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Thursday December 13th, 2018

March 19 corn closed down 1 at $3.84 ¼ and December 2019 closed unchanged at $4.03 ¾. January beans closed down 13 at $9.07 and November 19 closed down 10 at $9.56. March wheat closed up 9 ½ at $5.36 and July 19 closed up 8 ¾ at $5.47 ½. Crude oil closed up $1.47 at $52.83.

Corn was truly the middle child of the ag complex today, trapped between double-digit gains in wheat and double-digit losses in soy. The end result was a back-and-fill session, where corn lower in a $.04 range. Managed Money traders were viewed net sellers of just under 5,000 corn today, which would leave them net short just over 15,000 combined corn futures and options heading home tonight.

Corn continues to struggle to define its own story, as the over-whelming focus of the market is Chinese business (real or theoretical). The USDA finally offered up an announced bean sale, but the rather paltry near-1 mmt total did not exactly set hearts-a-racing. Call it “buy the rumor, sell the fact”, or skepticism we will soon reach the large totals breathlessly rumored last week, but beans did not like it. Many other markets are growing impatient, but the “holding pattern” for corn, as defined by last Sunday night’s gap, remains in place. We shall see. “Other” news flow remains extremely light, which is typical of the weeks leading up to Christmas. We do have the weekly USDA export sales report to discuss. New corn business was close to market forecasts, arriving at 903,200 MT (and 161,400 mt for new). Japan accounted for over half of the business, closely followed by Mexico, the Saudis, Colombia, and New Zealand.  This was slightly below the pace needed to meet USDA sales goals for the year.

According to World Weather, South America weather is becoming a little more volatile with drying in interior southern Brazil and in northeastern crop areas over the next week to ten days while east-central Argentina and Uruguay experience flooding rain. Southwestern Brazil crops in the sandier soil are already stressed by dryness and warm temperatures and this may continue into the middle part of next week before significant relief comes along. Crops in the heavier soil types are likely to remain favorably rated for much of the coming week, but will need moisture later this month. All in all, still strong yield potential, but as is almost always the case, some warts develop over the course of a growing season.

The soybean market set back today as we leave a recovery high for a moment. The chart formation is strong but the technicals had become overbought and due for a pull back. A close below $8.97 on Jan tomorrow would give you a weekly key reversal lower and a recovery top. The fund short was cleaned up on the rally, for the most part, taking away some our recent buyers. Funds were back on the sell side today selling an estimated 10,000 beans and 4,000 corn. The market is also struggling with a touch of a hangover following the confirmation of Chinese bean purchases that had been highly anticipated ever since the Trump-Xi dinner following the G-20.

The good news is that all the right things are happening in the cash to suggest there will be more sales announced to China.  PNW bids have materialized for Jan-Feb-March. With more potential sales to be announced, prices may continue to hang on at these levels. The bad news is that the risk reward of this market is beginning to shift with plenty of optimism and anticipation priced in already. Now, the focus shifts to the bull to justify further strength either through bigger than expected Chinese trade and/or a weather issue down south.

The USDA confirmed a sale of 1.130 mmt old crop beans sold to China in the daily reporting system. This initial confirmation was modest relative to the recently rumored totals and likely was a disappointment to some. But 1.130 mmt is a big one-day announcement and don’t be surprised to see a string of sales announced in the coming days and weeks that could accumulate to that the rumored 5-8 mmt to replenish government reserves.   Additional purchases by private buyers would likely require the removal of the 25% tariff and at this point there is no detail on when that might happen although all the actions and rhetoric since the Trump-Xi dinner (with the exception of the Huawei arrest) point to that result. Another issue for the private crusher is that Chinese crush margins are in the tank due to African Swine Fever and their return to the market.

The wheat complex continued their surprisingly strong trade overnight, and that trend continued during the day. So, what has been behind the recent strength in wheat?  We knew the export sales this morning had the possibility at being a marketing year high, and at 754 MT, the sales report did not disappoint. What’s more, Taiwan’s purchase of 110 TMT of milling wheat did not make the report, and only 169 out of the 224 TMT the USDA reported last Friday made the report, so if everything hit, we could have seen a much larger number. The bad news is there is not much in the way of sales this week, and next week’s report may struggle to even reach half of this week’s number. Iraq’s Trade Minister said they have signed an agreement to import US wheat over the first half of 2019, but Iraq already buys wheat from the US. What is bothersome is that Iraq also made another announcement, with the head of the Iraqi Grain Board saying that a Russian delegation is visiting to discuss the possibility of exporting wheat to Iraq. Russia has already opened doors to Brazil and China, and the fact they continue to try to open doors elsewhere does not bode well for the US wheat export program down the road.

Anna Kaverman

anna@mercerlandmark.com

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