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Archive for October, 2018

Market Report

Monday October 1st, 2018

December closed up 9 ½ at $3.65 ¾ and March 19 closed up 9 ¾ at $3.77 ¾. November beans closed up 12 ¼ at $8.57 ¾ and January 19 closed up 12 ¼ at $8.71 ¾. December wheat closed up ½ at $5.09 ½ and July 19 closed up 3 ¾ at $5.44 ½. Crude oil closed up $2.08 at $75.14.

The corn market threw traders a curveball today, quickly shaking off Friday’s bearish USDA stocks report to post impressive gains.  Futures were overnight, but quickly extended those gains during the day, eventually settling higher. For those keeping score, corn completely reversed Friday’s losses. Managed Money traders were viewed net buyers of 15,000 corn today, and will head into tonight net short an estimated 145,000 combined futures and options. It is almost impossible to pinpoint an exact reason for today’s bounce in corn. In truth, most think a lot of it had to do with “beginning-of-month-and-quarter” spec fund buying. Commodities had another rough quarter, but many financial news publications openly questioned whether it was “enough” coming into today.  Sugar, crude oil, and hogs, all had big days, along with more modest gains in beans and some wheat contracts.

Ag markets caught a shallow bid overnight on an “eleventh hour” deal to include Canada in the new NAFTA pact.  As we have noted in the past, putting “new NAFTA” to bed will likely lead to little/no new corn business, but will preserve a favorable relationship with one of our largest exporter customers, Mexico.  Perhaps it offered an optimism boost that knocking over one trade domino could build momentum on the other deals that have yet to be resolved (Japan, EU, and China, in order of difficulty). One thing that has certainly not suffered in any event is U.S. corn export business, which continues to offer a reassuring hum in the background. Exporters shipped 1.345 MMT of corn for the week ended 9/27, which was virtually unchanged from the prior week, but up from the year ago’s 0.854 mmt.

Another supportive factor to the markets is the wet outlook for the coming week, which could prove quite disruptive to harvest efforts, particularly mid-week on forward. 4-5 inches of rain is expected along the WI/IL border, with 2-3 inch totals extending into Michigan, Eastern Iowa, and Northern Missouri. Flooding could become a concern in some areas, particularly with the 6-10 & 8-14 day maps remaining as wet as we’ve ever seen them.

The soybean market shook off Friday’s stocks report and began October on a strong note by settling at a new 6-week high. A wet weather forecast threatens to delay harvest activity in the Midwest including some parts of the country including S MN in C to N IA that have been struggling with excessive rains through September. Too much moisture for too long of a stretch can threaten crop quality and bring disease issues. The weather forecast promotes rains starting up later this week and continuing through the first half of October at least, cooler temps will also slow down the pace of drying.

Today’s action was very much welcomed after a demoralizing finish to September where the quarterly stocks report uncovered more supply of corn, wheat and beans than expected and sent prices sharply lower. Soybean harvest advanced to 23% complete up from 14% a week ago and compares to 20% this time last year.  The crop is 75% dropping leaves up from 71% a week ago. The crop rating was left unchanged at 68% gte and 10% pvp.

There is optimism over the new trade agreement signed off on between the US and Mexico and now Canada too which was reached late last night just ahead of the deadline to get the agreement signed off on before the new Mexican government takes over in November.  The new NAFTA deal is called the USMCA opens the Canadian domestic dairy market to US dairy farmers and keeps chapter 19 dispute resolution mechanism in its current form.  Soybean and meal trade into Mexico has been robust and this deal should give us some additional trade into Canada but as much as anything, this deal gives the market hope that a resolution with China can also be reached.

The wheat complex was able to battle back from lower price action and finished the day with modest gains. It was puzzling how little effect the strength in corn and soy had on wheat prices today. It was also odd to see very little reaction our US markets had after Russian prices for 12.5 pro wheat rose around $4.00 week over week. Granted, there was nothing friendly in Friday’s crop report, but there was nothing too negative either.

There is an Algerian delegation that is in Russia through Oct 10, and with it brought speculation that Algeria will start importing Russian wheat. Algeria is a country that demands quality wheat, and at this juncture we do not know if Russia could provide the quality needed to satisfy those demands. Not to mention that France will lobby hard to prohibit this from happening as France needs the Algerian demand. Currently, Algeria is the third largest importer of wheat (roughly 7.5 MMT) trailing only Egypt (over 12 MMT) and Indonesia (over 10 MMT). The weekly USDA crop progress this afternoon showed Winter wheat planting progress is at 43% vs 28% last week, 34% this time last year and the five-year average of 40%.

