US and China tariff discussions boost soybean market
The wheat market traded very choppy this week as poorer than expected conditions ratings fought with a surging U.S. dollar.
The first condition ratings of the year were released for fall-planted winter wheat. Winter wheat is rated 53 percent good to excellent, 33 percent fair and 14 percent poor to very poor. Trade was expecting a 58-60 percent good to excellent rating. Emergence is 63 percent compared to 67 percent for the five-year average. Winter wheat plantings are 78 percent complete compared to 85 percent for the five-year average. Trade was expecting 80-85 percent.
The U.S. dollar traded 44 points higher and broke $96.45 resistance in Oct. 31 trade. The trending of the U.S. dollar higher is a tough sign for this market. The U.S. finally got a piece of some Egyptian business late last week. Egypt stated that they have enough wheat in strategic reserves to last through early March 2019. The general consensus remains that Russian exports will slow down this winter and U.S. exports will pick up. However, the Russians seem to be finding more wheat and the market may have to stay below $5 levels in Chicago and Kansas City to gain more export business.
Russia's Ag Ministry reported 73.2 million metric tons of wheat production this year compared to the U.S. Department of Agriculture's current estimate of 70 million metric tons. They also reported being roughly 1 million hectares ahead of last year's planting pace at this time. SovEcon reported Russian grain exports at 17.3 million metric tons year to date or 33 percent ahead of last year's pace.
Black Sea Region prices for 12.5 percent protein were down $7 per metric ton to $224 per metric ton last week. The Russians have fought hard to gain global market share and it appears they don't want to give an inch to the U.S. This was reflected in Russia's increased export estimate last week. The ruble continues to trade sideways.
A wire service report stated on Nov. 1 that a Russian ag safety watchdog group plans to ask a court to temporarily suspend work at five grain loading facilities in the Black Sea region. This helped support wheat futures late week.
Weekly export sales totaled 582,500 metric tons (21.4 million bushels). This was above market expectations and the best number in five weeks. Total commitments of 481 million bushels are down 16 percent from a year ago. Weekly Inspections totaled 14.4 million bushels for the week ending Oct. 25 which was within expectations. Marketing year inspections total 316 million bushels, 23 percent lower than last year and well below USDA's projected 14 percent increase.
For the week ending Nov. 1, December contracts for Minneapolis wheat were down 1 cent at $5.7675, up 2.75 cents at $5.08 for Chicago wheat, and up 1 cent at $5.0125 for Kansas City wheat.
The corn market remained in a 10-cent range this week with both December $3.605 support and $3.7175 resistance holding firm.
Corn harvest is 63 percent complete versus 63 percent for the five-year average. Western Corn Belt harvest looks favorable for the next week while rain is expected to slow harvest in the eastern Corn Belt.
Weekly export sales were 394,400 metric tons (15.5 million bushels) which was well below expectations of 500,000 — 800,000 metric tons. Export numbers have slipped the last few weeks cooling off the brisk pace that started the year.
Ethanol production for the week ending Oct. 26 was 7.413 million barrels, up 3.42 percent from last week and up 0.28 percent versus last year. Stocks were 22.746 million barrels, down 4.28 percent from last week and up 5.92 percent versus last year. Production rose more than expected despite negative margins and stocks declined much more than expected. This 48 million gallon stocks decline was the largest weekly drawdown since August 2010. U.S. gasoline demand declined last week from 9.262 million barrels per day to 9.324 million barrels per day and is running 0.8 percent higher than calendar year 2018.
AgRural estimates Brazil's first corn crop to be 2.6 percent larger in planted acres than last year. Brazil's new president Jair Bolsonaro stated that his country will once again become a global leader in ethanol production. This will be a slam dunk for them. After all, they were the first country to mandate an ethanol pump at every fueling station following the early 1970s oil price shock. They were also the first country to mandate a very high percentage of flexible fuel vehicles after their air force made strides in this technology.
Their timing could not have been better implementing this policy in the 2003-05 timeframe. When the U.S. and many other nations' economies were struggling with very high gas prices in 2005-08, the Brazilian economy was largely insulated. Consumers simply chose sugarcane ethanol instead of $4.50 (U.S. price) gas. When crude oil prices collapsed 2008-10, the Brazilians largely switched back to cheap gasoline. Fuel prices rebounded 2011-14 and once again Brazilian consumers switched to higher amounts of ethanol.
