Market awaits harvest outcomes in U.S., then looks south
The week market saw mostly positive action in overnight sessions this week only to be met with negative sentiment during day trade. It was a sideways to overall lower pattern for the week. The wheat market saw 4- to 9-cent gains in overnight trade Sept. 23-24, but backed off for minor gains to start the week on news the National Bank of Australia estimates Australian wheat production at 18.1 million metric tons, down from 18.4 million metric tons last month. The U.S. Department of Agriculture is currently at 20 million metric tons.
The market encountered pressure the rest of the week, primarily on good winter wheat planting pace. Winter wheat plantings are currently 28 percent planted versus the five-year average of 26 percent. Two-week weather forecasts call for warmer and wetter conditions for the Southern Plains.
The other negative was an overall lack of international activity. Japan, in its normal weekly tender, had no offers for wheat. Ukraine's government stated they will keep export volumes the same at 8 million metric tons. Although Indonesia stated they could import up to 312 million bushels, a 6 percent increase from 2017.
The funds reduced their net long in Chicago by 20,000 contracts to only 1,500 net long. The Kansas City contract shed 6,400 contracts and are currently 37,000 long, according to the latest Commodity Futures Trading Commission data. This is an overall positive development as it signals the market is not overbought.
The U.S. dollar encountered three sessions in a row hitting the $93.40 area. It appears to have good support at this level, as the dollar rebounded higher in Sept. 25 and 26 trade, which also pressured the wheat complex. Matif wheat futures trended lower to $200.50 per metric ton for December.
The ruble has put in a string of 12 consecutive trading sessions higher. Last week, Russian prices were down $1 to $2 per metric ton. At the port of Novorossiysk, 12.5 percent protein is trading $214 to $220 per metric ton. Reports came in this week that Egypt and other countries were placing stricter testing on Russian wheat due to poorer quality from rains experienced during harvest. There is speculation that this, combined with the higher ruble, will slow Russian exports in the coming weeks.
Weekly export sales totaled 24.1 million bushels. Total shipments plus outstanding sales of 399 million bushels are down 20 percent from a year ago. Weekly shipments of 17.8 million bushels put total shipments down 29 percent from the previous year. Inspections for the new 2018-19 marketing year total 240 million bushels, 29 percent lower than last year and well below USDA's projected 14 percent increase. Export pace remains a bearish factor for the wheat market.
Corn futures were up six out of seven days and had their best close since the day before the Sept. 12 USDA report. The USDA gave traders a surprise Sept. 12 when they raised the corn yield to a record 181.3 bushels per acre. Corn futures have gained back about 22 cents after making new contract lows on Sept. 18. Export sales were very strong in the last weekly report. Even though we are still early in the 2018-19 marketing year, export sales are up 61 percent from one year ago. Export inspections are up 41 percent from a year ago. Midwest rains have delayed harvest in parts of the Upper Midwest, and the extended forecast keeps moisture and cool weather for the next two weeks. For the week ending Sept. 27, December corn was up 7.5 cents.
Shortly after the U.S. harvest wraps up, South American weather will be back as a major headline to move prices. Early expectations from the Buenos Aires Grain Exchange have Argentina's corn crop rising to a record 43 million metric tons for this coming growing season versus last year's drought-affected 31.7 million metric tons. The USDA is estimating 41 million metric tons, and that is in line with Argentina's production two years ago.
Corn yields keep improving in the Pro Ag yield model, with corn getting close to 180 bushels per acre but still shy of the USDA's 181.3 bushels per acre estimate.
Ethanol production was down slightly versus last week but is still well ahead of last year's pace at this time. Margins are not as strong as one would think they would be with cheap corn prices as exports have been affected from trade issues. The ethanol market is oversupplied.
Soybeans saw slight gains this week as the trade waits to see how large this year's crop actually is. News has been slow to come by about the strength of this year's yields as weather has caused some delays in the Midwest. Soybean futures are at one month highs after making new lows on Sept. 18. Excess moisture concerns due to recent rains are giving the bears a little pause, but not enough to get them too concerned yet. Strength also came from a USDA announcement that 24.7 million bushels of U.S. soybeans were sold to Mexico for 2018-19. This is the largest soybean sale since a sale to China in September 2017. An expected record crop and trade issues with China is still the talk of the trade and will keep a cap on prices until we get more details. Soy product prices in China are starting to feel the effects of the tariff war. Chinese soybean meal futures on the Dalian exchange hit a five-month high this week.
The price direction of our grain markets is likely to be determined by factors related to the China-U.S. trade dispute: 1) Will it get solved, and when? 2) How much more will the U.S. sell to other countries in the interim to make up for supplies those countries are no longer able to purchase from Brazil (because they sell product to China instead)? 3) How much will Chinese firms buy direct from the U.S. with a 25 percent tariff? Will U.S. farmers cut soybean acreage 5 million acres in 2019? Ten million acres? Fifteen million acres? And how much will soybean acreage be cut in 2020? These are very important questions yet to be answered in the coming months, and possibly years.
After the U.S. harvest, South American weather will become a major factor in the market. Early expectations from the Buenos Aires Grain Exchange have Argentina's soybean crop rising to 53 million metric tons for this coming growing season versus last year's drought-influenced 35.1 million metric tons. The USDA is estimating 57 million metric tons. They also expect Argentina exports to hit a new record of 15.4 million metric tons versus the USDA's early estimate of 9.3 million metric tons for this coming year. Argentina's old export record was 13.7 million metric tons back in 2009-10.
November soybeans support is the 10-year lows set on Sept. 18 of $8.1225 and the summer lows set July 16 of $8.2625. The psychological $8 mark and then $7.7625 lows set back in December 2008 are major support after that. Nearby resistance is the 50-day moving average of $8.63 and then the end of July's high of $9.2225. For the week ending Sept. 27, November soybeans were down 7.75 cents.
For the week ending Sept. 27, November canola futures were up $8.70 Canadian to $498.40 Canadian per metric ton. The Canadian dollar was at .7671. This brings the U.S. price to $17.35 per hundredweight.
• Velva, N.D., $15.59 per hundredweight, October at $15.59.
• Enderlin, N.D., $18.02 per hundredweight, October at $18.02 (Nexera Canola).
• Hallock, Minn., $16.53 per hundredweight, October at $16.67.
• Fargo, N.D., $16.05 per hundredweight, October at $16.20.
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, N.D., is at $2.40.
Cash bids for milling quality durum are $4.50 in Berthold and at $4.50 in Dickinson, N.D.
Cash sunflower bids in Fargo are at $17.25. October bids are at $17.25.
For the week ending Sept. 27, soybean oil was up 73 cents at $28.82 on the October contract.