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FOR THE WEEK ENDED 12-7-18

CORN – Let us pause as we remember former President George H. W. Bush, who passed away last week.  December 7th also lives in infamy as we remember those that lost their lives on this day 77 years ago. Markets sparked higher in the first session and first day of a new month after the historic meeting between President Trump and Chinese President Xi in Buenos Aires December 1st.  The meeting was deemed a success on both sides and the markets surged higher.  Details were thin on how the differences between the two were going to be resolved.  Comments continued throughout the week that the talks were going smoothly, but again, no details.  Corn could benefit from a deal by opening the market for DDGs, sorghum, and ethanol.

Most of the week’s news was associated with the soybean market.  Corn’s price direction has been driven by firm demand, soybean prices, and South American weather.  Even though corn managed a higher weekly close, the news was pedestrian after the Chinese meeting.  Unless the December 11th WASDE report gives us some fuel for another rally, corn may be setting up for range bound trade into the end of the year.

Weekly export sales were excellent at 46.4 million bushels and bringing us to 17% ahead of last year’s commitments.  We need 35.3 million bushels of sales per week to hit the USDA’s target of 2.45 billion bushels.  If South America’s weather forecast is correct, we could be looking at strong competition for corn exports in the first quarter of 2019.  Adding to the competition, the Ukraine increased their corn crop estimate to 35.2 mmt compared to the USDA outlook of 33.5 mmt.  There were no export sales for the 2019/2020 reported on the weekly sales report.  Weekly ethanol production increased 21,000 bpd to 1.069 million bpd, the highest number in 13 weeks.  Stocks rose 100,000 barrels to 23.03 million barrels.  US gasoline demand is 1.2% behind last year in the current corn marketing year.

Trade estimates for the December 11 WASDE report:  US ending stocks 1.738 billion bushels versus 1.736 billion in November; world ending stocks 307.59 mmt versus 307.51 mmt last month; Argentine production 42.43 versus 42.50 mmt; Brazilian production 94.41 versus 94.50 mmt last month.

OUTLOOK: Corn may be relegated to a sideways pattern without fresh input from the USDA report or a change in the status of Chinese trade talks.  Seasonally, corn can rally in December, so be prepared if we inch higher.  How the trade winds blow will provide our direction in the next month. For the week, March corn captured a 7 ¾ cent at $3.85 ½, July was 7 ¾ cents higher at $2.99 ¼, and December 2019 closed 3 ¼ cents higher at $4.03 per bushel.

SOYBEANS – January surged 29 cents higher at their high following the US/Chinese meeting December 1st, but disappointed bulls when they only managed to close 11 cents higher on the day.  Many had been anticipating close to a limit up or 60 cent move on the positive sound bites at the conclusion of the meeting.  A lack of details left some wondering what the 90-day cease-fire really meant.  For now, the US will not raise current tariffs, or pile on additional tariffs, that were scheduled to take effect January 1st.  If no “real deal” is made by March 1st, the US is prepared to raise the 10% tariff on $200 billion worth of Chinese goods to 25% and could put tariffs on an additional $267 billion worth of goods.  For their part, according to the US release, China will purchase “very substantial” farm, energy, industrial and other products.  Chinese traders said China will need to cut the 25% tariff on US farm products before they can buy a “substantial” amount of US products, unless the government forces them.  It’s surmised, that any Chinese soybean purchases would be made by the government for their state reserves.  Brazilian soybeans are still cheaper than US origin before any tariff.  Negotiations continue, but events later in the week brought into question how talks will proceed.  Late in the week, Meng Wanzhou, the CFO of giant Chinese technology firm Huawei (and daughter of its founder), was arrested in Canada, reportedly at the request of the US.  There are allegations that the company re-exported US products to Iran.  She is expected to be extradited to the US.  How this arrest may affect US/Chinese trade negotiations is unclear.  Remember, technology issues were what got us here in the first place.

