There continues to be plenty of China rhetoric around, but until there is talk that they will start buying US wheat, these headlines mean very little for the wheat complex.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 12-28-18

CORN – Holiday trading was in session this week with very little news for the commodity markets with the government in partial shutdown.  Export announcements are on hold until the government reopens. Even so, US corn is uncompetitive on the world scene with Ukrainian corn the cheapest.   If the shutdown is extended, we may not get the January 11th WASDE report on time.

The holiday shortened trading week began on a dull, slightly softer note, but traders returned from Christmas with their selling shoes on.  Corn posted a key reversal lower on the charts the same day the stock market set a single day rally of over 1,000 points.  News was scarce for the corn market all week.  Corn took its direction for its 6 ¾ cent weekly trading range from the wheat and soybean markets.  The European Union raised their 2018/2019 corn production figure from 62.9 mmt to 67.5 mmt.  The USDA is carrying them at 60.4 mmt.

Weekly ethanol production was released this week since the EIA was not affected by the shutdown.  Production fell 4,000 barrels to 1.042 million barrels per day.  This is down 4.4% from a year ago.  Ethanol stocks dropped from 23.9 million barrels to 23.1 million barrels.  This is an increase of 5% over last year.  Margins did improve 3 cents per gallon to a negative 5 cents per gallon.  There are suggestions that the USDA may be overestimating corn for ethanol usage at 5.6 billion bushels.  We will see if there is an adjustment on the January WASDE report.

Weekly export inspections were released this week.  Corn inspections were as expected at 39.2 million bushels and a three-week high.  However, we need to average 44.9 million bushels per week to hit the USDA’s export target of 2.45 billion bushels.

OUTLOOK: For the week, March and July corn each dropped 3 cents per bushel to $3.75 ½ and $3.90 ½ respectively.  December 2019 corn declined 1 ¾ cents to $3.97 ½ per bushel.  As we head into 2019, corn will likely be range bound unless South American weather pushes soybeans hard in one direction.  Talk about a global economic slowdown may also gain in importance as a focal point.  Funds are holding a net long position and without a positive catalyst, we could see further liquidation.

SOYBEANS – This is the type of week you wonder why we bothered to come in.  There was a decent amount of action in the soybeans this week, but with very little news to back it up.  A key reversal lower at mid-week sent prices to their lowest level since November 27th.  This was followed by a rally into the weekend when China announced they would allow US rice imports for the first time in history.  Traders interpreted this as a sign that better things are in store for soybeans. However, US rice is currently uncompetitive into China, and it is still under a 25% import tariff.  A US delegation will meet with Chinese officials in Beijing the week of January 7th.  In the meantime, phone calls have been taking place between the two countries.  Without the US government functioning, we do not receive any USDA export announcements.  However, there has been no indication in the export or freight markets that any further soybean business has been done with China in the past week.  Adding to concern the US and China will reach a deal by March 1 is chatter that President Trump is considering declaring a national emergency that would bar US companies from using telecommunication equipment from two of China’s largest companies, Huawei and ZTE.  China also opened their markets to alternative sources of protein.  They removed import tariffs on rapeseed meal, cottonseed meal, sunflower meal and palm meal, effective January 1.  More cases of the African swine fever were found in China again this week.

Weather in South America is taking on added focus since we don’t have any export business to discuss.  Brazil did receive rain prior to Christmas, but there are concerns over what the dryness had already done to the soybean crop.  Estimates for Brazil’s soybean production have come down from the 125 mmt plus area to the 120-122 mmt range.  This would still be a record crop.  There is more rain in the forecast for the dry areas into the first of the year.  Argentina has been too wet, raising concerns about wheat quality and soybean production.  The BAGE estimated Argentina’s soybean planting at 83% complete versus 84% on average.

Weekly export inspections were below estimates at 23.9 million bushels.  This was the lowest inspection number in 11 weeks.  We need to average 34.7 million bushels per week to confirm the USDA’s 1.9-billion-bushel export forecast. In other news, the CFTC approved the CME’s proposal to increase daily storage rates for corn and soybeans, beginning with the December 2019 contract for corn and the November 2019 contract for soybeans.  The daily rate will increase from .1650 cents/bushel/day to .2650 cents/bushel/day.  This roughly equates to an increase from 5 cents/bushel/month to 8 cents/bushel/month.  Why do you care?  It will likely increase board carries and may affect what storage charges will be in the country in the future.

