Tariffs on pause but uncertainty remains
The wheat markets found support early week from the action in the soybean complex as Chinese-U.S. talks from the G-20 summit appeared to be fruitful. Weekly export inspections were 473,000 metric tons, which was at the high end of trade estimates which built the case for Dec. 3 gains.
The market experienced pressure the rest of the week, starting out with Russia stating it partially unlocked the Kerch Strait for commerce into the Azov Sea which gives the Ukraine access to the Black Sea. Another announcement stated that Russia will be sending trial cargoes to Algeria and Saudi Arabia to try and gain export business. There have been issues with Russian quality, so they are attempting to demonstrate their wheat will meet minimum standards.
The wheat complex continued lower on currency news in the Dec. 5 and 6 sessions. The Canadian dollar broke support in Dec. 5 trade. The Canadian dollar appeared to be holding $75 support late last week, but there was some major chart damage dipping to $74.645 Dec. 5 and $74.39 Dec. 6. The Bank of Canada left the overnight rate unchanged at 1.75 percent when most thought that a rate hike was coming. The Bank of Canada also cited weakening oil prices as a negative factor to the overall economy (which should have been expected). The problem is that Canadian spring wheat and durum supplies become cheaper for world export as the Canadian dollar declines.
There was also a report out that General Authority For Supply Commodities, the Egyptian government grain buying entity, did not offer letters of credit on 16 recent wheat cargoes. According to an article from CNBC, Egypt's banks have been propping up the Egyptian pound by selling foreign exchange assets. Holdings of Egyptian treasury bonds dropped by $8 billion and the stock market has declined 30 percent. Trade is understandably nervous that the lack of the Egyptian government backing payments on wheat shipments will reduce export participation into the world's largest buyer. Egyptian officials stated late week that appropriate payment guarantees would be made for the 945,000 metric tons of wheat.
Stats Canada released production of Principle Field Crops report on Dec. 6. Canadian all wheat production is estimated at 31.8 million metric tons, up 6 percent from 2017. This compared to 31.4 million metric tons for the average trade guess. Harvested acreage rose 2.2 million acres, while average yield decreased 1.8 bushels to 47.8 bushels per acre. Durum production which is included in the total, was estimated at 5.74 million metric tons, 15.8 percent higher than 2017.
Australian Bureau of Agricultural and Resource Economics cut Australian wheat production to 17 million metric tons versus USDA's current forecast of 17.5 million metric tons. India is also looking at reductions in yields due to drier and warmer than normal conditions.
Corn futures opened the week following soybeans higher on the announcement that China will buy substantial amounts of U.S. ag, energy and industrial products. The July contract hit $4 for a high in the Dec. 5 session. The March front month hit $3.8675 in that session which serves as resistance with a $3.80 low twice this week acting as support. A number of private analysts are stating that China could become an active buyer of U.S. corn, ethanol and dried distillers grains.
Demand remains robust which is helping cash prices, although talk of significantly higher corn acres for 2019 is limiting futures gains. High fertilizer prices and improved relations with China could limit farmer thoughts of switching to more corn acres. Natural gas futures continue to trade very erratically with continued high volatility likely.
Crude oil futures seem to have found support at the $50 level after dropping from $76 levels in early October. The price spread between E85 and E10 has narrowed significantly on this drop. The E85 price less E10 was 88 cents cheaper 11 months ago and 65 cents for most of the summer. This week the spread had narrowed to 27 cents in the Fargo, N.D., market.
Ethanol production for the week ending Nov. 30 was 7.483 million barrels, up 2 percent from versus last week and down 3.52 percent versus last year. Stocks as of Nov. 30 were 23.03 million barrels, up 0.44 percent from last week and up 2.16 percent from last year. Weekly crude oil stocks declined much more than expected to 443.16 million barrels. Gasoline stocks rose more than expected to 226.25 million barrels as weekly gasoline demand declined sharply to a 40-week low. U.S. gasoline demand is running 1.2 percent below last year's pace since the start of the 2018-19 corn marketing year on Oct. 1.
Soybean futures saw small, yet disappointing gains as the trade searches for specific details from the U.S.-China dinner talks at the G-20 summit. The U.S. and China agreed to a ceasefire in the trade war and will hold off on additional tariffs for 90 days, but that is the only concrete news we have received so far. Details will have to start transpiring for this market to ignore the large U.S. ending stocks and lack of issues so far during the growing season in South America. The trade has been willing to keep futures above the $9 mark after a temporary truce between the U.S. and China was announced. January soybeans gained 50-plus cents from the month lows of $8.57 ahead of the G-20 meetings, but excitement from the post G-20 summit is quickly fading. The global community is looking for signs that progress is actually in the cards to end this trade war.
President Donald Trump tweeted out that China agreed to cut tariffs on U.S. cars sold into China. China also agreed to purchase a "substantial" amount of agricultural, energy, industrial and other U.S. products to reduce the trade balance between the two, according to the White House. What substantial means and when these purchases will start are unknown. The USDA does expect some Chinese soybean buying to start back up around the start of the New Year. Negative news popped up a few days after the initial announcement as the White House backtracked on the progress made on auto tariffs, and it seems there is no agreement in place. Statements from the Chinese Ministry of Commerce after Chinese President Xi Jinping returned to China suggests China will quickly purchase U.S. ag and energy products. It remains to be seen if China will actually follow through as they do have a sketchy history of complying with agreements.
To start December, Brazil's soybean planting progress was at 95 percent versus 89 percent last week, 91 percent last year, and 88 percent for the five-year average at this time of year. Argentina's soybean planting progress was at 95 percent versus 89 percent last week, 91 percent last year, and 88 percent for the five-year average at this time of year. There have been multiple reports stating that this year's crop could top 130 million metric tons in Brazil if weather stays favorable. Private Brazilian analysts are also trying to get the ag community riled up as they are stating that Brazil could open up an additional 100 million acres of farmland in the future. As always, infrastructure is their Achilles' heel, but outside investments (China) could speed up the process. It looks like American farmers should start investing in the "Save the Rainforest" movement.
For the week ending Dec. 6, January canola futures were up $6.60 at $486.10 Canadian per metric ton. The Canadian dollar was at .7468. This brings the U.S. price to $16.47 per hundredweight.
• Velva, N.D., $15.95 per hundredweight, January at $15.79.
• Enderlin, N.D., $17.48 per hundredweight (Nexera).
• Hallock, Minn., $16.27 per hundredweight, January at $16.33.
• Fargo, N.D., $16.75 per hundredweight, January at $16.45.
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 $16.80, with January bids at $17.05.
For the week ending Dec. 6, soybean oil was down 5 cents at $28.67 on the January contract.