Anna Kaverman

anna@mercerlandmark.com

FOR THE WEEK ENDED 9-28-18

CORN – The focus of everyone’s attention this week was the quarterly stocks report.  Expectations coming into the report had a 140 million range between 1.96 and 2.1 BB. It was bearish news when the USDA printed Sept 1 stocks of 2.14 BB. Usage in the 4th quarter was a record at 3.165 BB, but that was overshadowed by the burdensome stocks number.  We are starting to see a shift of more usage in the 4th quarter of the marketing year and less in the 1st quarter. Crop conditions showed an uptick of 1% from 68% to 69% in the good/excellent category. Last year was only at 61% good/excellent but the rating did climb all the way through harvest. Corn harvest was 16% complete which is better than 10% last year and better than the 11% five year average. Spotty weather should narrow the advantage in the next week.

Ethanol production continued at a strong level in this week’s EIA report at 1.036 million barrels per day.  Ethanol margins continue to slide and have gone from a couple of cents positive to a negative 5 cents. There are reports of several ethanol plants slowing down production to counter the negative margins. Current corn usage based off the weekly ethanol data is right in line with the USDA’s ethanol target of 5.65 billion bushels.

Corn sales were huge this week, going way above the top end of expectations.  Estimates were between 35.4 and 51.2 million bushels.  This week’s total was a whopping 67.4 million bushels making this the best total since March 8th!  Mexico was the biggest buyer this week and they continue to be the main destination. The rumor mill continues to talk of an E-15 announcement. It was said that it would be revealed this week but once again nothing official was announced.

OUTLOOK – With the quarterly stocks report now in the review mirror the market will be focused on harvest results.  We have almost 2 full weeks until the next WASDE report and harvest activity should be ramping up in that window.  Corn has the most variability and uncertainty about just what the real yields are. Twitter will be buzzing with harvest results but will that be enough to break corn out of the 345-365 range that December corn has been stuck in for a few months.

SOYBEANS – September 1st soybean stocks were 438 MB which was well above the average estimate of 401 million.  Despite the big stocks number, 4th quarter usage was a record at 781 MB. The USDA also revised the 17/18 production number higher by 19 MB to 4.411 billion. Soybean conditions had an improvement of 1% from 67% to 68% in the good/excellent category. Last year was at 60% good/excellent. Soybean harvest was 14% complete which is better than 9% last year and better than the 8% five year average.

Mexico bought 672,000 tons of soybeans that was reported in a flash sale announcement yesterday.  This is the biggest soybean sale since September 2017 when China bought 960,000 tons.  It is also the biggest sale to Mexico since November 2017 when they bought 846,000 tons of corn. Weekly export sales were ok at nearly 32 million bushels. Unknown buyers topped the list this week and we did see another Chinese cancellation of 2.35 million bushels. Soybean planting in Brazil is off to the quickest start in over 5 years. Adequate rains have got producers planting aggressively.  The state of Parana was 18% planted compared to just 2% at this time last year.  The reason that this area is so important is that it is close to the ports. Early planted beans in this area can be harvested and shipped by mid-January which would eat into the tradition window that used to belong to the US. Brazil is shipping every bean they can to China during the trade war. As a result, Brazilian grain trading firm Agribrasil believes that Brazil will import 1 million tons of beans from the US in the coming months.

OUTLOOK – A bearish stocks report will linger with the market as harvest reports continue to pour in.  So far almost every report is a record or near record bean yield, except for average to below reports in the Dakotas. It’s hard to find any reasons to be bullish with ZERO business to China, a heavy stocks report, bigger Brazilian old crop numbers, and a fast start for their new crop.

Wheat

The Russian wheat harvest is wrapping up with about 85% of the crop in the bin. Indonesia is the world’s largest wheat importer. They increased their estimate on the amount of wheat they will need to import this year from 8 to 8.5 million tons. US winter wheat plantings are running ahead of average. The crop is 28% planted topping last year’s 22%, and the five year average of 26%.

In other news – Canada is saying that it will not agree to certain US conditions to move ahead on NAFTA 2.0.  President Trump had wanted a deal to be completed by the end of the month to get fast track approval before the Mexican elections.  It is believed the US congress will not approve a deal the excludes Canada.

Anna Kaverman

anna@mercerlandmark.com