OUTLOOK:  For the week, March soybeans were 2 ¼ cents lower at $8.95 ½, July fell 2 cents to $9.21, and November was down just ¾ cents at $9.35 ¾ per bushel.  South American weather will be a major headline into 2019.  Will rain in Brazil help?  Or will below normal rainfall and above normal heat call for cuts in production estimates?  Any news surrounding Chinese trade will sway price direction as well.  Let’s get the holiday trade mentality out of the way and hopefully we’ll have concrete news after the first of the year.

WHEAT – Russian State Statistics Service reports that the final figures from the 2018 Russian grain harvest show wheat production at 72.1 million tons and total grain harvest at 112.9 million tons. These figures compare with the record 2017 harvest of 86 million tons of wheat and total grain harvest of 135.5 million tons. Ukraine has exported 10.3 million tons of wheat this marketing year compared to 11 million tons at the same time last year.

Market Report

Thursday December 27th, 2018

March 19 corn closed up 1 ¼ at $3.74 ½ and December 2019 closed up ½ at $3.96 ¼. March beans closed down ½ at $8.82 ½ and November 19 closed down ½ at $9.25 ¼. March wheat closed up ½ at $5.10 ½ and July 19 closed unchanged at $5.25 ¾. Crude oil closed down $1.64 at $44.90.

The corn and soybean markets did their best to bounce back from Wednesday’s outside day lower and stabilize our breaks which took both corn and soybeans for a test of their uptrend support.  Corn managed to hang on for a slightly higher close but beans were unable to sustain modest early strength. The break has uncovered some technical and value buying here but not with any real urgency with somewhat limited fundamental information and seasonal timings that can keep participants on the sidelines.  No news is not good news for corn and beans which are partly relying on export demand for support and we are not going to have any announcements to confirm if any new business with China (and others) is taking place. We also will not get weekly exports, CFTC data and potentially a Jan crop report if this keeps up.

The weekly export sales report was scheduled to be released Friday but traders have been unable to reach anyone at FAS offices and the voicemail says all staff have been furloughed. It doesn’t look like we’ll be getting that report as long as the shutdown persists and the markets will miss it this week because we would estimate sales of 1.1 to 1.250 mmt of corn, 350-400 tmt of wheat, 2.2 to 2.4 mmt of beans, meal 250-350 and oil around 20 tmt. Reuters confirmed this afternoon that the report has indeed been postponed indefinitely. Trade is still expecting to get the EIA ethanol report tomorrow. Linn estimates ethanol production a little higher (+1% to 1055) with stocks down 1% (or a little less wk/wk) on strong blender demand. Others are estimating a small cut in production.

Lots of talk about Brazilian production losses due to drought. Rains have returned this week although totals have not been heavy and leaving plenty of holes but it appears there is a shift in the overall pattern with more rains in the forecast over the next couple of weeks. Assuming that relief materializes, it should stabilize crop losses. 3-4 weeks ago, many analysts were projecting a 125 mmt+ soybean crop (130 high print) for Brazil where today most have taken the top end off with a 120 mmt type of estimate with (new 113 mmt low print seen today).

Acreage is going to be a bigger topic moving into the new year.  The bean/corn ratio is 2.34% which traditionally would signal that beans need to gain further on corn to secure enough acres. That is not the case this year where corn supply is adequate, but bean supplies are extremely burdensome. This ratio will need to tighten or narrow from this level to discourage bean acres.  China is only part of our problem contributing to excess bean supply. The bigger issue is planting 89-90 million bean acres the past two years where with strong/record yields we have way overproduced even the most optimistic demand scenarios.

The wheat market rose slightly higher on technical trading. Wheat export sales are estimated at 200,000-600,000 mt. March Chicago wheat has fallen $.28 since the highs back on December 13th.