Brazil currently produces 8 billion gallons of sugarcane ethanol per year compared to 15 billion gallons in the U.S. Brazil's national ethanol program has evolved over time and most of that ethanol is used internally. Currently, Brazilian gasoline runs between E18 and E27.5 depending on sugarcane and crude oil prices. Over 70 percent of Brazil's light duty automobile fleet is flex fuel compatible. Brazil learned some valuable lessons in the last 15 years. It appears Bolsanaro understands the importance of not putting all of your eggs in one basket.
Soybeans were under pressure to start the week as harvest is progressing after a slow start but it is still 10 percent behind the five-year average. The weekly crop progress report on Oct. 29 showed soybean harvest 72 percent complete nationally versus 81 percent for the five-year average. It is still expected to be a record crop in the U.S. and to make matters worse, a good early start to Brazil's growing season is also having analysts estimating another record crop for Brazil. There is a lot of their growing season left so anything can happen, but an early start points to good yields. AgRural estimates Brazil's planting pace was at a record 46 percent for this time of year versus 28 percent planted for the five-year average.
After two weeks in a steady downtrend, the market received a big shot in the arm in Nov. 1 trade. President Donald Trump took to Twitter stating he had good discussions with Chinese President Xi Jinping and the U.S. and China will proceed with continued talks at the G-20 Summit. This sent the soybean market up 38 cents before closing 30 cents higher on the day.
Earlier in the week, it was reported that Trump is preparing for the next round of Chinese tariffs. The U.S. is preparing new tariffs against all remaining Chinese imports if talks between Trump and Xi fail in late November. This round of tariffs could occur as early as December and target the rest of the imports from China, about $257 billion worth. China approved a measure that will allow their livestock farmers to (voluntarily) lower protein levels in animal feed. The plan, issued late on Oct. 26, could see consumption of soybeans in China fall by 14 million metric tons a year, the agriculture ministry said. This could lower China's soybean use by 13 percent.
Far-right candidate Jair Bolsonaro has won Brazil's presidential election, and it will be interesting to see how it affects their farmers. He is in favor of relaxing environmental regulations and was highly popular with farmers. He is not a fan of China buying up real estate and thinks China is trying to buy Brazil and not just investing in Brazil. The Brazil real firmed to five-month high after the election results.
The next big market mover will be yield and stocks numbers in the monthly USDA report on Nov. 8. It will be interesting to see what the USDA does with this harvest being around 9 percent behind average.
Weekly export inspections totaled 47.9 million bushels, which was at the upper end of trade estimates. Inspections for 2018-19 are at 269 million bushels. Inspections are running 41 percent less than a year ago. Weekly export sales were below expectations at 14.5 million bushels.
November soybeans support is the summer lows set July 16 of $8.2625 and then the new 10-year lows set Sept. 18 of $8.1225. The psychological $8 mark and then $7.7625 lows set back in December 2008 are major support after that.
Resistance is the new 1.5 month high set Oct. 15 of $8.92 and then major resistance is the end of July's high of $9.2225. Funds increased their net short position by 8,000 contracts to net short 44,000 according to the latest Commodity Futures Trading Commission data.
For the week ending Nov. 1, November canola futures were down $0.60 Canadian at $482.50 Canadian per metric ton. The Canadian dollar was up .0047 to .7646. This brings the U.S. price to $16.74 per hundredweight.
• Velva, N.D., $15.99 per hundredweight, December at $15.78.
• Enderlin, N.D., $17.41 per hundredweight, Nexera.
• Hallock, Minn., $16.19 per hundredweight, December at $16.52.
• Fargo, N.D., $16.65 per hundredweight, December at $16.15.
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., bid is $2.55.
Cash bids for milling quality durum are $4.50 in Berthold, N.D., and at $4.50 in Dickinson, N.D.
Cash sunflower bids in Fargo, N.D., were at $16.70. December bids were at $16.90.
For the week ending Nov. 1, soybean oil was up 16 cents at $28.32 on the December contract.