Markets focus on global production
There is not a lot of news for wheat to get prices moving. Exports have been poor. The start of the year has been rough on outside markets and crude oil prices. Egypt canceled tenders for wheat because it wanted to change the tolerance on grain fungus in imported wheat. Informa released estimates that 51.1 million acres will be planted for the 2016 growing season. That is 3.5 million acres under the U.S. Department of Agriculture’s estimate of 54.6 million acres for 2015. For the week ending Feb. 4, March Minneapolis wheat lost 5.5 cents, March Chicago wheat lost 6.5 cents and March Kansas City slipped 12.5 cents.
Wheat started the week lower in the overnight session, and couldn’t shake losses like soybeans and corn did to end the session. Weather forecasts were negative, as 6 to 15 inches of snow fell in hard red winter wheat areas of Kansas and Nebraska. Wheat is in a sideways pattern, with the only support from short covering, not demand. It doesn’t sound as if there is going to be a policy change in Russia’s wheat export tax, meaning the country is likely to remain aggressive in the export market. Chicago wheat lead the way down, as Egypt rejected a wheat shipment, which has caused concern. With abundant U.S. and world stocks, there is no reason for this market to break out in the near term without a bump in export demand of quality wheat.
Wheat started with gains Feb. 2, but fell, as short covering slowed after news from Egypt and major snow in hard red winter wheat areas. Egypt is a major importer of the world’s wheat. After Egypt rejected a shipment of French wheat because of stricter requirements, exporting countries are being more cautious. A new Egypt tender for wheat was canceled, because there were no offers from suppliers. This is a new twist, as the country’s new zero-tolerance policy on grain fungus ergot is different from limits allowed by its state wheat buyer. With world stocks abundant, there is no reason for this market to break out without a major bump in export demand and weather concerns.
Wheat bounced back Feb. 3, because it sounds as if Egypt is reversing its decision of having a zero-tolerance for ergot, and going back to the industry standard of 0.05 percent. The Egyptian supply minister is saying the country will allow the 0.05 percent standard, but the quarantine authorities are not sold on the idea. Three cargos have been rejected recently, and because of that, the last Egyptian tender received no offers. Egypt might need to loosen its stance to get bids to import wheat. A weaker dollar helped wheat prices, though it did not carry over into corn and soybeans.
Wheat opened Feb. 4 with strength, along with the other grains, but moved lower after the open. Wheat export sales were terrible, and drove prices down, even with a large drop in the U.S. dollar index. Reported export sales were the lowest of the year. This shows how uncompetitive the U.S. is in the global market, with ample wheat stocks and reluctant buyers. Snow in winter wheat areas of the plains and mild weather in Russia and Ukraine are keeping a lid on prices.
For the week ending Jan. 29. export inspections were 10.36 million bushels. Total shipments are up to 491 million bushels, down 7 percent from last year. Wheat’s marketing year ends May 31 and so far, 61 percent of the total export estimate has been shipped. The wheat export sales pace was estimated at 2.43 million bushels. This brings the export sales pace for the year to 616.37 million bushels, compared with 747.11 million bushels last year. Sales need to average 10.19 million bushels to make the U.S. Department of Agriculture’s export pace of 800 million bushels.
Corn is trading in a narrow window. For the past month, corn has followed the other grains. Many of the fundamentals have been working against the grain markets, and we have been hanging in a sideways trend. There were some gains in crude prices, and the dollar weakened to end the week, but the grains did not follow their lead. Look for harvest and weather in South America to give the corn market direction until we get closer to spring planting. For the week ending Feb. 4, March corn was down 3.5 cents.
Corn gained back most of the early losses, and ended down less than a cent to start the week. The average corn basis has been holding tight, even when the futures have been a higher the past couple weeks. Producers are holding tight with corn, waiting for news to support higher prices. There is a lot of negative news built into grain markets, so weather concerns, higher crude prices or a stronger global economy could give corn prices support.
Corn worked both sides of unchanged Feb. 2, and ended with a small gain. There was a small uptick, even as crude prices tumbled to $30 per barrel. Ethanol production fell and stocks rose, and this news is bearish for corn prices. With crude prices hovering around $30, gas and ethanol spreads are getting worse, with ethanol at a premium to gasoline. The spread has dropped to -$0.448 per gallon recently, the lowest it has been since early 2009. Funds are still net short by more than 100,000 contracts. This could give us short-term support from short covering, and there is room for upside, with talk of potential weather issues in spring.
