Tariff war escalates
Australian news items dominated the trade early week on reports of abnormally low temperatures and potential frost damage to the Australian wheat crop over the weekend. This posted 7-cent gains in the Sunday evening overnight session, but traders viewed this with less concern during the day session of Sept. 17 as there were more areas in the 30-35 degree range. Australia's wheat crop experiences heading in the first few weeks of October, so this frost could lead to reduced yield estimates in coming reports, and the consensus seemed to be leaning towards a 2-million-metric-tons reduction.
Australian weather remains dry over the next two-week forecast. Additionally, there are numerous wire reports stating that eastern Australian livestock producers are bidding up wheat prices for feed and that is leading to Australian wheat being overpriced on the world market.
The wheat market was higher in Sept. 18 trade on news that the Russian Ag Ministry has lowered its overall grain export numbers. There also have been reports of the northern wheat-growing regions of Russia experiencing early frost before wheat was mature and reports of southern Russian farmers planting into very dry conditions. There were also reports of Argentina wheat farmers struggling with dry conditions. All in all, there is a lot of weather uncertainty in the world and possibilities for further global stock reductions.
Egypt purchased 475,000 metric tons of wheat for an average price of $244.50 per metric ton. This was the largest purchase since March and notably was $4 per metric ton higher than the previous week's sales, pointing to world buyers that export prices are increasing.
With the roughly $1 break in wheat futures since the early August highs, a few questions come to mind. Is the market assuming it bought enough U.S. winter wheat acres with the early August highs? Does the market need to rebound quickly to get some more fall acres planted in the next few weeks? Is the market assuming with low soybean prices it will get more U.S. wheat acres anyhow?
These are all difficult questions. But I think the bigger one is, can the market afford not to buy winter wheat acres quickly if the problems in Russia and Australia worsen? If a scenario like that plays out, then the Canadian and U.S. spring wheat crop could see a decent late winter/early spring rally if more acres are needed. It's easy to look in the rearview mirror and state that the most likely reasons for the drop were seasonal tendencies and a continued poor export pace.
Corn saw continued selling interest on thoughts of a large incoming crop reaching a new contract low of $3.425 on the December contract. It appeared that the September contract low of $3.3625 was in jeopardy during early week trade. Corn conditions remained unchanged at 68 percent good to excellent compared to 61 percent last year at this time. Progressive Ag's yield model increased 0.53 bushels per acre and is now at 179.12 bushels per acre.
Weekly export sales were well above expectations at 1.3837 million metric tons (54.5 million bushels). For the new 2018-19 marketing year, outstanding sales plus shipments totaled 652 million bushels, up 50 percent from a year ago. Weekly export shipments of 42.4 million bushels put total shipments up 27 percent from a year ago. The export sales numbers gave the market a nice jolt in Sept. 20 trade. The largest sale this week went to Mexico at 345,000 metric tons.
Sept. 16 marked the end of the summertime restriction on E15 sales. According to the Renewable Fuels Association website, President Donald Trump has called the summertime ban on E15 "unnecessary" and recently stated that the administration is "very close" to removing this decades-old rule which the EPA has jurisdiction over. There was an announcement of three Green Plains Inc. ethanol plants closing in Iowa and Minnesota due to loss of ethanol export business to China. Ethanol futures trended lower most of the week and approached the contract low close of $1.253 set on Aug. 30. The Sept. 4 high of $1.323 appears to be major resistance in this downtrading market.
After a slow start to the week, commercial buying came into the market to bounce November soybeans off of fresh 10-year lows that were set this week. Soybeans shrugged off the White House's Sept. 17 announcement that it is putting $200 billion worth of new tariffs on Chinese goods, as it is largely thought to be built into this market already. There was really not much doubt for the last couple months that these tariffs were going to be put on after the comment timeframe expired, especially as the U.S. and China haven't yet come to an agreement. The USDA's weekly export report shows soybean sales are hanging in there at the start of the new marketing year as countries besides China are looking at soybeans as a bargain they haven't seen in 10 years.
The U.S. and China are expected to meet in the next couple weeks, but it sounds like China will only send lower level negotiators. Large U.S. yield verification, as more and more combines get in the field, are a hindrance on this market. But in all reality, the only thing that looks like it matters is the spat between the U.S. and China.
The monthly soybean crush numbers were disappointing for the month of August. The National Oilseed Processors Association reported its processors crushed 158.885 million bushels of soybeans in August, down from a July crush of 167.733 million bushels and moderately below analyst expectations of 163.870 million bushels. The total was still an all-time high for the month of August.
Soybean plantings are ahead of schedule in many parts of Brazil. Soybean planting in Brazil's second-largest producing state of Paraná was at 9 percent planted, up from only 1 percent planted the week prior. This is well above the pace of only 1 percent planted at this time last year. Sufficient soil moisture has allowed for a quick start of fieldwork. Some Mato Grosso farmers are still waiting for higher levels of soil moisture to start planting, but there are not many concerns at the moment. Frost hit China's Heilongjiang province that could damage its soybean yield potential by about 4.5 percent, with losses totaling about 10 million bushels. The province accounted for about 40 percent of China's total soybean production in 2017.
For the week ending Sept. 20, November canola futures were down $1.80 at $489.10 Canadian per metric ton. The Canadian dollar was at .7750. This brings the U.S. price to $17.20 per hundredweight.
• Velva, N.D., $15.25 per hundredweight, October at $15.25.
• Enderlin, N.D., $17.88 per hundredweight, October at $17.88 (Nexera Canola).
• Hallock, Minn., $15.68 per hundredweight, October at $15.85.
• Fargo, N.D., $15.95 per hundredweight, October at $16.05.
Cash feed barley bids in Minneapolis were at $2.60, while malting barley received no quote. Berthold, N.D., bid is $2.50 and CHS Southwest New Salem is at $2.75.
Cash bids for milling quality durum are $4.50 in Berthold and Dickinson, N.D.
Cash sunflower bids in Fargo are at $17.30, with October at $17.30.
For the week ending Sept. 20, soybean oil was up 11 cents at $27.60 on the October contract.