Markets waiting for US exports to pick up
The wheat complex had a negative tone with improving Canadian harvest progress and poor weekly export sales. Chicago and Kansas City contracts experienced key downward reversals in Oct. 21 trade. The U.S. dollar leveled off and rebounded off the $97 area December after a week of declines. The Bank of Australia estimates wheat production at 15.5 million metric tons, well below U.S. Department of Agriculture's current estimate of 18 million metric tons.
Weekly export sales were the lowest in 18 weeks at 262,400 metric tons (9.6 million bushels). This is roughly half the weekly "needed" pace to reach USDA's export target of 950 million bushels. Weekly export inspections were at the top end of expectations at 565,000 metric tons (20.8 million bushels). Cumulative exports of 370 million bushels are running 22% higher than last year's pace.
There was a 600,000 metric tons sale to Algeria from France, their usual supplier. World business has been brisk the past few weeks which has helped Matif wheat futures reach a three and a half month high. Matif futures backed off after the announcement of the Algerian tender so it appears the sale was anticipated and built into the market. Three-and-a-half month highs generally don't hold and I would anticipate a back off in Matif, which would be negative short term to U.S. wheat prices.
Saskatchewan and Alberta made decent harvest progress in the last week according to Canadian crop reporting. Saskatchewan now has 66% of spring wheat harvested versus 52% last week. Alberta shows 62.6% of wheat harvested versus 48.3% last week. U.S. spring wheat is 96% harvested versus 100% average. North Dakota has 5% remaining and Montana has 8%. Winter wheat is 77% planted versus 75% average. Winter wheat emergence is at 53% which is right at the average.
We are getting to that point of the year where the winter wheats are over three-fourths planted. We typically take a breather in these markets and Minneapolis tends to gain versus Chicago and Kansas City. Early November has been a short term post harvest top for spring wheat three of the last four years. We will see if this seasonal will continue this year. There is plenty of speculation that China will step in and purchase U.S. wheat and the U.S. dollar has been declining, so perhaps futures declines will be limited. For the most part though, seasonals tend to work and they need to be respected.
The long Kansas City/short Chicago spread continues to widen reaching new historic levels. Typically Kansas City is par to above Chicago. The spread reached 98 cents under early in the week with the March spread around 89 under. It will be interesting to see how the March Kansas City/Chicago spread acts when the December contract goes into delivery.
$5.325 is current support for Minneapolis December with resistance at $5.59. For the week ending Oct. 24, December contracts for Minneapolis wheat were down 4.5 cents at $5.40, down 16.25 cents at $5.16 for Chicago wheat, and down 14.25 cents at $4.195 for Kansas City wheat.
Corn futures saw follow-through selling after the week priors 10 cent sell off. Corn continues to trade in a small range as the trade weighs the negatives of a forecast for an open harvest window for the next couple weeks against the very cool temps that will keep crops from drying down. Seasonal harvest pressure (seems far-fetched this fall) and a very slow start to the export season is keeping corn prices from hitting the next tier higher. Exports continue to disappoint as the U.S. still doesn't seem competitive in the global market. Exports struggles are hurting as Brazil port corn prices are around 7 cents cheaper than U.S. Gulf bids.
Argentina farmers have been aggressively selling as Argentine presidential elections will likely see left-wing Peronist Alberto Fernandez elected. Farmers/commercials fear he will hike ag export taxes like former President Cristina Kirchner (Fernandez's current vice president running mate) did when she was president during her corruption laden presidency. Fernandez is heavily favored over incumbent President Mauricio Macri, who is considered a moderate market-oriented conservative who lowered taxes for their ag community. This election is the opposite issue farmers in Brazil had after their presidential elections this past year, as current President Jair Bolsonaro is farmer and business friendly.
The trade is watching intensely as yields come in, but there is not much harvest data available to look at yet. It seems to depend on what state you are in to see if you are disappointed or not. It seems Ohio isn't as bad as expected, but they are only into their early planted acres. Nebraska yields are considered disappointing after having some of the highest corn ratings of any state in 2019. Widespread winds across the Midwest flattened corn in areas, but we won't know the extent of the damage until combines really start to roll again.
