Strengthening dollar weighing down exports
The U.S. dollar traded 60 points higher after the Federal Reserve announced it would cut interest rates. As expected, the rate was cut a quarter of a percent.
The Canadian dollar, ruble, euro and other major currencies all reacted lower after the announcement. We've seen an over $2 move higher in the U.S. dollar since July 19, and with the Fed announcement, the dollar has the macroeconomic edge to move higher versus other currencies. This gives the advantage to Canada and Russia on wheat export pricing into the world market. The old high of $97.715 now becomes support and the Aug. 1 high of $98.70 as resistance. The ruble has settled into a recent range after being in an uptrend from mid-June to mid-July. Russian Black Sea region prices were stable last week.
Strategie Grains increased their French wheat crop from 38.2 million metric tons to 39 million metric tons compared to 33.8 million metric tons. Matif wheat futures have moved lower to a major support line at $173 per metric ton on the September contract. Germany's farmer association lowered the German wheat crop from 24.1 million metric tons to 22 million metric tons versus 19.6 million metric tons last year.
IKAR slightly raised its expectations of the Russian wheat crop size from 76.1 million metric tons to 76.4 million metric tons. Ukrainian harvest is 77% complete. Hotter conditions have analysts thinking around 70% of the crop will be milling quality compared to 55% last year.
Weekly export sales were in the lower part of expectations at 383,000 metric tons (14.1 million bushels). Total commitments of 327 million bushels are up 24% from last year's slow starting pace. Weekly sales will need to average about 13.5 million bushels per week to meet the U.S. Department of Agriculture's 950 million bushel estimate. Weekly export inspections were at the bottom end of expectations but still within the range at 14.4 million bushels. Yearly inspections total 139.6 million bushels, 24% ahead of last year's pace.
For the week ending Aug. 1, September contracts for Minneapolis wheat were down 6 cents at $5.185, down 20.25 cents at $4.7575 for Chicago wheat, and down 16.25 cents at $4.1575 for Kansas City wheat.
Corn futures did not like the 1% increase in crop ratings to 58% good to excellent on July 29 and were under heavy pressure as we headed into August. Once prices broke through the $4.20 level on December futures, the computers went to work selling. The technical charts are trying to hold $4.05 as support. This was the December 2019 contract high for the trading range from November 2018 until May 2019.
Corn futures have imploded, as apparently we somehow have another record crop coming (sarcasm) and every farmer that has to look at their late planted and spotty fields every day are wrong. At least that is how the trade is reacting. Don't get me wrong, there are places that look good (western half of the Corn Belt) and other areas that have improved the last few weeks, but even those areas are highly unlikely to yield close to last year's yield. This crop is also well behind and there are a number of acres that haven't yet tasseled.
The majority of private analysts see a reduction of acres and yields more than the USDA is currently showing, especially if we don't get a late frost. But these estimates are not getting played into this market ahead of the Aug. 12 World Agricultural Supply and Demand Estimates report. Cool weather during pollination is pressuring this market, as is poor export and ethanol demand. South America and Ukraine are gaining export share as they continue to have good crops. The U.S. can't compete as our currency continues to climb. The U.S. dollar index has gone up 3 points to 98.50 since June 25 as the rest of the world's currencies are either steady or are near the low end.
Ethanol production for the week ending July 26 was 7.217 million barrels, down 0.77% from the week prior and down 3.1% versus the same week last year. Ethanol stocks surged higher up 3.29% from the week prior and 11.39% versus the same week last year. Last week's ethanol production was estimated at 106.33 million bushels. Corn needs to average 83.47 million bushels per week to meet the USDA estimate of 5.45 billion bushels.
USDA and White House policies are also not helping with their Big Oil refinery blending ethanol waivers, and a lack of Chinese business is wearing thin on the markets. The U.S.-Mexico-Canada deal is getting held up by the House of Representatives as they continue to play politics by not even bringing it up for a vote.
According to Reuters, the head of the U.S. Environmental Protection Agency defended his agency's expanded use of waivers exempting refineries from the country's biofuel law during a closed door meeting with farm state senators last week, arguing the program has had no negative impact on ethanol demand, according to four sources with knowledge of the meeting. EPA Administrator Andrew Wheeler's comments are a sign he may resist an overhaul of the so-called Small Refinery Exemption program, which President Donald Trump last month ordered members of his cabinet to review based on complaints from the corn lobby.
The problem is that ex-EPA administrator Scott Pruitt granted a number of waivers during his tenure. Whether or not Wheeler grants waivers will be met with legal challenges, so any decisions will be tied up in the courts.
November soybean futures plunged on Aug. 1 as Trump threw out a series of tweets regarding China and more tariffs. November soybeans got within 2 cents of filling a trade gap that was made in May. This was and still is first support as the bottom end of the gap was left in November soybean futures at $8.58 to $8.645 on May 25.
Negotiations with China failed to see any breakthroughs, and it was pretty much a nonevent. This development caused Trump to throw the remaining $300 billion dollars on tariffs starting Sept, 1. The problem with this is the U.S. and China don't plan on meeting ahead of this unless plans change now.
There wasn't much optimism heading into the first face-to-face meeting since May in the first place, but the trade was hoping to hear something about China making good on some goodwill purchases. That has not happened yet. U.S. and China trade negotiators don't plan on meeting face to face again until September. Cooler extended forecasts are favorable for soybean development. Spotty rains also fell across the Midwest this past week in some areas that needed some moisture.
This crop is well behind average pace as soybeans blooming as of July 25 came in at 57% versus 85% last year and 79% for the five-year average. Soybeans setting pods came in at 21% versus 58% last year and 45% for the five-year average.
Weekly export inspections came in above trade estimates, but weekly export sales were disappointing. China's 22.1 million bushels led all destinations for U.S. soybean export inspections in this week's report. China still has 4.1 million metric tons (161.6 million bushels) of 2018-19 old crop soybeans on the books, and it may be hard for all those bushels to be shipped to China before the marketing year ends on Aug. 31. For the week ending July 25, the USDA reported 5.3 million bushels of soybean export sales for 2018-19 and 11.2 million bushels for 2019-20. There was a private sale to China for 2.5 million bushels for the 2019-20 marketing year. This was the first such purchase by a private buyer since the trade war between the U.S. and China broke out more than a year ago.
First support is the bottom end of the gap left in November soybean futures at $8.58 to $8.645 on May 25. The November contract low of $8.155 set on May 13 recovery is major support.
Major resistance is at $9.3125 on the weekly chart. On the daily charts, resistance is $9.365 and then the five-month high of $9.48 for new crop soybeans that was set on June 18.
For the week ending Aug. 1, November canola was down 8.50 at $442 Canadian per metric ton. The Canadian dollar was down .0033 at 0.7566. This brings the U.S. price to $15.17 per hundredweight.
• Velva, N.D., $13.95 per hundredweight, September at $13.95.
• Enderlin, N.D., no bid, September at $13.95.
• Hallock, Minn., $14.30 per hundredweight, September at $14.47.
• Fargo, N.D., $14.80 per hundredweight, September at $14.35.
The Canadian dollar is trending down with a weak jobs number and a strengthening U.S. dollar.
Cash feed barley bids in Minneapolis were at $3.25, while malting barley received no quote. Berthold, N.D., bid is $2.75 and CHS Southwest New Salem, N.D., showed no bid.
Cash bids for milling quality durum are $4.75 in Berthold and at $4.20 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $17.90. October bids were at $17.10.
For the week ending Aug. 1, soybean oil was down 79 cents at $27.68 on the August contract.