More bad news for wheat markets comes out of Canada
The wheat market received more bad news with the release of Canada's Production of Principle Field Crops report on Dec. 6. Wheat production was estimated at 30 million metric tons. This was 2 million metric tons higher than the pre-report estimate of 28.0 million metric tons. 2017 all-wheat acreage came in at 22.2 million acres. Saskatchewan had the largest decrease in average yield at -11.3 percent, while Manitoba had the highest increase at +12.6 percent mirroring western North Dakota versus eastern North Dakota and Minnesota production.
Canadian durum production came in at 4.962 million metric tons which was also at the high end of trade expectations. These numbers added pressure to the wheat complex mid-week.
In Dec. 7 trade, March Chicago wheat futures reached its lowest ever premium to March corn futures at 69 ¾ cents. The fact that we reached this historical spread milestone shows how awash the world is in wheat supplies.
In the August report, the U.S. Department of Agriculture increased the Russian/former Soviet Union 12 production by 8.6 million metric tons. The Canadians added 3 million metric tons with this report. So we have added 11.6 million metric tons to the world balance sheet from two countries since July. For comparison, the entire U.S. spring wheat crop of 400 million bushels equals 10.88 million metric tons.
Weekly export sales were bearish totaling 11.9 million bushels, with 11.8 million bushels for the 2017-18 marketing year. This puts total marketing year sales at 642.5 million bushels, 10 percent below the previous marketing year. Weekly shipments of 14.6 million bushels put the marketing year total at 442.2 million bushels, 8 percent below the previous year. In my experience, it always seems that the first four weeks of the export season sets the pace and it usually ends up pretty close to that number at the end of the year. We have been 6 to 8 percent behind pace consistently, with USDA estimating a 5 percent decline on wheat. It certainly has the feel that we will end up below the 5 percent estimated cut.
For the week ending Dec. 7, March contracts for Minneapolis wheat were down 20.5 cents at $6.11, down 17.0 cents at $4.215 for Chicago wheat, and down 16.75 cents at $4.2075 for Kansas City wheat.
Weekly export sales were bearish at 34.5 million bushels, all for the 2017-18 marketing year. This puts the total marketing year sales at 901.5 million bushels, 27 percent less than the previous year. Shipments of 23.3 million bushels put the marketing year total at 318.4 million bushels, 38 percent less than previous year.
Ethanol production and exports remain robust. Ethanol production for the week ending Dec. 1 averaged 1.108 million barrels per day. This is up 8.31 percent versus last year. Total ethanol production for the week was 7.756 million barrels. Stocks as of Dec. 1 were 22.544 million barrels. This is up 2.27 percent versus last week and up 21.66 percent versus last year. Corn used in last week's production was 115.35 million bushels bringing cumulative corn usage for ethanol to 1.52 billion bushels. U.S. ethanol export pace is 32 percent higher than last year at 1.0865 billion gallons. Dry Distillers Grains export pace is currently 4 percent lower than a year ago.
As ethanol stocks have been increasing, price spreads for E-85 are 88 cents cheaper than E-10 and $1.61 per gallon cheaper than non-oxygenated premium in the Fargo, N.D., market. U.S. motor fuel Inventories increased by 9.2 million barrels last week, according to an American Petroleum Institute report. This sent crude oil futures sharply lower in Dec. 6 trade. The same report expects fuel demand to decline through the end of year.
Although the API report was bearish, the announcement to move Israel's capital to Jerusalem has traders uneasy about political unrest in the Middle East and crude oil futures rebounded at weeks end. A report from Reuters expects crude oil futures to be steady to higher through 2018 based on ongoing conflicts in Saudi Arabia, Libya and Venezuela. This along with potential LaNina and current dry conditions in Argentina should provide underlying support to corn futures.
The U.S. dollar traded higher five days in a row this week, which was the best run in nine months. This added further pressure to the grain complex this week. Stats Canada estimates corn for grain production at 14.1 million tons, the second highest on record and 6.8 percent higher than 2016. For the week ending Dec. 7, March corn futures were down 7.25 cents at $3.515.
Soybeans gave up early week losses as the forecast for South America changes daily. Talk about La Nina possibilities is keeping traders on edge, selling rainfalls and buying into extended forecasts that keep moisture away from South American crops. Rains are expected to remain spotty, but increasing chances for precipitation in the extended forecast are putting a strain on the built-in weather premium. You can expect choppy trade to remain in the soy complex ahead of the Dec 12 WASDE report. Analysts believe the USDA could lower marketing year U.S. exports in this report due to this year's slow start and Brazil's strong export data. Soy oil continues its downward trend as large canola production numbers in the Stats Canada report will continue to pressure oils.
Argentina remains warm and dry, with only spotty rains falling in many of the main growing regions. Some areas have planted into dust, and there is worry that crops will not emerge in those conditions without substantial moisture soon. Much of Brazil's large soybean areas have seen good weather this year for the most part as they move into their summer months (their December is the equivalent to June in the U.S.)
If we learned anything this year, late summer is make or break for yield potential and crops can recover from early summer issues. January soybeans climbed to $10.15, highs last seen on July 31 before bouncing back to the November Pre-USDA report highs of $10.085. The long trend is up, but that trend could deteriorate if rains start falling in Argentina and Southern Brazil.
Brazil's crop round-up puts their soybean crop at 108 million metric tons versus USDA's 107 million metric tons forecast. Argentina's crop roundup puts their soybean crop at 55 million metric tons versus USDA's 57 million metric tons forecast.
The export sales were double what they were last week at 76.7 million bushels, the majority for the 2017-18 marketing year. This puts marketing year sales at 1.335 billion bushels, 16 percent less than the previous marketing year.
Monthly resistance marks for soybean futures start at $10.325, this past summer's high set in July. The $10.54 mark set in July of 2015 and then $10.80 which was established this past January are next long term monthly resistance levels. Support levels are at $9.81 and $9.67 on the daily charts. For the week ending Dec. 7, January 2017 soybeans were down 2.25 cents and March soybeans were down 1.75 cents.
For the week ending Dec. 7, January canola futures in Winnipeg were down $0.2 Canadian at $505.9 metric tons Canadian. The Canadian dollar was down to .7776. This brings the U.S. price to $18.02 per hundredweight.
• Velva, N.D., $17.34 per hundredweight, January at $17.45.
• Enderlin, N.D., $18.01 per hundredweight, January at $18.01.
• Hallock, Minn., $17.58 per hundredweight, January at $17.69.
• Fargo, N.D., $18.40 per hundredweight, January at $18.15.
Canadian farmers produced 21.3 million metric tons of canola in 2017, up 8.7 percent from 19.6 million metric tons in 2016. A record high harvested area of 22.9 million acres, up 14.1 percent from 2016 was the reason for this high production number. Yield came in at 41.0 bushels per acre, down 4.9 percent from the record set in 2016.
Cash feed barley bids in Minneapolis were at $2.65, 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 $17.75. December at $17.50. For the week ending Dec. 7, soybean oil was down 41 cents to $33.28 on the January contract.