Deal on ... Deal off ... And repeat
The wheat market struggled this week as both export sales and export inspections posted multi-week lows. There were a few underlying positive developments with lower Australian production estimates and a lower U.S. dollar, but in the end buying interest dried up with upcoming Canadian and U.S. crop reports.
Weekly export inspections were a marketing year low of 247,000 metric tons (9.1 million bushels). This was well below expectations of 400,000 to 600,000 metric tons. Cumulative exports are running 464 million bushels, 19% ahead of last year's pace but overall have been declining since September. Exports need to run around 16.8 million bushels per week to meet USDA's target of 950 million bushels.
U.S. weekly wheat export sales were a 24 week low at 228,000 metric tons (8.4 million bushels). This was well below market expectations of 300,000-700,000 metric tons. Total commitments of 605 million bushels are now running only 5.5% ahead of last year's pace after running +20% earlier this fall.
Algeria purchased 500,000 metric tons of wheat with France being the likely supplier. Egypt purchased 295,000 metric tons of wheat from Russia as they were the low bid at $221.90 per metric ton. There was an article in Bloomberg stating that Russia will likely use more corn versus wheat internally for animal feed this winter season. Russian exports have also been slowing with estimates of 2.2 million metric tons for the month of December. If realized, this would be the slowest December wheat export number for Russia in five years.
Australia cut its wheat crop estimates over 3.3 million metric tons to 15.85 million metric tons. This compares to USDA's latest estimate of 17.2 million metric tons. If realized, this would be the lowest Australian production in 11 years as that country continues to struggle with prolonged drought and late season rains appear to be too little, too late.
The December Chicago spread over December Minneapolis reached 40 cents. The March Chicago/Minneapolis spread reached 27.25 cent premium and May reached 21.75. The March spread has now narrowed to 10 cents premium.
Eight-to-14-day forecasts remain slightly cooler and slightly wetter than normal for both the soft red and the Kansas City belt.
March Minneapolis support is $5.0625 with resistance at $5.215. For the week ending Dec. 5, March contracts for Minneapolis wheat were down 0.75 cents at $5.1375, down 18 cents at $5.2375 for Chicago wheat, and down 11.5 cents at $4.355 for Kansas City wheat.
Corn futures continue to tread water, which is somewhat disappointing that we didn't see any follow through after Black Friday's nice day. March corn is barely hanging on above the recent lows, and fresh news is needed to get buyers excited. We need some positive news to get this market to spike, because the funds don't seem to be in a charitable mood to just push this market back higher for no reason. Basis levels have been bringing in enough corn to keep end users satisfied for now, but basis alone will probably not be enough in the new year to get farmers to open their bin doors.
Brazil's first corn crop planting is at 91% complete, slightly behind the 95% average, but nothing to worry about yet. Argentina's corn planting is around 50% complete, in line with the average pace. A private poll is showing a 3.5% increase in Brazil corn area to 18.1 million hectares (44.7 million acres). Weather so far remains non-threatening in South America and a lot of this acreage will be second crop seeded acres.
U.S. corn harvested is 89% complete as of Dec. 1, around where the trade was expecting. Corn was 84% harvested last week, 97% harvested last year and the 5-year average is 98% complete.
This means there are still 9 million acres of corn left to be harvested, which is 1.5 billion bushels of corn at the current USDA yield. Much of this is under snow and/or high moisture. There are still combines rolling in the "I" states, so this number will continue to slowly decrease but much of it will be left till spring.
These acres are not completely lost as they will get harvested at some point this winter or spring. But one underestimates what kind of mess it makes in the spring to try and get seed back in the ground in a timely manner, especially considering how soaked the ground is already. This may be more bullish for next year's soybean crop than it is for this year's corn crop. The USDA will count these bushels still in the field as stored corn, which won't change production numbers as much as it should.
Ethanol production margins have been improving as of late and it is not anticipated that we will experience the same slow down in production that occurred in the winter months last year. U.S. gasoline demand for the calendar year is running 0.2% above the previous year's pace.