Was last year’s Brazilian soybean crop underestimated?  In November, they exported over 5 mmt of soybeans, more than double what they exported in November last year.  Based on calculations, at this pace their carryout could be a negative 8 mmt.  In the past, it sometimes hit a negative 2 or 3 mmt, but 8 mmt is huge!  No one will be surprised when the USDA makes balance sheets adjusts to account for the tremendous Brazilian soybean exports.  Also, out of Brazil this week, the government stated that if you did not pay the minimum freight rate implemented earlier this year, you would no longer have to pay a fine.  This essentially did away with the minimum.  A definitive January ruling is expected.  Some have insisted the minimum freight rate was unconstitutional.  The new ruling is expected to eliminate freight barriers in getting the upcoming record crop to market.  Brazilian soybean farmers are looking into a proposed railway giving them access to northern export ports.  The $3.24 billion project could cut transportation costs from Mato Grosso to export ports by 30% from the current $2.34/bushel.  Argentina’s costs are estimated at $1.24 per bushel and the US at 93 cents/bushel, according to Agroconsult.  Celeres this week pondered that with favorable weather Brazil could produce 130 mmt of soybeans this year.  The CEO of a large Brazilian grain producer stated at an industry event that 106 million acres of untapped grassland in Brazil could be brought in agricultural production.  Their combined soybean, corn, and sugarcane acres is currently at 158 million acres.

Weekly export sales were at the upper end of trade estimates at 32.7 million bushels.  However large, we slipped to 33% behind last year when the USDA is forecasting a 10.7% year on year drop in exports. We need 26.7 million bushels of sales per week to achieve the lofty 1.9 billion-bushel USDA export forecast.  Last year from this point forward, weekly export sales average a record 21.3 million bushels per week.  Without a return of China to the US market, the current export forecast could be quite a stretch.  There were only 100,000 bushels of new crop sales reported.  This brings new crop commitments to 6 million bushels and well behind last year’s 11.6 million bushels.  The October NASS Crush Report was in line with trade expectations with 183 million bushels of soybeans crushed.  October soyoil stocks were 2.041 billion pounds compared to 1.909 billion pounds expected.

Argentina has been talking with China to try and capture a portion of China meal import business.  This week, China said they will buy 330-400 tmt of soybean oil from Argentina, but said they were not interested in Argentine meal at this time. Trade estimates for the December 11 WASDE report:  US ending stocks 945 million bushels versus 955 million in November; world ending stocks 112.79 mmt versus 112.08 mmt last month; Argentine production 55.72 mmt versus 55.50 last month; Brazilian production 120.88 mmt versus 120.50 mmt in November.  Some trade estimates for Brazil’s bean crop suggest over 130 mmt, if the weather stays favorable.

OUTLOOK:  We continue to be run by tweets and headlines.  How the recent arrest of a Chinese technology company CFO will influence the US/Chinese trade negotiations is unknown.  Everyone is waiting for China to make that first US soybean purchase.  If they buy anything, it will likely be for the state reserve.  For now, it’s a wait and see situation.  Brazil’s soybean crop was 96% planted by December 4th and 1% is expected to be harvested by the end of 2018.  It’s being bandied about that Brazil will be able to ship double the amount of soybeans in January than normal.  It’s a waiting game for now, but in the long term we must be cognizant of the enormous crop potential in South America. For the week, January soybeans held onto a 22-cent gain at $9.16 ¾ per bushel, March was 21 ½ cents higher at $9.29, and November 2019 jumped 22 cents higher to $9.61 ¼ per bushel.

Wheat – Egypt did not issue letters of credit for several wheat shipments.  This caused some fear in the market about their ability to continue an aggressive import program.  Egypt later clarified that LOC’s were issued except for the wheat yet to be delivered.  They followed that up with a new tender.  The suppliers for the new tender were 290,000 tons from Russia and 60,000 tons from the Ukraine.  There were no US offers for this tender. Russia has exported almost 37 million tons of wheat this calendar year.  This is a 50% more than the same period last year.  Despite smaller production, Russia is doing everything possible to remain the world’s leading exporter. There was a flash sale announcement of 224,000 tons of HRW to unknown.  This activity was very welcomed by the wheat market and pushed futures to 15 cent gains on Friday.  Wheat export sales were the 2nd best of the marketing year.  The SRW business to Egypt was part of this week’s total.

Anna Kaverman

anna@mercerlandmark.com

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