Markets rally in February
Heavy buying came into the entire wheat complex Feb. 28 with the possibility that Minneapolis may have finally broken its down trend. The sub $6.00 level was reached a few times as March contracts went into delivery, but for now the May contract could not close lower than $6.08 and we would view this as heavy support. We've been waiting for Minneapolis to join the Kansas City/Chicago rally — so better late than never. We would have to see May break the $6.40 area to officially show the downtrend reversed.
There is anticipation for an increase of 1 million spring wheat planted acres in 2018. This could be likely given the fact that the final fall harvest price for federal crop was set at $6.31 with a volatility factor of 13 percent. This is an 11.7 percent higher guarantee than $5.65 in 2017 while corn and soybeans were virtually unchanged.
The Kansas City July contract blew through the $5.10 resistance area at the beginning of the week and has approached $5.55 levels. Declining crop ratings and forecasts support this move as the Kansas City winter wheat belt of Kansas, Oklahoma and northern Texas are showing minimal rainfall chances. Oklahoma remains at only 4 percent good to excellent and 78 percent poor to very poor compared to 43 percent good to excellent last year. Kansas declined 2 percent to 12 percent good to excellent and 49 percent poor to very poor compared to 43 percent good to excellent last year. Colorado saw a 6 percent decline with 31 percent good to excellent and 27 percent poor to very poor compared to 40 percent good to excellent last year.
There were slight improvements to the weekly U.S. Drought Monitor, primarily in Missouri as recent rainfall pushed to the east of Oklahoma and Kansas. Europe was experiencing extremely cold temperatures early in the week; however, speculation about winterkill is subsiding with decent snowfall.
Weekly export sales were also at the low end at 236,300 metric tons. Total marketing year sales are 795 million bushels, 12 percent below last year.
For the week ending March 1, May contracts for Minneapolis wheat were up 21.5 cents at $6.3475, up 51.25 cents at $5.155 for Chicago wheat, and up 58.75 cents at $5.435 for Kansas City wheat.
The May contract 200-day moving average of $3.805 was exceeded in Feb. 28 trade. We've rallied 30 cents since January 12 and surpassing this moving average is a good technical sign. We need to use some caution here as the highest July 2017 reached last summer with a high carryout was $3.99. Could the July contract reach or exceed this level with an even higher carryout?
If the Argentina situation continues to deteriorate I think the answer is yes, but I would expect some pretty tough resistance if we approach the $4.00 level in July. The strong rally in soybean meal would mean more corn usage for feed making trade above $4.00 in July very possible.
There is market talk of Argentina corn production dropping as low as 32 million metric tons compared to recent lower revised estimates of 35 to 37 million metric tons. More in the trade think that rainfall now would do little to help corn, although it could still help soybeans. Second crop corn planting progress in the Panara region of Brazil is 43 percent compared to 57 percent last year with 60 to 70 percent considered normal pace. This is due to soybean harvest at 27 percent complete versus 42 percent last year.
Weekly ethanol production ending Feb. 23 averaged 1.044 million barrels per day. This is down 2.25 percent versus last week and up 0.97 percent versus last year. Total ethanol production for the week was 7.308 million barrels. Stocks as of Feb. 23 were 22.979 million barrels. This was up 0.99 percent versus last week and down 0.49 percent versus last year. Corn used in last weeks production is estimated at 108.6 million bushels bringing cumulative corn used for ethanol production to 2.83 billion bushels.
Weekly petroleum data showed crude oil stocks rising more than expected to 423.5 million barrels. Gasoline stocks increased 2.48 million barrels to 251.82 million barrels with trade expecting unchanged inventory. Distillate stocks declined slightly more than expected to 137.99 million barrels. This data caused crude oil futures to be down $1.50 per barrel in Feb. 28 trade.
Weekly export sales were yet again solid totaling 1,753,000 metric tons bringing total marketing year sales to 1.547 billion bushels, 9 percent below last year.
For the week ending March 1, May was up 11.75 cents to $3.8625 and July was up 11.25 cents to $3.935.
Soybeans had another positive week as May soybeans saw their highest close since February 2017 and November soybeans made new contract highs. Soybean meal continues to rock and roll and continues to lead soybeans higher, not vice versa. Soybean meal is at highs last seen the beginning of July 2016 as they start worrying about crush numbers in Argentina. There is not much relief for Argentina in the seven-day forecast. This will continue to support soybean meal, and in turn soybean prices, until (or if) the forecast turns wetter as they get into their pod filling stage. On the bearish side, U.S. soybean exports continue to disappoint, and export concerns were increased this week as Trump announced new tariffs on steel and aluminum, which could lead to an ever-increasing trade war with China.
Prices have run nicely higher, with a rather rapid price appreciation in the past month, adding over $1 to the price of soybeans and around $50 per acre to farmers bottom line. Soybeans have done this since making a low Jan. 12 at $9.445 March. The $1-plus rally has been mostly due to problems in Argentina, which has experienced a drought the past few months that has trimmed the crop considerably from expectations. While Brazilian weather has been ideal for growing the crop (cool and wet), it is starting to present some harvesting problems for Brazilian growers as the cool/wet pattern continues during harvest.
Even as soybeans continue their run higher this week, the momentum seemed to be slowing, which is not always a bad thing. Slower momentum is more sustainable than sharp gains without caution or a setback, but weather will be the deciding factor on how much higher we can go. Argentina remains dry in the seven-day forecast, but on the bearish side, Brazil's forecast shows it drying out in their seven-day forecast. A dry forecast in Brazil will help their harvest move forward, and they have a big crop coming to port.
The weekly Brazil crop roundup increased their production estimates to 114.5 million metric tons versus U.S. Department of Agriculture forecasts of 112 million metric tons. The weekly Argentina crop round up puts their production estimates at 45 million metric tons versus USDA forecasts of 54 million metric tons. Commodity Futures Trading Commission data on Feb. 20 showed the funds adding to their strong net long stance, moving from net long 43,000 contracts to net long 99,000 contracts.
New crop soybeans had their high last year around $10.45 on the Nov. 2017 soybean contract, and current Nov. 2018 soybeans are trading at $10.32 today, very near that recent high. For the week ending March 1, May soybeans were up 20 cents, July 2017 soybeans were up 19.5 cents, and November soybeans were up 8.75 cents.
Final 2018 crop insurance prices were set on March 1 for soybeans at $10.16 compared to $10.19 for 2017.
For the week ending March 1, May canola futures in Winnipeg were up $9.10 Canadian to $525.4 per metric ton. The Canadian dollar has been trending down to .7799. This brings the U.S. price to $18.59 per hundredweight. There is resistance in the $528 to $542 area on the canola weekly charts.
• Velva, N.D., $18.22 per hundredweight, September at $17.39.
• Enderlin, N.D., $18.92 per hundredweight, September at $17.93.
• Hallock, Minn., $18.27 per hundredweight, September at $17.60.
• Fargo, N.D., $18.85 per hundredweight, September at $19.85.
Cash feed barley bids in Minneapolis were at $2.85, while malting barley received no quote. The Berthold, N.D., bid is $2.45 and CHS Southwest New Salem, N.D., bids were at $2.75.
Cash bids for milling quality durum are $6.00 in Berthold and at $5.75 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.25 and April at $17.65. For the week ending March 1, soybean oil was down 16 cents at $32.40 on the May contract.