Grains rallied slightly after Sunday night’s open, but drifted back lower by the end of the overnight session as traders positioned for Thursday’s USDA Crop Production & supply-demand revisions. With forecasts continuing to see rainfall mostly confined to the northern Corn Belt during the coming week & above-normal temps for most of the US grain region for the next two weeks, traders viewed the potential for frost-related damage as fading. Grains attempted to rally by late Monday morning with SRW wheat futures providing the leadership. Although we suspect that wheat moved higher primarily due to recovery from oversold chart conditions, concern about rain-delayed completion of the North American spring wheat harvest, continued dry weather in Australia, & a slightly weaker US dollar were talking points for the wheat rebound. Australia officially lowered its wheat production forecast by 2.7 mmt to 19.2 mmt on Monday—1.8 mmt below USDA’s Aug. WASDE estimate. USDA Weekly Grain Export Inspections data were a mixed influence for prices on Monday morning. Inspections improved from the previous week’s 9-week low for corn, but were a 7-week low on beans & an 8-week low on wheat. Those results offered little to boost the market even though USDA did report that Mexico bought both 2019/20 & 2020/21 US corn. By the close, corn faded back to small losses, soybeans were mostly unchanged & SRW wheat jumped to double-digit gains. Dec. corn futures were down 1.25c. March corn lost 1.5c, Nov. & Jan. beans were steady, Oct. soymeal rose $1.10/ton, & Dec. SRW wheat was surged 10.75c higher on Monday. Grains are trying to find a low, but that process is agonizing for farmers who are convinced crops have been hurt by the weather.
Grains rallied on Monday night, fueled by USDA’s Weekly Crop Progress report that lowered 18-state US corn conditions by 3% to 55% good-excellent—the lowest rating of the season. Corn conditions saw major deterioration in Illinois (38% G-E, -8%) & 4% G-E reductions in Michigan (41%), Nebraska (73%), & Tennessee (72%). Soybeans followed corn & wheat to overnight gains as USDA left 18-state soybean conditions unchanged at 55% G-E & noted that 8% of the bean crop still had not yet begun to set pods. Of particular concern is the fact that 9% of the South Dakota, 10% of the Illinois, 11% of the Ohio & Michigan, 15% of the Wisconsin & 16% of the Indiana bean crops were not yet setting pods on Sept. 8. Those acres are at major risk of yield loss if frost hits before mid-October. Wheat futures were supported by news that the 6-state US spring wheat harvest was only 71% completed as of Sept. 8 & heavy rainfall is in the 7-day forecast for the northern Plains. Despite this year’s harvest delays, hard red spring wheat futures have struggled this season on prospects for higher output & year-on-year declines in export demand. At the 7:45 am pause in electronic trading, Dec. corn futures were 4.5c higher, March corn was up 4.25c, Nov. beans were 5c higher, Jan. beans were up 4.75c, Oct. soymeal gained $1.50/ton, & Dec. SRW wheat was 5c higher. Grains extended those gains by late morning as traders covered short positions ahead of Thursday’s 11 am USDA Crop Production & supply-demand revisions. Talk of potential cold weather 15-16 days from now are aiding Tuesday’s updraft, while above-normal to hot conditions prior to that time are moderating gains. At 11:11 am, Dec. corn futures were 6.25c higher, March corn was up 5.75c, Nov. beans were 13.5c higher, Jan. beans were up 12.75c, Oct. soymeal gained $4.10/ton, & Dec. SRW wheat was 4.75c higher on Tuesday.
Grain traders have reversed the entire “late-planting rally” by Labor Day on a combination of yield optimism & demand pessimism. Owing to expectations for an extended growing season, private yield estimates are increasingly aligning with USDA’s much-criticized August 12 corn yield forecast of 169.5 bu/ac. & soybean projection of 48.5 bu/ac. The Wall Street Journal survey of trade analysts now pegs average US 2019 corn yield at 166.7 bu/ac. (up 1.4 bu/ac. from August) & bean yield at 47.2 bu/ac. (up 0.3 mb from last month’s pre-report average). Average trade guess now sees Aug. 31, 2018 ending stockpiles of corn at 2,398 mb (up 6 mb vs. August trade expectations & 38 mb above USDA’s Aug .12 WASDE forecast) & beans at 1,043 mb (down 26 mb vs. Aug. trade guesses & 27 mb below USDA’s Aug. 12 projection). Traders now foresee August 31, 2020 corn ending stocks at 1,965 mb—332 mb above their Aug. average guess, but 216 mb below USDA’s Aug. 12 estimate. The trade now sees 2019/20 soybean ending stocks at 661 mb, down 157 mb from their average pre-Aug. guess & 94 mb below USDA’s Aug. 12 projection. The average trade guess now sees May 31, 2020 US wheat carryover at 1,014 mb—up 23 mb from last month & equal to USDA’s August forecast. USDA will not adjust wheat yield on Thursday. Instead, they will issue their annual small grain production report on Sept. 30. Thursday’s old-crop corn, soybean & milo stockpile estimates will be rendered meaningless on Sept. 30 when Sept. 1 stockpiles will be reported in the quarterly Grain Stocks release. The difference between what the trade expects in new-crop corn & what USDA foresaw in August is entirely related to production expectations. Traders assume that corn usage will decline about 80 mb in 2019/20. That looks optimistic to us. We think USDA can justify a 100 mb slide in old-crop usage & at least that much decline in new-crop as well.