Export sales were at the high end of analysts’ estimates. Export sales are on course to meet the USDA estimate, but this time of the year brings worry about South America taking up more export business. The falling dollar index is a good start to initiate increased export sales. November was the last time the U.S. dollar was this low. USDA’s export inspections report for the week ending Jan. 29 was decent, at 26.84 million bushels, below the needed to meet USDA’s projection. It was a good week for export sales, as corn exports were estimated at 44.5 million bushels, and ahead of the 24.1 million bushels needed to meet USDA’s estimate of 1.7 billion bushels for the year.
Ethanol production for the week ending Jan. 29 averaged 959,000 barrels per day, down 0.21 percent from the previous week. Total ethanol production for the week was 6.713 million barrels. Corn used in production is estimated at 100.7 million bushels and needs to average 98.196 million bushels per week to meet this crop year’s USDA estimate of 5.2 billion bushels. Stocks were at 22.362 million barrels, up 4.32 percent, compared with last week and up 6.56 percent, compared with last year.
Soybeans traded a net loss for the week. Feb. 1 and Feb. 4 saw losses combining for no more than 3.75 cents, and Feb. 2 seemed to set a positive tone for the week with a 5.25-cent gain. Feb. 3 saw losses of 9.5 cents, based on Informa estimates of South American production. Tallying it up, a 4.75 loss occurred from Feb. 1 to 4.
The dollar index posted above 99 on Feb, 1, but by Feb 4, it had fallen to 96.57, at least a 2.5 percent decline. While Brazilian and Argentine currencies are weak relative to the dollar, the lower dollar index values might spur an improvement in exports, which would show up on the next export sales report.
In export sales for the week ending Jan. 29, soybeans lost 1.6 million bushels after China’s major cancelation. Total commitments are at 1,492 million bushels, which is 88 percent of the USDA estimate. Compare that with last year, when year-to-date commitments were 90 percent completed, and the total export estimate was 9 percent higher than this year. Furthermore, we’re in a time of year when South America starts to take more of the export business. Hopefully, the fall in the dollar index will boost exports.
The Brazilian soybean harvest is reported at 4 percent complete, putting harvest progress on track with past years, and although the crop isn’t in the bins yet, it is looking more likely we won’t have any major hiccups in the market. Informa estimates raised Brazilian and Argentine soybean production estimates 22.04 million bushels to 5,896.77 million bushels. Brazil saw production cuts of 33.07 million bushels, but Argentina more than recouped losses with an increase of 55.11 million bushels. Informa estimates Brazilian production at 3,692.37 million bushels, which is 18.37 million bushels higher than USDA estimates in the December and January supply and demand reports. Argentine production is estimated at 2,204.4 million bushels, which is 110.22 million bushels higher than USDA estimates in those reports.
For the week ending Jan. 29, export inspections netted 20,000 bushels in barley shipments, compared with 90,000 bushels the previous week. Year-to-date shipments are at 1.34 million bushels.
Cash feed barley bids in Minneapolis were down 5 cents at $2.50 per bushel. Berthold, N.D., posted bids of $2.25 per bushel, and the CHS Southwest bid in New Salem, N.D., was up 10 cents, at $2.60 per bushel.
Total durum export commitments are at 22.89 million bushels, and total shipments remain at 20.09 million bushels. USDA estimates 40 million bushels will be exported for the marketing year.
Cash bids for milling durum were unchanged. Berthold kept its bid at $6.25 per bushel, while the Dickinson, N.D., bid remained at $6 per bushel.
February canola futures, as of Feb. 4, were down $7.10 (Canadian) to $468.03 (Canadian) per metric ton. In U.S. dollars per hundredweight, the price rose 6 cents to $15.45 per hundredweight, thanks to a stronger Canadian dollar.
The cash canola bid in Velva, N.D., was down 7 cents for February, at $14.84 per hundredweight, while the March bid was down 3 cents for the week at $14.84. The Enderlin, N.D., bid for February was up 13 cents at $15.50 per hundredweight, and March was up 21 cents at $15.70 per hundredweight. The Hallock, Minn., February bid rose 10 cents to $15.36 per hundredweight, and March and April bids were $15.52 and $15.77 per hundredweight.
Sunflower bids in Fargo, N.D., started and ended the week at $16.80 per hundredweight for February and March. Soybean oil rose 47 cents to $31.35 per hundredweight.