Wheat facing discounts, energy spike supports markets
Wheat Spring wheat harvest ground to a standstill with heavy rains last week. According to the weekly crop progress report, 76% of spring wheat is harvested compared to 93% average. There are reports from central North Dakota elevators that some ...
Spring wheat harvest ground to a standstill with heavy rains last week. According to the weekly crop progress report, 76% of spring wheat is harvested compared to 93% average. There are reports from central North Dakota elevators that some of the first wheat harvested after the rains is testing between 240 to 290 falling numbers. There are also horror stories of wheat testing as low as 60 falling numbers. Anything over 300 falling numbers is considered good milling quality and not subject to discounts. Samples that test between 275 to 299 receive a 5.2% discount factor on Federal Crop Insurance claims. From 250 to 274 is an 8.6% discount factor; 225 to 249 is a 12.1% discount factor; 200 to 224 is a 15.5% discount factor.
Samples under 200 are rejected for milling quality. If your wheat samples under 200, there is a process to work through with your adjuster. There are reduction in value factors that apply in this instance.
It is generally better to store this poorer quality wheat in the bin as discounts can disappear over the course of the year. Current 10 year low levels in futures prices are an indication to store even if the wheat that tests over 300. The toughest thing in our observation are clients that have enterprise units with some fields being OK and some fields hitting the discount levels.
Strategie Grains increased its estimate of the soft red crop to 144.5 million metric tons from 142.9 million metric tons last month. They also raised export expectations to 25.7 million metric tons from 24.8 million metric tons last month. The Ukraine increased export targets for its country's grain companies from 19 million metric tons to 20 million metric tons. The U.S. Department of Agriculture's current export estimate for the Ukraine is 19.5 million metric tons. Ukraine is also 12% planted for fall crops compared to 20% last year. Winter wheat is estimated to be at 1.9 million acres planted versus 3.2 million last year.
Weekly export sales were a 10 week low and below trade expectations at 287,000 metric tons (10.5 million bushels). Total commitments of 452 million bushels are running 20% ahead of last year's pace. Wheat will need to average 13.3 million bushels per week to meet USDA's export estimate of 975 million bushels. Egypt purchased 180,000 tons of wheat in their recent tender, all from Russia at $210.73 to $211.20 per metric ton.
Argentina shows minimal rain chances in the 16-30 day forecast as wheat goes into the jointing stage. Rainfall is expected to be normal in Brazil's primary wheat belt in the 16-30 day forecast. Six- to 10-day forecasts also turned drier for Australia's wheat areas as this area shows the most concern currently.
European forecasts are calling for rain in dry areas of western Europe prior to the main seeding campaign. The models also favor rain in Eastern Europe and the former Soviet Union wheat growing regions. Ukraine has been on the dry side also recently.
Six- to 10-day forecasts show warmer and wetter conditions for the northern spring wheat belt. Eight- to 14-day forecasts also show wetter conditions, with a return to more normal temperatures.
For the week ending Sept. 19, December contracts for Minneapolis wheat were up 14.75 cents at $5.2025, up 4.5 cents at $4.88 for Chicago wheat, and up 9.75 cents at $4.095 for Kansas City wheat.
The week started off wild with a $10 per barrel overnight increase in crude oil due to weekend drone strikes on Saudi oil facilities. The attack removes 5% of world supply or 5.7 million barrels per day. This had a number of analysts stating that unleaded gasoline would be 25 cents per gallon higher in the next two weeks which would favor Ethanol and corn futures to the upside. Moods quickly turned however, as Sept. 17 trade gave back most of those crude oil futures gains.
On Monday, Sept. 16, I would have anticipated the 50 cent spread from premium 91 octane to E-10 to widen even more than it has the past few weeks in the Fargo market from 40 cents to 50. I also would have anticipated the spread from E-10 to E-85 to widen more than the 40-41 cents currently. D-6 Renewable Identification Number credits have increased in price lately as refiners are buying the market prior to an announcement on biofuel blending amounts that maybe put back into Renewable Fuels Standard targets. Currently, Renewable Volume Obligations are at 20.04 billion gallons for 2020. According to sources, the administration would increase the 2020 amount to 22.386 billion gallons. Of that, 500 million gallons would be for corn-based ethanol and 500 million gallons of the increase would be for second generation biofuel. The 2021 volume obligations would increase biomass diesel by 250 million gallons.
Saudi Arabia announced Sept. 17 that it will compensate by using oil in storage for exports. I was reading an article about how the U.S. is now actually revenue neutral in regards to rising oil prices vs. the dilemma's we have had in the past with the Arab oil embargo of the 1970s, the Gulf War and the post 9/11 period that included Katrina and refinery disruptions. The article also stated that higher oil prices will hurt China, Japan, India and Europe far more than the US.
