Export demands driving markets lower
The U.S. Department of Agriculture released baseline projections for 2020-21 as part of the government's budget process. All wheat acres for 2020 are expected to be 45 million with a trend line yield of 48.2 bushels per acre. This equates to 950 million bushels of carryout stocks in '20-'21 versus the 1.043 billion bushels projected in '19-'20.
Winter wheat plantings are at 89% versus 88% average. Emergence is at 71% versus 74% average. Winter wheat ratings improved 1% to 57% good excellent, 30% fair and 13% poor to very poor. Saskatchewan reports 92% of spring wheat harvested versus 84% last week. Durum is listed at 90% complete. Alberta reports 84% of spring wheat harvested versus 76.5% last week.
Weekly export sales were at the very bottom end of expectations at 361,000 metric tons (13.2 million bushels). This was below the last four weeks average of sales of 15.4 million bushels. Total commitments are running 9% ahead of last year's pace after being 20% ahead in September. Weekly inspections were below expectations coming in at 293,000 metric tons (10.8 million bushels). Expectations were 450,000 to 700,000 metric tons. Exports are running 22% ahead of last year's pace. An Egyptian tender of 175,000 metric tons went to France and Russia with the lowest offers.
U.S. wheat numbers usually are not changed materially in the November report, but we should see adjustments in world estimates. Average estimates show U.S. ending stocks for 2019-20 at 1.025 billion bushels versus 1.043 billion bushels in the October report. World ending stocks estimates for 2019-20 average 287.1 million metric tons versus 287.8 million metric tons from October. It is likely USDA will lower Australian and Argentine wheat production. Russian, Former Soviet Union and European Union production could increase.
SovEcon stated a record number of winter crops overall were planted to 18 million hectares (44.5 million acres) which was 1.3 million acres higher than last year. The USDA ag attache in Russia expects the Russian wheat crop to be 74 million metric tons, above USDA's current estimate of 72.5 million metric tons. The attache puts 2019-20 wheat exports at 34 million metric tons, down slightly from last year's 35.7 million metric tons. The European Union raised their soft red wheat estimate 2 million metric tons to 147 million metric tons. They also raised export estimates by 0.5 million metric tons to 26 million metric tons.
We typically see a seasonal decline in wheat prices from early to late November, but the markets have been counterseasonal to some degree this year (low points in April/May versus usual high points). About the only thing that was consistent was a late August to mid September low. Minneapolis and Kansas City are already at some pretty low levels compared to Chicago. Interestingly, Chicago is within 5 cents of Minneapolis when it's far more typical for that spread to be 40 cents. I would anticipate Minneapolis to gain on Chicago in the month of November barring much deteriorating conditions in the soft red belt.
Both the six-to-10- and eight-to-14-day forecasts show much below normal temperatures for most of the eastern two-thirds of the U.S. It's typically the April cold snaps that get the wheat market excited as there is more exposure when the winter wheats come out of dormancy, but I think a forecast like this could deteriorate weekly crop condition ratings over the next two weeks.
$5.115 is current support for Minneapolis December with resistance at $5.32. For the week ending Nov. 7, December contracts for Minneapolis wheat were down 12.5 cents at $5.1875, down 3.5 cents at $5.125 for Chicago wheat, and down 1.25 cents at $4.2475 for Kansas City wheat.
Corn futures had a bad week ahead of the Nov. 8 World Agricultural Supply and Demand Estimates report and pushed down below the old five-week low of $3.7825. The bears are not ready to loosen their grip as they don't currently see a major supply problem with the persistent poor start to demand. Exports and ethanol production continue to lag behind pace needed to give this market some footing. U.S. production needs to be lowered, but right now the talk of a smaller crop than the past couple years is coming in as second fiddle to the demand issues. December futures are already 25+ cents off the recent highs of $4.025 three weeks ago.
The USDA reported September's U.S. corn export data on Nov. 7, and it was ugly. It was reported that only 2.03 million metric tons (84.5 million bushels) of corn was exported out of the U.S., the lowest September total since 1975. October exports may be slightly better but will be nothing to write home about.
Ethanol production continues to slowly trend higher, as the week ending Nov. 1, production averaged 1.014 million barrels a day. This is up 1% versus last week but still down 5.06% versus last year. Corn used in last week's production was 101.61 million bushels. Corn use needs to average 104.56 million bushels per week to meet the USDA's estimate of 5.4 billion bushels.