Ethanol production continued its three-week rebound, but still remains below levels needed to hit USDA estimates. Ethanol stocks declined back to 1.5-year lows. Crude oil stocks declined against analyst expectations that were looking for stocks to increase. This shot prices $1.30 to $1.50 higher. Gasoline stocks also declined more than expected.
U.S. corn that is mature was at 86% as of Oct. 20 , the slowest maturing crop on record. For this time of year, the five-year average is 97% mature and was 99% last year. Corn harvested is 30% complete versus 47% for the five-year average and 48% last year. The trade was expecting 34% harvested and the U.S. was at 22% harvest the week prior week.
Resistance for the December contract is the recent three-month high of $4.025 set on Oct. 14 and then the 200-day moving average of $4.015. Major resistance will be in the $4.20 to $4.25 area.
December support is the 50-day moving average of $3.76. Support is then the December 2019 contract low of $3.5225 set on Sept. 9. Major support will be the December 2018 futures contract low of $3.425 that was set on Sept. 18, 2018.
Soybean futures were lackadaisical this week as the slow harvest has not had the bullish effect that one would hope it would have shown already. It was rumored that China will allow companies to purchase up to 367 million bushels (10 million metric tons) of soybeans without charging a tariff, but that is not verified and the trade is being cautious. The trade is impatiently waiting for additional large sales to China to show that this trade deal actually has legs to it. Bloomberg is reporting that China would buy at least $20 billion in U.S. farm goods (around 2017 levels of $19.5 billion) in year one if a partial deal is reached. They also would consider boosting purchases further in future rounds of talks.
Soybean exports have been strong this past month, but the trade is looking for a homerun in exports sales to bring a new rally into the market. The trade is also reluctant to push this market higher even as yields continue to disappoint for the most part.
On the negative side, Brazil's planting pace has picked up, and they are back to a near-average pace. For the weekend of Oct. 19, Brazil Mato Grosso soybeans were 42% planted versus 51% last year and 38% average. Nationwide, Brazil soy planting is around 21% to 23% and is near normal pace. According to Reuters, Chinese importers have been busy booking fresh purchases of soybeans from Brazil this week, even despite Chinese promises to ramp up U.S. ag purchases. Port bids in Brazil are at 10-month highs as their supplies are likely dwindling. They are still cheaper than U.S. soybeans, though, as the 25% tariff remains in place. Argentina soybeans are priced $10 per ton below U.S., but most of their soybean crop goes to domestic crushing, and farmers are selling in anticipation of higher export taxes on grains after their presidential election.
Dry spots are shrinking in Brazil and Argentina, but it is something that will need to be watched. China will be watching Brazil's growing season closely too as they will likely be in the market for South American soybeans in February when harvest starts in South America. It isn't likely that South America has many soybeans on hand anymore after their record export pace of soy products this past year.
On the daily charts, resistance is $9.45 which was set on Oct. 14 and then the five-month high of $9.48 for new crop soybeans that was set on June 18. November soybeans broke through major resistance at $9.3125 on the weekly chart. On the weekly charts there is not much resistance after this below $10.
First support is $8.80 that was set in the middle of September and then $8.525, which was the recent low set on Aug. 28. The November contract low of $8.155 set May 13 is major support after this.
For the week ending Oct. 24, November canola futures were up $1.70 to $455.40 Canadian. The Canadian dollar was up .0029 to .7653. This brings the U.S. price to $15.81 per hundredweight.
• Velva, N.D., $14.79 per hundredweight, November at $14.86.
• Enderlin, N.D., no bids.
• Hallock, Minn., $14.53 per hundredweight, November at $15.04.
• Fargo, N.D., $15.15 per hundredweight, November at $15.
Alberta and Saskatchewan made good harvest progress on canola this past week. Saskatchewan is now 58% harvested versus 40% last week and Alberta is 42.2% harvested versus 25.2% last week.
Cash feed barley bids in Minneapolis were at $2.50, while malting barley received no quote. Berthold, N.D., bid is $2.75 and CHS Southwest New Salem, N.D.,is $3.
Cash bids for milling quality durum are $6 in Berthold and at $6.25 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $18.60, with November bids at $17.40.
For the week ending Oct. 24, soybean oil was up 98 cents at $31.34 on the December contract. Soybean oil broke a two and a half year downtrend on the monthly continuation charts during Oct. 24 trade.