South American dry spell affects market outlook
The wheat complex finished 2018 on a lower tone when it was reported that Russia may offer rail subsidies through the summer months to get more eastern wheat moving to their southern ports. This led to losses in New Year's Eve trade that saw Minneapolis contracts reaching new contract lows and Kansas City and Chicago contracts reaching their lowest levels since late January 2018.
A major technical support line that held in Dec. 31 and Jan. 2 trade was $5.03 March Chicago. Technical buying came into the market on a lower opening Jan. 2 for a key reversal on all wheat contracts to kick off the new year on a better note. The market experienced follow-through buying in the Jan. 3 session pushing all wheat contracts to solid gains. Argentina is experiencing some heavy rains with about 20 percent of its wheat crop remaining to be harvested, which is leading to some concerns about quality.
Weekly export inspections were released Dec. 31 despite the government shutdown. Wheat inspections totaled 376,000 metric tons (13.8 million bushels) which was at the low end of trade expectations. Inspections for 2018-19 total 465.6 million bushels, down 13 percent from a year ago and still below the U.S. Department of Agriculture's estimate of a 14 percent increase. Weekly export sales have not been released since Dec. 20.
Another private analyst is estimating Russian wheat production at 72 million metric tons. This number has been around for a few weeks from different sources, but it seems to be confirming a higher number than USDA's current 70 million metric tons. Russia exported 4 million metric tons of wheat in December putting their July to December total at 23.8 million metric tons.
Corn futures have been stagnant as of late and are having a hard time finding a direction to head. There continues to be a lack of fresh news on the corn front to push this market one way or the other. Brazil is starting to have some issues with dryness which could affect safrina corn more than the earlier planted soybeans. That is something that the trade will be keeping an eye on.
A little insight on what is happening on the ethanol and dried distillers grain front. We were talking to a client from central Illinois who runs a grain farming, cattle and trucking operation. He stated that prices for distillers grains in his area have doubled in price in the last few months. They used to be able to get modified wet distillers grain from ethanol plants for $40 per ton and it's now $80 per ton. He said that was the best feed for their cattle rations. They would do the straight wet distillers if their local plant was under repairs and it was on fire sale for $5 per ton, but you are pretty much hauling water. He also said the price of dried distillers grains had increased from $120 per ton to $180 per ton as the ethanol plants are cutting back on production at poor profit margins.
They used to haul 14 loads a day to various feedlots in their area and now they are lucky to be getting 14 loads a week. He also said he placed some orders for the modified DDGs and had to wait four days to get it. That hasn't happened to them before. So it begs the question — is it a function of greater feed demand from the feedlots or is it lower supply coming from the ethanol plants?
It could be both. It has gotten to the point where he is going to start grinding more of his own corn for his cattle because the trucking and freight costs on top of the increased prices for the wet DDGs, the modified wet DDGs or the dry DDGs doesn't pencil.
The U.S. and China continue to fight for leverage with the ongoing trade war. There is a meeting scheduled with the Chinese on Jan. 7. Rumor has it they may come into the market for more U.S. DDGs and for more U.S. ethanol. If it's only for DDGs, this could exacerbate the Midwest feedlot sourcing problem. If it's for both, that could pick up the grind and get more of the distillers' products flowing again.
Soybeans saw gains to open the new year as dry weather for the past two or more weeks in some key production areas of Brazil are giving analysts a reason to start lowering Brazil's yield estimates. Brazil is still expected to have a trend or slightly above trend yield, but estimates are being lowered as they start getting heavy into their harvest.
Optimism over U.S.-China trade negotiations is also giving this market a boost. President Donald Trump put out a Twitter statement to begin the new year regarding China: "Just had a long and very good call with President XI of China. Deal is moving along very well. If made, it will be comprehensive covering all subjects, areas and points of dispute, Big progress being made." The soybean market initially reacted favorably to this statement, but the upside was limited. U.S. and Chinese negotiators are expected to meet again starting Jan. 7. If these negotiations show signs of progress, senior negotiators for both sides are expected to meet the following week. The trade was also awaiting clarification of Jan. 2 rumors that China is looking for 1.6 million metric tons of U.S. soybeans for February or March delivery. Cash markets at the Gulf and the Pacific Northwest didn't show any major Chinese purchases as of Jan. 3.
The drier parts of central Brazil received less than 2 inches of rain with an expected return of a dry pattern next week. This is roughly 10 to 15 percent of the corn and soybean area that could experience yield reductions. Northern Brazil is favored to get rains through the weekend, but rains are expected to shut back off in the extended forecast. The 11 -to 15-day weather forecasts are showing heavier rains through central and southern Argentina.
The upside has been limited as export sales data are not being reported and there is a risk that the January crop report may be delayed as well. Weekly inspections were reported on Monday, Dec. 31, and were slightly disappointing. Soybean weekly export inspections were 24.9 million bushels for the week ending Dec. 27, down from 44.4 million bushels for the same week a year ago. Inspections for 2018-19 total 606.8 million bushels, down 42 percent from a year ago and far below USDA's estimate for an 11 percent reduction.
For the week ending Jan. 3, March canola futures were up $4.50 to $489.10 Canadian per metric ton. The Canadian dollar was up .00595 at 0.7421. This brings the U.S. price to $16.46 per hundredweight.
• Velva, N.D., $16.14 per hundredweight, February at $16.04.
• Enderlin, N.D., $16.65 per hundredweight, February at $16.65.
• Hallock, Minn., $16.08 per hundredweight, February at $16.32.
• Fargo, N.D., $16.90 per hundredweight, February at $16.65.
The Canadian dollar reached new contract lows in Dec. 31 trade before rebounding for a $1 gain the rest of the trading week.
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 $17.35, with February bids at $17.45.
For the week ending Jan. 3, soybean oil was up 54 cents at $28.38 on the March contract.