Markets struggling with ample supply
Wheat contracts were lower for the week in reaction to an Egyptian court upholding the previous zero-tolerance ergot ban from last fall. Egypt's current wheat reserves are enough to last until Apr. 5, 2018. As the world's largest wheat importer, the ruling adds further uncertainty for exporters. Russia was awarded an Egyptian tender of 240,000 metric tons on Nov. 16. The Russian ruble, which has been on a steady decline since mid-October, has been giving Russia a competitive advantage on the world export stage. The euro traded higher, cutting into Europe's competitiveness.
Traders are also becoming aware of Australian merchant concerns over quality due to recent rains. It is not a quantity issue, but a quality one. There is speculation that Asian buyers may have to look elsewhere for milling-quality wheat. This would favor Canada and the U.S.
Minneapolis remains at the historical high end of the spread range relative to Chicago and Kansas City. Early week, we saw the spread decline from a peak of $2.125 down to $1.99 before rebounding to $2.06 on the March contracts. The Chicago and Kansas City contracts have a vast majority of December put options (11,119) and (861) at the $4.30 strike price. If the market wants to inflict maximum damage, a close above $4.30 on Thanksgiving Friday would be likely.
Weekly export sales were bearish totaling 19.1 million bushels, with 18 million bushels for the 2017-18 marketing year. This puts total marketing year sales at 616.5 million bushels, 5 percent below the previous marketing year. Weekly shipments of 10.9 million bushels put the marketing year total at 408.3 million bushels, 6 percent below the previous year.
For the week ending Nov. 16, December contracts for Minneapolis wheat were down 17.25 cents at $6.3025, down 10 cents at $4.215 for Chicago wheat and down 16.25 cents at $4.17 for Kansas City wheat.
Corn hit new contract lows in Nov. 16 trade with the December contract touching $3.3625 per bushel. The late August lows in corn did not hold this year as they did in 2016. Interestingly though, crude oil futures backed off into late August but have been in a steady uptrend ever since. In late August, crude oil was trading around $47 per barrel and has recently been trading between $55 to $58 per barrel.
This widening price spread is being reflected in prices at the pump. In the Fargo, N.D., and Bismarck, N.D., markets, we have seen the E85/E10 spread widen from around 40 cents per gallon in late August to around 85 cents recently. Ethanol plant margins also have been increasing recently with the availability of cheap corn.
Last winter we chewed through a record carryout with prices between $3.62 and $3.78 March '17 futures. We are more than a dime cheaper than that now. Additionally, last winter the U.S. dollar was trading between $98 and $102. Currently, the dollar has been in the $92.50 to $94.50 range. Based on both the relative strength in crude oil and a lower U.S. dollar from a year ago, we don't foresee corn futures declining much more.
The only problem with our theory has been the lackluster pace of export sales. Export sales are currently running 26 percent less than last year, with shipments running 41 percent less. This dismal pace of exports will need to pick up over the winter months or the U.S. Department of Agriculture will be forced to revise their estimates downward.
Ethanol production for the week ending Nov. 10 averaged 1.054 million barrels per day. This is down 0.28 percent versus last week and up 3.64 percent versus last year. Total ethanol production for the week was 7.378 million barrels. Stocks as of Nov. 10 were 21.497 million barrels. This is up 0.71 percent versus last week and up 15.52 percent versus last year. Corn used in last week's production is estimated at 109.67 million bushels bringing cumulative corn usage for ethanol to 1.18 billion bushels.
December option expiration is Thanksgiving Friday. Currently there are 39,516 put options at the 340 strike. On the call side the heaviest volume is at the 360 strike with 35,504. The market always seems to inflict maximum damage when it comes to options expiring, so we would expect the December contract to close above $3.40 on Nov. 24. For the week ending Nov. 16, December was down 5 cents at $3.365 and March was down 7.75 cents at $3.49.
There continues to be a back and forth battle between the bears and bulls following the selloff after the November USDA report. January soybeans traded on both sides of the 100- and 200-day moving averages of $9.80 and are going to close above it to end the week. Bears started off the week with the upper hand selling on disappointing export numbers and rains in Brazil. Buyers started to come back in the market midweek as some traders are positioning themselves for the chance of adverse weather in South America. For the week ending Nov. 16, January soybeans were down 15 cents and March soybeans were down 14.75 cents.
Traders will have their eyes on South American weather for the next 4 months and will wait for any adverse weather conditions to trade. Forecasts have rains in the forecast for the main growing regions of Brazil this week, which are needed for early crop germination.
Similar to early Brazil weather, Argentina producers are starting to take notice of the dry conditions, and dry forecasts are slowing in their primary growing areas. They are in need of some rain to start planting acres they are delaying until moisture falls. It is still too early in the season for Argentina producers to get too excited, but it is something to watch. Brazil had these issues early on, but weather turned around and their planting progress is now near normal pace with favorable rains falling to get their crops started. Reuters estimates put Brazil's 2018 soybean production at 109.4 million metric tons versus Safras at 114.7 million metric tons and USDA at 108 million metric tons.
Soybean harvest is almost complete in the U.S., but there are some soybeans yet to be harvested in the eastern Corn Belt. As of Nov 12, soybean harvest came in at 93 percent complete versus the five-year average of 95 percent and 96 percent last year. Informa has early estimates of 89.6 million acres for next year's soybean crop. This compares to 90.2 million for 2016 planted acres and 89.5 million harvested acres.
Export sales were disappointing at 43.2 million bushels for the 2017-18 marketing year. This puts marketing year sales at 1.197 billion bushels, 15 percent less than the previous marketing year.
For the week ending Nov. 16, January canola futures in Winnipeg were up $4.70 Canadian to $517.40 Canadian per metric ton. The Canadian dollar was down to .7844. This brings the U.S. price to $18.41 per hundredweight.
• Velva, N.D., $17.79 per hundredweight, December at $17.90.
• Enderlin, N.D., $18.23 per hundredweight, December at $18.41.
• Hallock, Minn., $17.73 per hundredweight, December at $18.08.
• Fargo, N.D., $18.35 per hundredweight, December at $18.20.
Cash feed barley bids in Minneapolis were at $2.40, while malting barley received no quote. The Berthold, N.D., bid is $2.25 and CHS Southwest New Salem, N.D., bids were at $2.50
Cash bids for milling quality durum are $6.25 in Berthold, and at $6.25 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.60, December $17.45. For the week ending Nov. 16, soybean oil was down 35 cents to $34.46 on the December contract.