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Tuesday December 11th, 2018

March 19 corn closed up ¾ at $3.84 ¾ at December 2019 closed up 1 ¾ at $4.04. January beans closed up 5 ¼ at $9.15 and March 19 closed up 5 ½ at $9.28 ¼. March wheat closed down 4 ¼ at $5.21 and July 19 closed down 1 ¼ at $5.36. Crude oil closed up $.64 at $51.84.

To no real surprise, the Dec WASDE had precious little impact on price action today. The market instead focused on positive “noises” coming out of U.S.-China trade negotiations, though there is still little tangible to lean on. Corn would finish the day higher on light volume, given that it was a WASDE day.  Managed Money traders were viewed net buyers of about 5,000 corn today, which would leave them short less than 20,000 combined futures and options heading into tonight.

As expected, the USDA made no adjustments to U.S. corn production, but did spend a little time on the demand side of the ledger. No doubt in response to poor industry profitability, the USDA reduced the corn-for-ethanol grind by 50 million bushels from their Nov estimate, taking it to 5.6 billion bushels. They also trimmed imports by 5 mil bu. The end result was a small 45 million bushel increase in U.S. 18/19 carryout expectations to 1.781 billion bushels (vs. 2.140 bil last year and 2.293 the year before that). The world balance sheet saw a few token changes, all of which were probably justified. The end result was a modest (+1.3 mmt) increase in world carryout expectations to 308.8 mmt, which is still a notable reduction from 340 mmt in 17/18 and the recent high-water mark of 350 mmt in 16/17.

Missing in the above was any adjustments to South America, which is probably fine at this early juncture. Ahead of the USDA, CONAB updated their thoughts on Brazil’s crop, pegging full year corn production at 91.1 mmt, which was firmed up from a range of 90-91 last month. The USDA is currently sitting at 94.5 mmt for Brazil, which compares to 82 mmt last year. USDA is sitting at 42.5 for Argentina, which compares to just 32 mmt last year.  South America weather will remain mostly favorable, despite some drying in southwestern Brazil and erratic rainfall in far southern Argentina. U.S. weather shaping up for a more seasonable last half Dec.

The soybean market remains stuck in its ‘wait and see’ posture as the bull is angling for a size Chinese purchase confirmation (and growing impatient for that evidence to surface) while the bear is afraid to sell the market because of the potential for a sharp trade relief rally. This leaves the market in a sideways choppy range for a moment where gap support remains just below $9.00 and the recent highs just above $9.20 has limited the recovery.

There was plenty of trade news in the headlines overnight and this morning that hinted at an impending announcement.  The phone call between the Chinese Vice Premier and US trade reps reportedly went well and included discussion on the purchase of US ag products as well as a timetable or roadmap for the next stage of trade talks.  China is also planning to reduce auto tariffs from 40% to 15% in a clear sign of de-escalation.  President Trump tweeted that ongoing talks with China are going well, adding to watch for some important announcements regarding China. With all of that noise, it was somewhat of a let-down that we didn’t have any business confirmed at the 8:00 daily report time.  The White House reportedly will delay the second half of farm aid payments as they want to see if recent progress in talks leads to a resumption of trade.

The December crop report has a reputation as being somewhat of a dud and it certainly lived up to that today.  The report confirmed the burdensome supply side realities of domestic and global soybean stocks but this was anticipated.  All things considered, beans handled the report well and settled near the day’s high. The US soybean carryout was left unchanged at 955 million bushels with no changes on either side of the balance sheet.  The meal and oil balance sheets were similarly unchanged.  On the WASDE, Brazil’s soybean production was raised by 1.5 mmt to 122.0 mmt with higher yields noteded in the Center-West of the country while Argentina was left unchanged at 55.5 mmt.  Brazil’s beginning stocks were raised by 1.6 mmt to 25.15 mmt.  This took the world soybean carryout from 112.08 mmt to 115.33 mmt.  Chinese soybean imports were left unchanged at 90 mmt.  World meal stocks were up slightly from 12.1 mmt to 12.14 mmt on larger Indian meal production.  World oil stocks were raised slightly from 3.64 mmt to 3.73 mmt.

Price action leading up to the crop report was surprisingly two-sided, considering it was hard to imagine that too many around trade could have possibly been looking for friendly data. Because of the slow export pace of HRW wheat, it was thought that HRW wheat exports were going to be lowered, and that US carryout could increase more than people think. The USDA obliged, lowering HRW exports 40 MB(Spring was increased 5 mil bu and SRW was increased 10 mil bu), thus lowering overall US export expectations 25 MB down to 1.0 BB. They also raised HRW wheat ending stocks by 42 MB and overall US ending stocks to 974 MB. After a somewhat muted reaction, wheat prices started to sell-off.

The break may have been muted some following this morning’s news headlines of renewed optimism that a US/China trade deal is moving forward. There was a report that said China had submitted a proposal to its cabinet toward cutting tariffs on US made cars from 40% down to 15%. Keep in mind, this plan has not yet been finalized and could change. Also, China media sources reported that the country would soon announce the details of their first soybean purchases, most of which will go to national reserves. However again, the timing of that announcement was not specified. And finally, Chinese Vice Premier Liu also spoke with the US Treasure Sec Mnuchin and US Trade Rep Lighthizer by phone where they exchanged opinions on implementing the consensus reached during the Trump-Xi dinner 10 days ago.

Anna Kaverman

anna@mercerlandmark.com

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