Monday’s USDA Weekly Grain Export Inspections data for the week ended Sept. 5 were 23.228 mb for corn, 1.311 mb for grain sorghum & 33.291 for soybeans—the first week of the 2019/20 marketing year for those crops. Last week’s wheat inspections eased to 14.789 mb—down 27.9% from the previous week. Compared to same-week totals from 2018, last week’s inspections of corn were down 7.617 mb, milo was up 1.241 mb, soybeans were 0.746 mb lower & wheat was down 1.037 mb year-on-year. The report implied that final 2018/19 corn inspections totaled 1,862.378 mb—down 414.561 mb (-18.2%) from 2017/18. Cumulative old-crop milo inspections reached just 82.622 mb—down 118.674 mb (-59.0%) year-on-year. And total 2018/19 soybean inspections were 1,695.569 mb—down 375.915 mb (-18.1%) from the previous year. With 14 weeks now completed in its 2019/20 marketing year, wheat inspections now total 257.237 mb--47.603 mb (+22.7%) ahead of last year. China was again the major soybean destination last week, taking 15.020 mb. Based on last week’s USDA Export Sales data, that would leave them about 25 mb of old-crop soybeans to ship in coming weeks. At their recent shipping pace, China will have their summer soybean purchases shipped by the end of September. Given that their total new-crop soybean commitments stand at just 9.553 mb, the recent collapse in Gulf soybean basis levels implies commercial firms believe export demand in the absence of China will be poor in October. China probably also has some purchases listed under the “unknown destinations” category. Last week’s USDA Export Sales data showed 17.453 mb of old- & 115.822 mb of new-crop soybeans were reported as sold to unknown. If exports are better than expected in October, it will be because China ships purchases from previously reported “unknown” sales.
In export news, USDA reported on Tuesday morning that Mexico bought 10.952 mb of 2019/20 US corn, 5.071 mb of 2019/20 US soybeans, 155,000 mt of 2019/20 US soymeal & 40,750 mt of 2020/21 US soymeal. On Monday, the farm agency reported that Mexico bought 23.259 mb of 2019/20 US corn & 2.396 mb of 2020/21 US corn. South Korean flour millers purchased 2.792 mb of US wheat for Dec.-Jan. arrival. South Korean feed mills were also seeking 5.511 mb of optional-origin corn overnight.
China reported another African swine fever outbreak on Tuesday, & the Philippines has also discovered the disease. Slowing demand for soy protein due to the disease is the biggest demand risk for both North & South American farmers. The latest Chinese case involved a farm with 226 pigs, 13 of which had already died from the disease. China is thought to have vastly under-reported the size of its outbreak, but has admitted to a 35% year-on-year reduction in the size of its breeding herd. State planners have released plans to subsidize large-scale hog production to encourage 58% of total hog production to be raised by such operations by 2022. Chinese officials believe larger producers will do a much better job of raising hogs & controlling diseases than the backyard operations that have been common. The National Development & Reform Commission announced that it would provide large-scale producers subsidies of up to $700,000, but no more than 30% of the total project cost. The program will run thru the end of 2020. Based on current costs, the program would cover about 20% of the construction cost for a 2000-head sow farm. For the more common 5000-head sow farms, the subsidy would cover a smaller percentage of total costs. China reported on Tuesday that food costs are 10% higher year-on-year, & soaring pork prices are a key factor in that increase.
In production news, Brazil’s crop supply agency, CONAB, increased its 2018/19 corn production forecast by 0.7 mmt to 100.0 mmt—far above last year’s drought-hit 80.7 mmt output. The agency increased its corn export forecast by 0.5 mmt to 35.0 mmt—sharply above last year’s 23.8 mmt export total. In August, USDA pegged 2018/19 Brazilian corn output at 101.0 mmt & projected Brazilian corn exports at 37.0 mmt. USDA reported 2017/18 Brazilian corn production at 82.0 mmt & corn exports at 25.1 mmt in August. CONAB left Brazilian 2018/19 soybean output little-changed at 115.0 mmt—down from the previous year’s 119.3 mmt & USDA’s WASDE 2018/19 estimate of 117.0 mmt. CONAB left its soybean export forecast at 70.0 mmt—1 mmt above USDA’s current projection, but far below 2017/18’s 83.3 mmt export total. USDA reported 2017/18 Brazilian bean exports at 84.2 mmt. France boosted its soft wheat production forecast by 1.25 mmt to 39.45 mmt on Tuesday—second-only to 2015’s 40.9 mmt as the highest production ever. French corn output was reduced 0.3 mmt to 12.8 mmt, but that’s still up 2% from 2018. Barley production was increased by 0.2 mmt to a record-high 13.6 mmt—up from 11.2 mmt in 2018. France left its rapeseed output estimate at 3.5 mmt—down 29% from last year. Officials in the Czech Republic pegged 2019 wheat production at 4.85 mmt on Tuesday, up from 4.42 mmt last year. This summer’s heat wave across Europe limited the size of their corn & rapeseed crops, but failed to hurt wheat as much as earlier feared.
Locally, corn basis declined 2c, soybean basis crashed 9c lower & wheat basis eased 1c on Monday as barge freight ticked higher & Gulf & Midwest soybean processor bids plunged. Without a new China trade deal, cash export demand for soybeans is at risk of being miserable during harvest.
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"Closing Comments" are written by David Marshall, First Choice Commodities LLC, Nashville, IL. To learn more about his farm marketing advisory or commodity brokerage services, contact him at email@example.com or call (618) 327-4370 (voice/fax) or (618) 314-0918 (cell). This commentary is not intended for specific trading strategies. We strive to insure this information is reliable, but we cannot guarantee its accuracy or completeness. Commodity trading involves risks. You should fully understand those risks before trading.