USDA dug a bigger hole for grain prices on Thursday, boosting US corn output by 298 mb from last month & global feed grain production by half that amount. Corn prices that were fractionally changed ahead of the release of the data plunged to new contract lows in the wake of the news even though USDA offset half the extra output with increased feed & export usage. Soybean prices were up about 6c prior to the report, but they followed corn lower as USDA reduced US soybean yields by less than expected & unexpectedly increased global bean output & projected carryover levels. Chart-wise, corn, soybeans & soymeal each posted bearish potential key day reversals marked by higher highs, lower lows & closes below the previous day's lows. Additional downward momentum is needed to confirm such chart signals. The fact that speculators are already massively short the grain markets may make such momentum hard to find. Wheat prices maintained small pre-report gains on Thursday in reaction to USDA's forecast for slightly higher exports & slightly lower 2017/18 US & global wheat ending stocks. For those looking for a reason to rally grain prices, USDA's data implied that poor South American weather remains the principal hope for price recovery during the first half of 2018. At Thursday's close, Dec. corn futures tumbled 6.75c lower, Jan. soybean plunged 13.5c lower, Dec. soymeal declined $3.40/ton & Dec. soft red winter wheat gained 2.25c.
In export news, USDA did not announce any US export sales on Thursday. In a regular weekly tender, Japan's ag ministry bought 2.131 mb of US wheat, 1.851 mb of Canadian wheat & .883 mb of Australian wheat on Thursday. After a long tender process, Ethiopia finally purchased 14.697 mb of milling wheat, probably from Black Sea region suppliers. Jordan reported on Thursday it had bought 2.296 mb of optional-origin feed barley.
USDA's Crop Production report stunned corn traders, boosting projected yields by 3.578 bu/ac. to a record-high 175.381 bu/ac. Total production was pegged at 14,578 mb--second only to last year's 15,148 mb. In a year where crop stress was at times recorded over virtually every part of the Midwest & Plains & nearly 75% of those regions recorded below normal rainfall during the growing season, USDA boosted corn yields in most major production states. Among the top producers, yield increases were registered in Illinois (198 bu/ac., +6 bu/ac.), Iowa (197, +6), Indiana (181, +8), Minnesota (190, +6), Missouri (175, +3), South Dakota (150, +3), Kansas (136, +2), North Dakota (134, +8) & Wisconsin (168, +4). Yields were unchanged in Ohio (173), & lowered in Nebraska (179, -2) & Michigan (167, -1). USDA increased projected exports by 75 mb & feed use by 75 mb to offset about half of the extra output, but ending stocks were projected to jump 147 mb higher to 2,487 mb--the highest since 1987/88's 4,259 mb. Global feed grain output was increased by 3.19 mmt as a 2 mmt decrease in Ukrainian corn production & 1.4 mmt smaller Mexican grain sorghum crop partially offset the 7.56 mmt rise in US corn output. Total coarse grain usage was increased just .15 mmt & 2017/18 feed grain ending stocks were increased by 2.52 mmt to 231.78 mmt. That was down 29.84 mmt from last year & the smallest in 4 years, but still about 3 mmt more than traders had expected. Global feed grain output has increased about 30% in the past decade as acreage has expanded around the world in respond to the mid-decade spike in prices, a more producer-friendly political climate in the Black Sea & South American growing areas & historically cheap interest rates. Increased demand has not yet caught up with that production capacity. USDA left its average farm gate corn price at $3.20--the mid-point of its unchanged $2.80-3.60 projected price range, 16c below last year's average price & the lowest US corn price since 2006/07's $3.04.
USDA reduced average soybean yield by 0.060 bu/ac. to 49.460 bu/ac.--second only to last year as the highest ever. Traders had expected a 0.2 bu/ac. decrease. Total US soybean output was pegged at 4,425 mb--down 5 mb from the October estimate, but up 129 mb from last year's previous record. Among the top eleven producing states, yield increases were forecast only for Illinois (58, +1) & Nebraska (58, +2). Yield projections were left unchanged for Iowa (56), Indiana (55), Minnesota (46), Missouri (49) & South Dakota (45). Among the top 11 states, USDA lowered its yields estimates for Arkansas (50, -1), Kansas (40, -1), North Dakota (35, -1) & Ohio (51, -1). If USDA's forecasts are realized, 2017 yield will be a record high in Alabama, Arkansas, Delaware, Kentucky, Maryland, Mississippi, Missouri, North Carolina, South Carolina, Tennessee & Virginia. Note those are Southern states, the one production region where weather was exceptionally good this year. In its supply-demand report, USDA made no changes to usage, allowing the 5 mb cut in output to flow to a 5 mb reduction to 425 mb in carryover stocks. That matched the pre-report trade expectations. In its global 2017/18 soybean supply-demand projections, USDA increased beginning stocks by 1.42 mmt, boosted Brazil soybean output by 1 mmt to 108 mmt, raised usage just .59 mmt & increased projected global ending stocks by 1.85 mmt to a record-high 97.9 mmt--up 1.62 mmt from last year's prior record & above the 95.5 mmt pre-report consensus trade guess. Average US farm gate price was increased by 10c/bu. to $9.30--the mid-point of the $8.45-10.15 price range they now forecast. That would be down 17c from last year's average price, but 35c higher than in 2015/16.
