Weather was mainly dry in Argentina yesterday with temps generally in the 80’s. Forecasts see limited rains through the weekend and early next week to help planting continue but fairly soaking rains to hit the region by the middle of next week. Dry weather will follow at the end of next week and into the weekend which would be nearly ideal for late spring. In Brazil, average rains are expected in the next week to ten days for Mato Grosso, Goias and Minas Gerais. Limited rainfall is seen in the other provinces through the weekend and early next week before a front brings fairly soaking region by the end of next week. Difficult to call the current weather pattern anything but favorable at this juncture.
Mixed trade this morning with firmer wheat markets but a softer soy complex as we get set to close the week. The bounce overnight in the three wheat markets is encouraging after the last two to three days’ worth of losses. Traders were discouraged by the fact Egypt’s GASC bought a large tranche of wheat from Russia and Ukrainian yesterday despite the concern over letters of credit. In addition, no US-SRW was offered, and the landed price of the wheat purchased was only $0.17/MT above the last tender. Most thought the purchase price would carry with it a substantial risk premium but that was not the case. In addition, most were under the impression Russia wheat export offerings had begun to slow and would not be offered in the copious amounts they had been. This was not the case and seemed to suggest Russia will be offering wheat for the foreseeable future. Corn has continued to respect the Sunday evening gaps below the market where the 50 and 100-day moving averages currently reside. The risk would be a gap lower which would produce an island top, although complications with trade negotiations would see to be the only thing important enough to produce such a move. Open interest changes yesterday saw corn O/I up 13,382 contracts with only 2,299 left in the December. Soybean futures were down 2,338 contracts, SRW wheat was down 1,520 contracts and HRW was down just 84.
Yesterday we saw October Census Import/Export data released which we always look forward to even though it lags by two months. Census exports offer us the only glimpse at DDGs and ethanol exports. Speaking of which, October ethanol exports surged back to 175.4 million gallons which was the largest monthly total since March and a solid 67% above October 2017. This at least partially explains why production rates remain supported despite the difficult operating environment. 2018 calendar year exports now stand at 1.416 billion gallons, which is a new calendar year record, with two months still remaining. Brazil showed back up in a big way in October with the largest imports since April, while India was back in for the largest monthly grab since March 2017 and the second largest monthly total on record. DDGs exports totaled 1.018MMT which was down a hair from September but up a hair from October 2017. Calendar-year-to-date DDGs exports of 9.976MMT are up 8.7% from a year ago. We also like to look at corn, soybean and wheat census exports to double check the math of the weekly numbers. October wheat exports were a bit better than expected at 1.904MMT, which were the largest October exports since 2013. Still, JJASO exports of 9.110MMT are the smallest since 2015 and the second smallest for that period since 1971. Soybean exports during October were 5.580MMT, the smallest October since 2011. Sept/Oct exports of 8.817MMT are down 37% from a year ago vs. USDA calling for a 12.6% reduction. Corn exports during October were 5.694MMT, the largest total for the month since 1980.
Egypt’s GASC ended up buying 350,000MT of wheat yesterday with 290,000MT being Russian and 60,000MT of Ukrainian. Average Russian price was $236.80/MT FOB with the Ukrainian at $236.60/MT FOB. Landed price was around $252.90/MT which was nearly unchanged from the previous tender. This obviously flew in the face of ideas looking for sharply higher wheat prices due to letter of credit issues. It also didn’t bode well for bulls hoping Russia had exhausted their exportable supplies. US-SRW wasn’t even offered with counter-party risk issues obviously viewed as too high. Wheat purchases so far in 2018/19 are running just a hair behind 2017/18 which is the largest export pace of the last five years. Fortunately, Chicago wheat spreads remain priced to move wheat with the WH/WK sitting at 21.95% of full financial carry. Once the letter of credit issues subside, hopefully we will see US-SRW back in the mix.
Other wheat news yesterday included the Kansas Wheat Commission stating winter wheat acres in the state will likely be lower than a year ago, and could be the lowest in 100-years for the United States’ largest wheat producing state. Last year’s 7.7 million acres were the third lowest in a century. The fall sowing campaign was not a good one in Kansas with October and November moisture and cold temperatures preventing timely seeding. In addition, what got planted has uneven emergence if it emerged at all before dormancy set in. Further, harvest progress in Kansas according to NASS on Monday showed corn harvest at 96% complete, soybean harvest at 95% and sorghum at 89%. Very difficult to plant wheat into standing crop. Even with the declines, as long as wheat yields don’t fall significantly below trend, the HRW balance sheet should be able to handle smaller production. However, a lower starting point will put more emphasis on achieving trendline yields which could keep risk premium in place this winter and into next spring.
Weekly ethanol production increased by 21,000bbls/day last week to 1.069 million bbls/day, flying in the face of weak production margins. Anecdotal reports from ethanol plants continue to suggest negative margins, although as one astute market observer noted, it is much more difficult to slow a plant down in the winter time (and often more costly) than it is to keep grinding corn at unfavorable margins. As he noted, this likely means the ethanol production levels of the last two months are probably the low end of the production range. That is actually supportive, because if margins do improve it means we can grind a lot more corn and produce a lot more ethanol. The aforementioned ethanol exports are certainly helping the situation provided they continued in November. Weekly ethanol stocks increased by 100,000 bbls to 23.030 million bbls/day which remain record large for this week of the year.
Bottom Line: Export sales will be eyed later this morning for direction, but it still feels like trade war activity is driving the bus. To us, it feels as though traders will need confirmation of something soon or risk removing premium. If Sinograin shows up to buy the 4-5MMT of soybeans which has been kicked around, markets would likely react very positively. In a perfect world, any agreement would include ethanol bi-product purchases as well as some wheat and sorghum. The potential island top formation in corn heading into the Sunday night open is something to keep an eye on.
Good Luck Today.
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