Blogging by the Bushel
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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

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