USDA made no changes to its wheat production forecast, but they increased their 2017/18 export forecast by 25 mb & lowered May 31, 2018 ending stocks the same amount to 935 mb. In their global wheat S/D report, USDA decreased beginning stocks by 0.97 mmt, raised wheat production by 0.79 mmt mostly due to a 1 mmt rise in Russian output, increased total world wheat use by 0.42 mmt & lowered global wheat carryover by 0.60 mmt to a still-record 267.53 mmt. Wheat stocks as a percentage of use climbed marginally to 36.1%--the highest since 1986/87's 38.0% level. Global stocks/use reached a modern era high of 40.4% in 1968/69, so current global stocks remain in rarified high territory.
Thursday's USDA Weekly Export Sales report was largely ignored as a result of the Crop Production data, but it was nevertheless positive. Corn export sales for the week ended Nov. 2 were 93.086 mb for 21017/18 & 22.605 mb for 2018/19. Mexico (45.915 mb of old- & 22.743 mb of new-crop corn), South Korea (18.424 mb), Japan (13.287 mb, including 1.567 mb switched from unknown destinations) & unknown destinations (8.385 mb) were last week's dominant buyers. The weekly total was the largest one-week old-crop corn sale since Jan. 10, 2008 & the second-largest since at least Sept. 2003. Cumulative 2017/18 corn sales have reached 763.5 mb, 259.7 mb below last year & just 39.7% of the 1,925 mb that USDA now predicts will be exported this season. During the previous 5 years, 46.3% of final shipments had been sold by marketing week #10, & since 1995 40.% of final sales had been committed. This past week's sales likely reflects that Brazilian corn is getting scarcer for export, & that process should result in better US sales until at least April. Whether USDA's new export forecast is achieved is tied to the size of Brazil's "Safrinha" corn crop that will be planted after soybeans are harvested.
Last week's soybean old-crop export sales dropped substantially from recent weeks to 40.249 mb--a 5-week low. China (42.509 mb, including 26.308 mb switched from unknown), Mexico (7.202 mb) & Netherlands (3.109 mb, mostly switched from unknown) were the dominant buyers with a reduction for unknown (-25.996 mb) a big drag on sales results. A small 2018/19 sale was also recorded for Japan (15,000 bu.). Cumulative 2017/18 soybean sales at market week #10 now stand at 1,156.6 mb--down 207.6 mb from last year & just 51.4% of USDA's 2,250 mb export forecast. During the past 5 years, sales were 65.5% of final shipments by now. Since 1995/96, an average of 46.2% of final sales were on the books by week #10. To reach USDA's export forecast, bean sales thru the end of August must be 222 mb larger than ever before! If South America produces another big bean crop, that will be hard to achieve.
Wheat sales in the week ended surged to 28.723 mb--the highest weekly total since Jan. 19th. Cumulative 2017/18 wheat sales now total 598.6 mb--28.7 mb below last year. Thursday's WASDE report boosted projected hard red winter wheat exports by 25 mb, but left exports, domestic usage & carryovers of other wheat classes largely unchanged. USDA sees a need for higher protein wheat exports in 2017/18, but total US exports are still forecast to fall 55 mb below last year. Current wheat commitments represent 59.9% of USDA's upwardly revised 1,000 mb export forecast. During the previous 5 years, an average 61.4% of final shipments were on the books by wheat marketing week #23. Wheat sales need to continue to be aggressive to meet USDA's export revision.
Locally, corn & soybean basis each jumped 5c higher & wheat basis improved a penny on Thursday. From now on, basis improvement will tend to be for nearby deliveries rather than for January & beyond. Once harvest is completed & bin doors shut, cash flow becomes the primary motivator of farmer sales.
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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.