A particularly wet week for areas east of the MS-River ahead, and this follows what has been a wet 7-day period up to today. Over the last 7-days, precip in NE-TX/E-OK/AR/MO/IL/IN/OH/S-MI/KY/W-TN has been in the 1.5-5.00” range, causing major flooding in areas tributary to the MS-River. These flooding issues look to be exacerbated during the next week with an additional 1.50-4.00” expected over pretty much the same areas. The National Weather Service river level map at Caruthersville, MO is already at the action level, and is expected to move into minor flooding by tomorrow morning and close in on moderate flooding by next week. Memphis looks the same. The above normal precip for the Midwest hangs around through the 6-10 day, but moderates to normal for the 8-14. Temps will be normal/below, and moving solidly below normal in the 8-14, especially north.
Firmer markets this morning as row crops attempt to close higher another week while wheat tries to end its winning streak at five consecutive higher weekly closes. Corn is flirting with a lower weekly close at the moment, down 0.25c on the week, which would also end its streak of five higher weekly closes. Soybeans are up 14.25c on the week to the highest levels since February a year ago, and should post a solid candlestick on weekly charts to prevent any sour looking chart formations. Soymeal has led the rally without any doubt, but after the early week strength, meal has stalled out around the 61.8% retracement of the 432.50-292.0 selloff. Volume is declining, open interest is rising and momentum is beginning to diverge which would suggest soymeal needs to make new highs relatively soon in order to prevent a setback which could be decent in scope given the uninterrupted nature of the rally. Open interest yesterday saw corn down 7,004 contracts, soybeans up 1,599 contracts, meal up 434 contracts, soybean oil down 996 contracts, SRW wheat down 5,418 contracts and KC wheat up 1,374 contracts. Today is March option expiration.
The chatter in the market yesterday was related to the acreage tables released by the USDA at their annual Outlook Forum in D.C. The office saw corn and soybean acreage at par, both with 90.0 million acres, while all-wheat acreage was essentially unchanged at 46.5 million. Early this morning, the USDA released their first blush ideas at the 18/19 supply and demand based on those acreage ideas and trend line yields. On soybeans, with a 48.5bpa yield vs. 49.1bpa last year, and harvested acreage of 89.1 million, production would total 4.320bbu vs. 4.392bbu this past year. Total supplies are slightly larger with the bigger carry-in, and demand is up thanks to a 30mbu bump in crush and a 200mbu bump to exports. Carryout would total 460mbu vs. 530mbu in 17/18. If anything looks suspect it would probably be their export estimate, although the ongoing South American weather situation makes any guess legitimate at this point. In the corn balance sheet, the USDA used 82.7 million harvested acres, unchanged on the year, but plugged in a 174bpa national average yield compared with last year’s record 176.6bpa. This would be above trend, with our calculation indicating a 172bpa trend line yield. Nonetheless, total supplies would be 16.792bbu vs. 16.947bbu in 17/18. Interestingly, the USDA sees feed/residual demand declining 75mbu next year to 5.475bbu from 5.550bbu which seems hard to justify considering a large crop, still growing animal numbers and solid livestock margin structure. Ethanol demand is seen leaping to 5.650bbu vs. 5.525bbu this year, which could be part of the lower feed number given higher expected DDGs production. Exports are seen at 1.900bbu vs. 2.050bbu which makes absolutely no sense in our estimation. With still declining South American crops, the US should see export demand come back in a big way for 18/19. We estimate exports should be all of this year’s 2.050bbu if not in the 16/17 area.
The USDA sees the all wheat balance sheet with 500,000 more acres, harvested acres up 1.2 million to 38.8 million, and the national average yield at 47.4bpa vs. 46.3bpa last year. Total supplies of 2.983bbu would be under last year’s 3.076bbu. In the demand column, feed/residual bounces back by 10mbu to 110mbu, while food/seed is unchanged at 1.017bbu. Exports fall 25mbu to 925mbu, which one can take or leave considering this will be contingent on Northern Hemisphere growing weather and quality. Ending stocks of 931mbu falls from this year’s 1.009bbu, while the stocks/use ratio drops to 45.4% from 48.8%. The average farm price inches up to $4.70/bu from $4.60/bu this year and would be the highest since 2015/16. Happy days are here at last.
Besides the USDA Outlook Forum, we also have March option expiration today. In corn, the largest call open interest is below the market at 360 with 32,714 calls open, while the put open interest is largest at the 350 level with 30,694 options open. The 370 strike also has a lot of calls open at 28,779 contracts, and could be at risk for pinning given we are only 3.0c away this morning. In soybeans, the largest call open interest is well below the market at 1000 with 15,366 contracts open, while largest puts are at 980 with 10,040 contracts open. Doesn’t look like any strike is real vulnerable for acting as a magnet today. In Chicago wheat, largest call open interest would be the 470’s at 7,619 contracts open, while the 440 puts have 8,726 contracts open. Here again, nothing huge in terms of pin risk with the market firmly centered between these two strike levels/
Data yesterday included weekly ethanol production which jumped 52,000bbls/day to 1.068 million bbls/day, which was the highest weekly production figure in eight weeks. This production number was also well above the “needed” level, and up 3.3% from the same week a year ago. Ethanol stocks also declined by 132,000bbls, despite the solid jump in production. Total stocks of 22.753 million bbls compare with 22.885 million the week before. Ethanol prices have maintained their uptrend, still trading above the 50/100/200-day moving averages by a solid margin.
Export sales later this morning are expected at 275-425TMT for wheat, 1,000-2,050TMT for corn, 500-1,250TMT for soybeans, 200-450TMT for meal and 10-35TMT for soy oil.
Bottom Line: South American production estimates still in focus as privates continue to cut their figures based on current weather forecasts. Today’s Outlook Forum will stoke the 18/19 acreage debate and balance sheet discussion, but to be honest I’m rather disappointed in their numbers released this morning. All signs point to a tightening 18/19 corn balance sheet with demand expected to be ramped up in a big way by all three sectors. Time will tell.
Good Luck Today.
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