Erratic energy markets affecting corn trade
The wheat market started off the week with nice gains in holiday-thin trade volume on news that excessive rains in the wheat growing regions of Argentina would affect quality. Other reports of fungal disease affecting wheat quality came in from Brazil's primary wheat growing area that also experienced heavy rainfall.
The wheat complex did an about-face in Nov. 13 trade heading lower as weekly export inspections were at the low end of expectations coming in at 342,000 metric tons, or 12.6 million bushels.
Weekly winter wheat condition ratings improved 3 percent from the previous week and are now rated at 54 percent good to excellent, 34 percent fair and 12 percent poor to very poor. Trade was expecting no change due to recent moisture in the Southern Plains.
Winter wheat plantings are at 89 percent compared to 94 percent for the five-year average. Kansas is 8 percent behind normal pace. Emergence is rated at 77 percent compared to 83 percent average. Colder than normal temperatures are expected to delay the crop further as it heads into dormancy.
There have been a number of wire reports this week stating that Iraq is looking at increasing wheat imports from Russia. The two countries' officials are set to meet within the next month. Strategie Grains reported that Russian wheat exports are expected to significantly decline into the new year. The report expects both U.S. and European Union exports to increase into 2019 based on current supplies.
Psychological support at the $5 December levels in Chicago held, as did the $5.70 levels in Minneapolis. Kansas City contracts, on the other hand, had a lousy week, breaking under $4.85 support. There are a number of spread traders who went long Kansas City and short Chicago on thoughts that the protein premium would improve. The opposite has occurred with Kansas City now 25 cents under Chicago. Historically, it is a rare occurrence for Kansas City to get to 30 cents under the Chicago contract.
For the week ending Nov. 15, December contracts for Minneapolis wheat were up 1.5 cents at $5.7475, up 3.5 cents at $5.055 for Chicago wheat, and down 7.5 cents at $4.80 for Kansas City wheat.
The corn market traded choppy to slightly lower this week as the December contract remains in the $3.63 to $3.73 range with heavy support and resistance at both levels. The 50-day moving average of $3.65 managed to hold firm.
Weekly export inspections were at the top end of expectations coming in at 1.137 million metric tons, or 44.7 million bushels, and Mexico purchased 212,000 metric tons of corn for the 2018-19 marketing year as demand remains solid. Cumulative exports are running 86 percent ahead of last year's pace.
For the week ending Nov. 6, funds increased their net long in corn by 12,000 contracts to plus-27,000 long. Trade action at the beginning of the week was largely spread unwinding with many traders buying back soybean shorts and selling back corn longs. Traders do not want to be caught heavy short on soybean positions if a positive announcement comes out regarding the G-20 summit. At this point, it seems like the corn market will follow the direction of the soybean market in reaction to the G-20 summit at the end of the month. Analysts and traders are 50-50 on how those talks will go.
The crude oil market took a huge $5 per barrel hit in Nov. 13 trade, the largest single day move since July 2016. RBOB gasoline futures were down heavy in that session as well. The wildest move occurred in the natural gas market with a 20 percent increase in Nov. 14 trade followed by a 20 percent decrease in Nov. 15 trade. Crude oil stocks rose significantly more than expected to 442.06 million barrels in weekly energy reporting. This increase was the largest increase since February 2017. Gasoline stocks declined modestly in line with expectations to 226.61 million barrels
Ethanol production for the week ending Nov. 9 was 1.067 million barrels per day, unchanged from the week prior and 1.2 percent above last year's same week production. The production numbers are somewhat surprising as profit margins have been in the negative 40 cent per bushel range based on Iowa prices for the past seven weeks. A number of analysts expect a slowdown in ethanol production in the coming weeks due to these poor margins, which would correlate to reduced corn usage in future USDA reports. Ethanol stocks rose to 988 million gallons, or 23.514 million barrels, from 972 million gallons, or 23.15 million barrels. This is 9.4 percent higher than year ago stocks of 903 million gallons. U.S. gasoline demand increased slightly to 9.192 million barrels per day and was essentially unchanged from year ago demand; however, for the last eight-week period, U.S. gasoline demand is 2.1 percent lower than last year's same timeframe.
Soybeans opened the week lower as rains are forecast for the major growing areas of Brazil in the next week. Brazil planting pace is at 69 percent versus 56 percent for the five-year average. With the early planting pace, these rains are viewed as favorable for crop development.
The market remains focused on the end of month G-20 summit. Vice President Mike Pence stated that the G-20 summit is China's "last chance" to avoid a trade war with the U.S. An article from Bloomberg stated the U.S. will hold off on placing new tariffs on auto imports from the EU and China. But a Reuters article stated the two sides are not close to a favorable deal on trade regarding the section 232 investigation into steel and aluminum imports.
I am in the camp that China's economy will suffer more than ours if they don't come to the table short term, but you have to understand the Chinese take the long view. I've read from certain people that they simply don't think South American infrastructure can deliver the goods (soybeans) as effectively as the U.S. This is a true statement in 2018. South America does have problems as their internal trucking companies hold a lot of power. The threat of strikes, bribes etc. is an everyday thing in Brazilian transportation. I think the election of Jair Bolsonaro in Brazil will lead to much needed infrastructure improvements. He was stabbed campaigning, so he's a pretty tough character. If both the farmers and the truckers want better roads, he's probably the guy who will make it happen. This won't be an overnight thing, but the Russians after 35 years now have some pretty good port infrastructure developed in the Black Sea Region to ship wheat. I think Bolsonaro gets the infrastructure piece of the puzzle as much as he gets the ethanol piece of the puzzle.
The grain trading firm Agribrasil forecasts a record 83 million tons of Brazil soybeans being shipped to China this season. Brazilian officials are also attempting to open China up to more imports of their soymeal.
The National Oilseed Processors Association's crush numbers were friendly. Trade had expected a crush level of 170 million bushels. NOPA reported a record crush value of 172.346 million bushels, some 488,000 bushels higher than the previous monthly record in March 2018. Soybean oil inventories have declined significantly since May to 1.503 billion pounds while October soybean meal exports increased 181,907 metric tons to 961,174 metric tons from the previous month.
Weekly export inspections were 47.8 million bushels, which was at the higher end of expectations. Inspections are at 364 million bushels, down 42 percent from a year ago and well below USDA's estimate of -11 percent.
Resistance in January is $8.92, and support is $8.6675.
For the week ending Nov. 15, January canola futures were down $4.20 at $478.20 Canadian per metric ton. The Canadian dollar was up .0009 to .7589. This brings the U.S. price to $16.46 per hundredweight.
• Velva, N.D., $15.69 per hundredweight, December at $15.69.
• Enderlin, ND, $17.07 per hundredweight, Nexera.
• Hallock, MN, $16.32 per hundredweight, December at $16.13.
• Fargo, ND, $16.75 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 and at $4.50 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $16.70, with December bids at $16.80.
For the week ending Nov. 15, soybean oil was up 4 cents at $27.69 on the December contract.