Annualized U.S. gasoline demand is running around 143 billion gallons. So this week's ethanol production implies around 16.2 billion gallons of ethanol or a national blend rate of 11.25% versus this year's weekly low production tracking right around 10% or 14.4 billion gallons. This doesn't include any export gallons, but shows the point that E15 levels would be easily attainable nationwide now that it has been deregulated and approved for year-round usage.
Corn inspections totaled 16.9 million bushels for the week ending Nov. 28, below the 40.7 million bushels needed each week to reach USDA's export estimate of 1.850 billion bushels. Inspections for 2019-20 now total 238 million bushels, down 58% from the previous year. Weekly export sales were also disappointing.
Deal on... Deal off... And Repeat...
After President Donald Trump said that he would be OK with not getting a trade deal with China before next year's elections, other sources said that negotiations are going fine. We will never know the truth until we see signatures, or they just stop talking again. The back and forth news about these trade talks has been going on for a year and a half, but the trade still likes using it as an excuse to move the markets.
Soybean futures continued their slide early in the week but finally saw a bounce off the bottom after trading down for eight consecutive days. Soybean futures lost 90 cents from the highs the last five weeks and have not seen many up days since Oct. 22. This market is oversold and soybean futures were trying to test the January $8.65 contract lows.
It comes down to a good start to Brazil's soybean crop. Brazil weather has been favorable early in their season, but there is still a long way to go until they get into their main harvest. Argentina is still on the drier side, but nothing to be alarmed about yet. Their forecast remains largely drier, so this will be something to watch. If there is a weather scare in South America (especially Brazil), these markets should take off even without a China agreement. But if timely rains continue to fall, China will hold off making longer term purchases until harvest starts in South America.
The U.S. crop was largely disappointing, but futures have gone nothing but down since harvest. Weekly soybean export inspections were strong again, as they have been for the last two months. Weekly export sales were disappointing for the first time in over a month. The USDA crush numbers came out on Dec. 2 and were a record high.
The U.S. soybean harvest as of Dec. 1 was 96% complete, 94% for the week, 97% last year, and 99% for the five-year average. This means there are still 3 million acres of soybeans left to be harvested, which is 141.8 million bushels. There may be more acres out there that were never harvested and were abandoned weeks ago, but the USDA doesn't separate those acres unfortunately. One would assume many of those soybeans still left to be harvested will be left until spring or are second crop soybeans that likely won't yield much.
The USDA October soybean crush was slightly higher than expected at 187.2 million bushels. In exceeding the December 2018 crush of 183.8 million bushels, October set a new all-time record. October soybean oil stocks were notably higher than expected and are at a three-month high. Soy oil stocks were below last year's October stocks, but were still larger than those in October 2017 and 2016.
First support is the January contract six-month low of $8.65 that was set in the middle of September. The contract low of $8.295 is major support, and the weekly charts is showing $8.155 set on May 13.
On the daily charts, January resistance is $9.595, which was set on eight-month high of set on June 18. On the weekly charts, there is not much resistance after $9.785 and major resistance is in the $10.50 to $10.70 area.
For the week ending Dec. 5, January canola futures were down $2.10 at $454.50 Canadian. The Canadian dollar was up .0058 at .7587. This brings the U.S. conversion price to $15.64 per hundredweight.
• Velva, N.D., $14.88 per hundredweight, January at $15.12.
• Enderlin, N.D., $15.7 per hundredweight, January at $15.71.
• Hallock, Minn., $14.84 per hundredweight, January at $15.18.
• Fargo, N.D., $15.80 per hundredweight, January at $15.80.
The recent high U.S. conversion price was $16.10 on Oct. 8. Oct. 28 saw the U.S. conversion price at $16.02. These dates reflect recent highs in either Canola futures OR the Canadian dollar. Based on the charts, a realistic U.S. conversion price would be $16.20 (before basis).
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 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $18.60. January bids were at $18.35.
For the week ending Dec. 5, soybean oil was down 8 cents at $30.50 on the January contract.