Details still scare, but trade deal providing some support
Southern Plains weather and exports led the direction of the wheat markets this week. We've had nine sessions in a row of gains in the Minneapolis market. The weekly U.S. Drought Monitor continues to show much of central Texas, western Kansas and western Oklahoma falling into abnormally dry to severe drought with a few pockets of extreme drought.
Reuters reported that winterkill possibilities are heightened this year for fall-seeded crops in the European Union because of warmer than normal temperatures after delayed seeding from heavy rains in western Europe. Eastern Europe has been on the dry side with a private analyst estimating Ukraine winter wheat acres maybe down around 10% because of dry fall seeding conditions. These reports gave the winter wheat more strength.
Weekly export sales were well above expectations at 869,000 metric tons (31.9 million bushels). This was a marketing year high and well above the previous high of 24.3 million bushels. Mexico and the Philippines were the big buyers this week. Total commitments are now 655 million bushels and running 7% ahead of last year's pace. Wheat export inspections were 506,000 metric tons (18.6 million bushels) which was at the very top end of expectations. Cumulative export inspections of 499 million bushels are up 16% from last year's pace.
Although the futures market was strong on the week, a lot of my conversations with clients revolved around basis. Many locations are reporting spring wheat basis levels that have been "the best they ever recall" or "very good."
The most likely scenario that I can see unfolding is the futures market increasing and basis widening so that the farmer paid price doesn't change to dramatically in the next few months. So far, the basis has been doing the heavy lifting and it's felt like we are at the point where maybe the futures market starts carrying more of the load.
The March Chicago/Minneapolis spread is now trading 4 cents premium after a contract high of around 27.25 cents and a December contract high of 40 cents. March Minneapolis support is $5.26 with resistance at $5.46.
For the week ending Dec. 19, March contracts for Minneapolis wheat were up 15.5 cents at $5.4125, up 12.75 cents at $5.4525 for Chicago wheat, and up 17.75 cents at $4.605 for Kansas City wheat.
Corn futures found some support from a nice run in the wheat and soybean markets. Corn and ethanol purchases are expected with this new U.S.-China deal, and that has turned supportive for corn.
In 2017, China bought $24 billion in ag products. Over the next two years, they claimed to buy $40 billion of ag products a year, about twice as much. The final stages of the trade deals with Japan and the new U.S.-Mexico-Canada Agreement should also help corn exports pick up. The EPA continues to favor refinery waivers for "Big Oil" over farmers and biofuel refineries. The White House is planning on sticking with its current proposal on 2020 biofuel blending requirements.
According to Reuters, White House economic adviser Larry Kudlow said the administration will proceed with the Environmental Protection Agency's October proposal for addressing refinery waivers. The plan would raise the biofuels volumes that some refineries must blend in 2020 based on U.S. Energy Department recommendations for volumes that should be waived, instead of volumes that are actually waived. Farmers and biofuel producers have said that plan does not go far enough to make up for waived gallons, and it is true. The waivers will continue, and the lost gallons are not going to get recovered with this move.
91 Octane non-ethanol fuel is 60 cents per gallon higher than 87 Octane (E10) and 65 cents per gallon higher than 88 Octane (E15) in the Fargo market. The waivers cut to the heart of the Renewable Fuels Standard, which was to grant market access to much cheaper octane sources. Crude oil futures have rallied over $6 per barrel this month, so I would expect the spreads between E15 and E10 to become cheaper compared to E0.
Ethanol production for the week ending Dec. 13 averaged 1.064 million barrels a day. This is down 0.75% versus last week but up 1.72% from a year ago. This is the first week that week over week production was down in 12 weeks.
Estimated corn use for the marketing year to date for ethanol production totals 1.51 billion bushels. Corn used for last week's production is estimated at 106.84 million bushels. Corn use needs to average 103.70 million bushels per week to meet the USDA's estimate of 5.375 billion bushels. Ethanol stocks were relatively unchanged but are down 8.69% from last year.
Argentina's new government leaders raised the export taxes on corn and wheat from roughly 12% to 15%. This will make U.S. bids more competitive with Argentina and Gulf bids have become competitive to Brazil port bids.
$3.92 is first resistance and then major resistance is the front month high five month high of $4.025. Current support on March is $3.7525. The trade looks to be establishing and another 25 cent range for the winter unless we get something to spark this market.
It happened folks. We woke up on a Monday morning and the markets decided to stay in the green all day, with double-digit gains to boot. Soybean futures were trying to keep the momentum going in the aftermath of the U.S.-China deal. Soybean futures have gained back 55-60 cents since the 90 cent sell off that ended on Dec. 2.
There have been no reported soybean sales to China since Dec. 13, when the U.S.-China deal was announced. This was making the trade nervous as we went through the week without a USDA reported export sale to China. It is rumored that China is making available another 1 million metric tons of soybean imports for its companies tariff free ahead of the deal signing in January. This is 36.74 million bushels and would hopefully be the start of good things to come.
We have still not heard any details from the China side about their interpretation of the details in the trade deal. The rumors from the U.S. side are for around $40 billion to $50 billion per year in ag purchases from the U.S. The trade may take a cautious approach to U.S. exports though as the soybean harvest starts picking up in Brazil at the end of January.
The majority of Brazil is looking good at the moment, and there seems to be decent rainfall and good coverage in forecasts. Argentina is drier with about one-third of the country considered dry, but they are also expecting decent rainfall coverage the coming week. It would go a long ways for prices if Brazil could have a widespread weather scare in the coming month.
The Argentina government is seeking to modify taxes to agricultural exports. The new bill would raise the tariff cap on exports of soybeans from 30% to 33% and would raise export taxes on wheat and corn from 12% to 15%, according to their Economy Minister. This would be Argentina's second export tax increase in the last couple weeks. This is favorable news for U.S. exports. Argentina is the world's largest exporter of soy oil and soybean meal.
Congressional leaders agreed to revive the $1 biodiesel tax credit retroactively for 2018 and extended it through 2022. This was a part of a larger spending bill that needs to pass the Senate and get the president's signature by Dec. 20, to avoid a government shutdown. According to S&P Global Platts Analytics, "If approved, the return of the tax credit could boost U.S. biodiesel production and spur some of the 250 million gallons in idled capacity to restart and keep others from having to shut down."
On the bearish side, National Oilseed Processors Association's November soybean crush came in sharply lower than expected while NOPA November soybean oil stocks were higher than expected. NOPA reported soybean crush in November by its members totaled 164.9 million bushels, sharply below the average trade estimate of 172 million. This is down from October's 175.4 million and short of last year's record November NOPA crush of 167 million bushels.
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 chart is showing $8.155 set on May 13. On the daily charts, Jan 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.
The managed funds were surprisingly still, adding to their short positions for the week ending Dec. 10. Managed funds added 14,000 short contracts and are sitting on 113,000 net short positions. The funds likely lightened up on this position after this Commodity Futures Trading Commission report.
January canola futures were up $5.20 at $466.90 for the week. The Canadian dollar was up $0.00355 at $0.76215. This brings the U.S. conversion price to $16.15 per hundredweight.
• Velva, N.D., $15.61 per hundredweight, January at $15.61.
• Enderlin, N.D., $16.31 per hundredweight, January at $16.31.
• Hallock, Minn., $15.09 per hundredweight, January at $15.09.
• Fargo, N.D., $16.40 per hundredweight, January at $16.40.
The U.S. conversion rate hit a high of $16.23 per hundredweight on Dec. 18. The Canadian dollar also topped out at a high of .7634 that day.
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 $19.25. January bids were at $18.90.
Soybean oil was up $1.19 for the week at $33.79 on the January contract.