UREA FOB US Gulf Swaps traded lower yesterday by $1.50-$11.00/MT depending on the calendar month, putting in a few weaker sessions for the first time in quite a while. Since the end of November/beginning of December, UREA prices at the Gulf had been on a one-way march higher, hitting a peak around December 18th at $259.50/MT for spot. Spot prices are now at $242.00/MT, while swaps for May are trading around $233.00/MT. UREA swaps hit a seasonal low at $219.00/MT on November 28th, but hit their calendar year low on June 28th at $163.17/MT. If the last two years are any guide, fertilizer swaps tend to hit highs between November and January before trending weaker all the way through spring and hitting lows around June/July. In terms of corn/fertilizer ratio, that relationship is trading at 57.3% for front-month, which is barely off the lows of 52.0% hit in late October. At the peak in July, the ratio hit 97.7% which was the highest ratio since at least 2011. As a risk-management strategy, producers should be looking at locking in inputs with corn/wheat sales during these high ratio times. The ratio for December ’18 corn to May UREA swaps is currently at 65.0%.
Very quiet prices once again overnight as corn sat in a 0.75c range, soybeans in a 1.50c range and Chicago wheat actually a bit firmer, up 2.75c. Despite the lack of volatility, money continues to flow into the Ag space with corn open interest up another 9,876 contracts, soybean O/I up 10,996 contracts, Chicago wheat down 649 contracts, and KC wheat up 2,126 contracts. Encouragingly, corn turned in a decent session yesterday, trading up 4.75c and closing on the highs. The increase in open interest, despite a massive net short position by the managed funds, should be signaling commercial buying. This is especially true when looking at corn spreads which saw the CH/CK up 0.50c at the close, and is trading up another 0.25c overnight to tie the strongest levels since September 12th. After marking fresh contract lows Monday, the CN/CZ has traded 1.25c off the lows. The spread activity is in-keeping with stronger basis off the PNW and at the Gulf with corn exports picking up since the turn of the calendar year. Conversely, wheat calendar spreads have been mainly weaker since the start of the year, and would certainly agree with the less bullish supply situation outlined on the January 12th reports.
Data released yesterday included weekly deliverable stocks which showed a continued draw in Chicago wheat stocks, down 793,000 bushels on the week and 3.450mbu on the year to 85.136mbu. Northern spring stocks fell 337,000 bushels in St. Louis, leaving a total of 1.009mbu. Non-deliverable grades remain on-par with a year ago. KC wheat stocks increased 74,000 bushels on the week and are up 6.79mbu on the year at 112.147mbu. Non-deliverable grades are up 1.798mbu on the year at 4.070mbu, in-keeping with the low protein crop. KC wheat stocks at the level they are would be the largest for this week since at least 2012/13. Spot floor trades on the KCBT were firmer with ORD’s and 11.0% both up 5.0c, while 13.0-14.0% was up 10c on the bid and offer. 11.0% pro was indicated at +125/140H vs. +115/130H a week ago, 12.0% pro at +205/220H, unchanged, while 13.0% pro was seen at +265/280H vs. +255/270H a week ago. MGEX stocks fell 265,000 bushels on the week to 21.847mbu and would compare with 21.860mbu a year ago. There were 70 cars on the spot floor yesterday including two trains. 14.0% pro was up 5c on the offer at +120/125H, unchanged on the week while 15.0% pro was up 5c on the bid and down 10c on the offer at +190/200H vs. +193H a week ago.
The USDA Foreign Ag Service released a bulletin on January 2nd regarding crop damage to Brazil’s wheat harvest, which we admittedly missed at the time. The USDA incorporated the FAS estimates from earlier this month on the January 12th reports. It was interesting to us to note that heavy rains damaged their wheat crop to the point only 4.25MMT is expected to be harvested in total, which would be the lowest since 2007/08. The average yield is seen at 2.24MT/ha which would be the second lowest since 2009/10. This will result in the largest imports (8.00MMT) since 2006/07 in order to maintain a stocks/use ratio of 11.82% vs. the 5-yr average of 11.31% and a 10-yr average of 14.04%. Even more intriguing is the percentage their imports will make up of total supplies. At 8.0MMT, imports will account for 55.46% of total wheat supplies, easily the largest since 2006/07 and vs. 48.75% last year. To put this in perspective, some of the world’s largest wheat importers have import ratios below that of Brazil’s, illustrating the importance imports will have in 2018/19. For instance, Algeria is sporting a 53.06% import ratio (7.7MMT total), Egypt sits at 49.69% (12.0MMT total), Iraq at 41.63% (3.5MMT) and Morocco at 30.78% (4.8MMT). For a country which has bought plenty of US-HRW the past several years, this could be a supportive input in 2018/19 if any issues arise with Argentina’s ability to export. To be clear, Argentina did have a favorable harvest of 17.5MMT, up 3% on the year.
Speaking of Argentina, the USDA Ag Attache to Argentina released a memo yesterday about the country’s oilseed production and tax implications in 2018. The government of Argentina still plans to reduce oilseed export taxes by 0.5% every month beginning with January 2018 through December 2019, lowering the tax by 12% in total. As such, the soybean export tax will be 18% for soybeans and 15% for soybean oil and meal by the end of this period vs. the current 30% and 28% taxes, respectively. This follows the trend of drastic export tax cuts for corn and wheat in 2017 which has been a boon for grain exporters. Parts of Argentina have been dry, which could impact total soybean production, but most areas have been living off timely rains. The post is maintaining total soybean production of 57.0MMT, in-line with the USDA’s latest estimate, although private guesses are probably 2-3MMT below that level. Exports are expected to nudge higher this year to 8.5MMT vs. 7.335MMT last year, but pale in comparison to the 46MMT of crush expected and hefty soy meal exports. By contrast, Brazil is expected to export 67.0MMT of soybeans this year, a new record, while crush is seen at 42MMT. Argentina exports 31.2MMT worth of soymeal vs. 3.055MMT of domestic consumption vs. Brazil at 15.25MMT of meal exports at 17.48MMT of domestic consumption.
Bottom Line: Bulls are hoping for some follow through strength in corn today to confirm the surge yesterday, although it didn’t seem as though a ton of cash grain was purchased. $3.00 cash paid to the farmer in the far western corn belt will buy corn, while $4.40-4.50 probably buys HRW. Otherwise, the hold and hope mentality probably rolls forward another month. While corn spreads have rallied along with flat price, soybean spreads don’t seem impressed with the move so far. Ethanol production and stocks data delayed until this morning and export sales delayed until tomorrow.
Good Luck Today.
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