Anna Kaverman

anna@mercerlandmark.com

Market Report

Thursday December 20th, 2018

March 19 corn closed down 6 ½ at $3.75 ¼ and December 2019 closed down 5 ¾ at $3.96 ¾. January beans closed down 6 ½ at $8.93 ½ and November 19 closed down 6 ¼ at $9.42 ¾. March wheat closed up 1 at $5.23 ½ and July 19 closed up 1 ¼ at $5.38 ¼. Crude oil closed down $2.30 at $46.19.

The corn market raised some eyebrows, apparently awakening from its early December slumber. Futures finished lower Thursday and has surrendered $.10 in two days. The previous seven sessions, the corn market was not able to muster more than a $.02 higher or lower close. Volumes picked up today, as the break no doubt interested commercials previously resigned to buying $3.80+ corn. Managed Money traders were viewed net sellers of at least 10,000 corn today, which would leave them net long just over 15,000 combined futures and options.

To absolutely no surprise, weekly export sales were quite strong across the board. New 18/19 corn sales of 1.974 MMT were a marketing year high and nearly double the four week average.  The vast majority of this was bought by Mexico (1.339 mmt), who had a large announced sale early last week. Other buyers of note included Japan and Colombia. There was also 0.543 mmt booked for new crop as part of the Mexico sale. Perhaps corn caught some fund long liquidation after mostly playing bystander amid sharp recent declines in other related risk assets? In fact, European corn market (Matif) closed into a new two month high today, despite a big rally in their underlying currency.

Elsewhere, weather watchers will watch to see if prophesized rains fall in dry areas of Brazil early next week. They are important after a month of drying in a couple key spots.  Regardless, still plenty of areas that are in very good shape.  Argentina corn planting moved up to 60% complete; mostly good weather seen there. Ethanol futures were lower today, mostly in-line with corn, keeping 30-40 cent/bu negative profitability for most plants. US Dollar broke to a two week low. Partially on less rate hikes for next year, partially on an Italian-EU budget deal, and partly on the risk of a gov’t shutdown. Trump signed the Farm Bill, but also said he would not compromise, demanding border wall funding for a gov’t funding bill.

For the 3rd time in the past 6 sessions, soybeans have sold off following an export confirmation to China. This is a terrible signal. It says the market had rallied in anticipation of the business and with the help of fund and other short covering,  but now that the trade has arrived, the market is beginning to see past these government purchases recognizes the big picture stat problem with soybeans. China cannot and will not import enough soybeans this marketing year to turn this into a lasting bull market. That is the uncomfortable statistical reality of soybeans.

Export activity has picked up to China and other buyers too.  Weekly soybean sales in the old crop totaled 2.836 mmt. A marketing year high. Buyers of note included China, Mexico, Netherlands, Germany, and Egypt. On top of that, the USDA flashed daily sales of 204 tmt of old crop beans sold to China, 257 tmt sold to unknown, 100 tmt of old crop meal sold to Colombia and 427 tmt of corn sold to Mex (373 old crop and 53 new crop).

Brazil’s production prospects have been reduced thanks to weeks of dry and stressful conditions across parts of Parana, Mato Grosso do Sul and Sao Paulo. Rains are forecast to bring relief and stabilize those crops. Crops elsewhere in the country are strong enough to maintain near record potential overall and will offer significant export competition once harvested which is earlier than normal this year. Another less discussed problem is African swine fever which continues to spread across China and infect it hog herd with the deadly disease. This has the potential to reduce demand for soybeans to crush for meal with signs that is already happening.

After a couple of disappointing sessions, there were several positive influences around the market as we went home yesterday. The GASC announced they were in for wheat, there was hope of another strong export sales report and there was some excitement around as to what may come of the Russian meeting Friday morning. And make no mistake, the market is now searching for that next spark to reinvigorate trade. In anticipation of what may have been on the horizon, the wheat complex traded higher throughout the night, but after a disappointing export sales announcement, futures gave back some of its gains. An early flush in both corn and soy briefly took wheat futures lower, but trade battled back and spent most of the session trading slightly higher. The GASC back in for wheat for a third time in less than three weeks had to be the biggest motivator, as we knew overnight offers would be significantly higher than last week – and they were. If nothing else, the fact that the GASC was back in again so quickly should keep Russian wheat prices and World wheat prices in general firm. Russia not winning any business is a huge indication that we are seeing just that.

Anna Kaverman

anna@mercerlandmark.com