Updated estimates have started trickling in for this year's crop. Informa increased their estimate by 1.1 bushels to 167.5 bushels per acre and 13.792 billion bushels of production. FC Stone increased their estimate by 0.7 bu to 170 bushels per acre and 13.911 billion bushels of production.
167.5 bu/acre would be 5% less than last year's record crop. If the U.S. crop is only 5% less than last year after the spring and fall we have had, what is it going to take to get a bad crop again? In all reality, everybody should be talking of a 10% or more yield decline from last year, but most of the large analytical firms won't put themselves out there and put a number low enough and the USDA will unlikely ever go that low. (Unless they revise it a year later after it is too late to help prices)
Commodity Futures Trading Commission data shows the funds adding 9,000 shorts for the period ending Oct. 29. Funds are now 85,000 NET short corn. $3.7375 is new support on December with $4.025 as resistance.
The fall harvest price was set at $3.90 for the average of October. The spring price was $4. So just like that, the government's liability is sharply reduced.
There is a different rumor involving the U.S.-China negotiations and phase one deal signing daily, and the trade doesn't know which way to turn. That typically isn't good because the path of least resistance is usually down.
Early in the week, soybean futures did not like the news Reuters reported that "a meeting between U.S. President Donald Trump and Chinese President Xi Jinping to sign a long-awaited interim trade deal could be delayed until December as discussions continue over terms and venue." Officials still feel that the deal is more likely than not to get signed. It seems like China wants (or needs) to get a deal done more quickly than the U.S., economy wise. The U.S. recently cut its interest rate 0.075% in 2019 but is seeing record moves higher in its indices and stock markets and is more of a move to try to hit its benchmark of 2% inflation. China's central bank recently cut a key interest rate, but they did it as a move to protect its slowing economy.
The news turned favorable later in the week, as it is being reported that the U.S. and China have agreed to cancel in phases the tariffs imposed during their months-long trade war, the Chinese commerce ministry said on Thursday, without specifying a timetable. An interim U.S.-China trade deal is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15 on about $156 billion worth of Chinese imports, including cell phones, laptop computers and toys, and China would cancel around the same amount of tariffs at the same time. This would go a long way in getting phase one to the table to get signed.
Soybean oil continues to trend higher, but failed to break through its 1.5 year high of $32.05, failing just shy at $31.96 before it closed lower on the day at $31.57. If soybean oil could break through these 1.5 year highs, that would mark the technical reversal of a 2.5 year downtrend. Soybean oil has been gaining support from a jump in palm oil prices, as major palm oil regions in Malaysia and Indonesia have seen the drought conditions that have hampered Australia are starting to hit their countries. Low to no fertilizer applications due to recent low prices are also contributing to lower production. These two countries are behind about 84% of world palm oil production, according to USDA data.
Indonesia's so-called B30 biodiesel program will also help bolster demand. Malaysia is also working on pushing policies to increase biofuel production.
FC Stone cut their U.S. soybean production estimate by 0.6 bushels per acre to 47.5 bushels per acre, which would equate to a 3.593 billion bushel crop.Informa increased soybean yield 0.5 bu/ac to 47 bushels per acre and a 3.553 billion bushel crop. 47.5 would be an 8% decrease from last year's 51.6 bushels per acre. You would hope the USDA would eventually get to 46.5 bushels per acre or even less, which would be a 10% reduction from last year's yields.
On the daily charts, resistance is $9.48, which was set on June 18. On the weekly charts there is not much resistance after $9.48 below $10 and major resistance is in the $10.50 to $10.70 area.
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 on May 13 recovery is major support after this.
For the week ending Nov. 7, January canola futures were up $3.10 to $461.20 Canadian. The Canadian dollar was down .0019 to .7588. This brings the U.S. price to $15.87 per hundredweight.
• Velva, N.D., $14.84 per hundredweight, December at $15.01.
• Enderlin, N.D., $15.87 per hundredweight, LH December at $15.80.
• Hallock, Minn., $15.24 per hundredweight, December at $15.41.
• Fargo, N.D., $15.80 per hundredweight, December at $15.80.
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 $6.50 in Berthold and at $6.25 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $18.10, with December bids at $17.45.
For the week ending Nov. 7, soybean oil was up 43 cents at $31.43 on the December contract.