I find it interesting that a Chinese researcher went on record stating that China likely does not have the infrastructure to go to a nationwide 10% standard for ethanol. The researcher cited that a national blend rate of 10% would require 10 million metric tons of ethanol while current capacity is about 3.2 million metric tons. China also announced that the period of threat for fall armyworm has passed and that this year there was minimal effect to the primary northeast growing region. There have been rumors about this potential problem all growing season.
So China announces in 2017 that they want to go to a 10% ethanol level (much like the U.S. Renewable Fuels Standard of 2005 and 2007) because they know their economy is exposed. But now they admit their corn reserves are only around 56 million metric tons vs. 200 million metric tons in 2017??
What this tells me is that we've all been buffaloed to think that we should be afraid of China. It's very obvious that they can't produce food on an efficient scale. They made the decision to import soybeans over 20 years ago vs. growing them because they know they are not good at it.
Based on the way their corn stocks are decreasing, it appears they are not good at growing corn either. They need to have researchers come into the U.S. to steal U.S. seed corn with traits in it. That is China's research and development on corn genetics.
It is also obvious that they are exposed by a lack petroleum. They can't even contain a swine flu epidemic because of their practices. So they will have to come to the table eventually. They can only stonewall, cheat and lie for so long to get grain, protein and petroleum at a reduced price. Maybe that's why they've been buying as much gold as they can get their hands on? What goes around, comes around and manipulating their currency for their benefit will eventually backfire.
Weekly crop progress showed 68% of corn dented vs. 87% average. 18% of the corn crop is mature vs. 39% average. Conditions remained steady at 55% good to excellent. Temperatures look to remain above average for the next 10 days through most of the Corn Belt, with average temperatures expected in the 11-16 day forecast that is helping to push along a very delayed crop to maturity.
Soybeans futures continue to chop around the $9 mark. The trade does not seem willing to push soybeans much above $9 until the combines start rolling and they get more information with the U.S.-China negotiations that are starting back up in October.
China made purchases of U.S. soybeans for three consecutive business days this past week. China is making some goodwill purchases ahead of negotiation meetings next month. Reuters also reported news this week that those purchases didn't come as much of a surprise. The 2018-19 U.S. exports to China were the lowest in 12 years.
Weather is playing its part as above normal temps may be helping push this crop along. White mold is creeping into soybeans as the Upper Midwest has seen well above normal precipitation for this time of year.
As of Sept. 15, crop ratings were dropped 1% to 54% good to excellent compared to 67% good to excellent last year with 32% of the crop rated fair and 14% poor. Average analyst estimates were expecting a 1-2% decline. Minnesota saw one of the largest declines due to increasing reports of white mold.
As of Sept. 15, 5% of the U.S. soybeans still haven't set a pod, which is just shy of 4 million acres. Soybeans setting pods came in at 95% versus 100% for the five-year average and 100% last year. Soybeans dropping leaves was at 15% versus 38% for the five-year average and 50% last year.
U.S. biofuel credits are at their highest level since July after refiners actively bought in the market this week. This comes as biofuel advocates and big oil continue to lobby the White House. It sounds like President Donald Trump is tentatively ready to increase biofuel quotas 10% in 2020. This may sound better than it really is if there is no plan of enforcement.
The National Oilseed Processors Association reported its members crushed a record for the month 168.1 million bushels in August, sharply above the average market expectation of 162 million bushels and unchanged from July crush. This was well above last year's old record August crush of 158.9 million bushels. This was the seventh largest crush month of all time. Stocks also were lower than expected, 14% less than last year at this time and the lowest for August in five years.
The funds added to their net short positions in soybeans as of Sept. 10. The funds have been net short since June 2018, when the trade war started. As of Sept. 10, the funds were net short 92,000 contracts, 19,000 more than the week prior.
The new high of $9.035 is new resistance. 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 18th.
New support is $8.525 that 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 Sept. 19, November Canola was up $1.10 to $450.90 Canadian per metric ton. The Canadian dollar was at .7553. This brings the U.S. price to $15.45 per hundredweight U.S.
Velva, N.D., $14.46 per hundredweight; November at $14.39
Enderlin, N.D., $14.22 per hundredweight
Hallock, Minn., $14.38 per hundredweight, November at $14.89
Fargo, N.D., $14.65 per hundredweight, November at $14.70
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 $5 in Berthold, N.D., and at
$4.85 in Dickinson, N.D.
Cash sunflower bids in Fargo were at $18.50; October at $17.40.
For the week ending Sept. 19, soybean oil was up 52 cents at $29.81 on the October contract.