This past week was saw new shorts piling into corn pushing open interest up by over 50,000 contracts by Thursday’s close. Despite this increase, corn only traded down about 3-4 cents to 346’0 and then traded that 3-4 cent range until Thursday close. Beans saw the same type of money inflow except that the 49,000 contracts of open interest were enough to force front end bean prices down all week long. November bean futures remain resilient and supported around the 970 mark, although the market was able to trade down to 967’2. Minneapolis wheat saw 5 days in a row of expanded open interest and mixed trade.
Highlight Summary
- Higher winter wheat acres than anticipated doomed the wheat market to lower prices; more sideways JFM?
- Dec 1 domestic wheat stocks down 9.9% year over year
- Large increase to corn production to new record of 176.6; beans dropped .4 to 49.1
- No decrease in South American production despite many private analysts calling for significant cuts
- Local corn basis sharp despite higher yoy corn stocks in ND; something doesn’t jive
- Triple bottom at 970ish for Nov 18 beans; bounced square to triple top resistance
WASDE, Crop Production, and Quarterly Stocks Analysis
Spring wheat production was increased 2 million bushels, domestic use up 1 million, and exports down 10 million bushels with ending stocks rising 10 million to 178 million. Stocks to use is raised from 31.7 to 34.4 percent. Quarterly wheat stocks came in about 25 million bushels above expectations, but 206 million bushels below last year (10%). Domestic ending stocks for 17/18 about 30 million over and world wheat about 0.20 million tons under expectations. All winter wheat acres came in significantly more than expected at 32.608 million acres versus estimates of around 31.3 million acres. I think folks were anticipating more acres headed towards cotton or sorghum. The spring wheat balance sheet itself wasn’t as concerning to me given how small that market is. It felt that today’s selloff was almost entirely based on the additional winter wheat acres that the market had not anticipated. Couple that with the expectation for a large increase in hrsw acres and there weren’t many buyers willing to go out and own wheat at current levels. This has ended our technical breakout higher for the time being. March spring wheat was down 16’4 cents at 612’4 and hrw wheat was down 14’0 at 426’2.
Corn acres were decreased slightly too by 200k acres to 90.2 million. The big shocker for corn was the increase in yield from 175.4 to 176.6; a new record. Despite this increase production only increased 26 million bushels with the offset of acres. Feed and residual were down slightly to net out at an increase to domestic ending stocks of 50 million to 2.477 billion bushels of carryout. Stocks to use was increased from 16.8 back up to 17.1 percent (behind Nov’s 17.2%). The last 5 years of stocks to use ratios have been 7.4, 9.2, 12.6, 12.7, 15.7, and now 17.1 percent. The production figure has a lot of people caught in disbelief or wondering how. Quarterly stocks came in at 12.52 billion bushels versus 12.38 billion last year (+1%) and the trade estimate of 12.43 billion. This will likely pose problems over the next 3-6 months given how weak the export program currently is. A sustained rally will be difficult.
Despite how bearish the domestic data appears I believe there are reasons to have hope beyond 6 months. China still sees a deficit this year of 4.37 million tons versus a prior forecast of 4.57 million tons (China’s Ministry of Ag). There was an increase in 2016/17 global carryout of about 1.5 million tons with a small increase in 2017/18 in the FSU that carried forward into this year. What I found very interesting is that despite many private firms calling for substantial declines in Argentinian and Brazilian corn production (upwards of 10 million tons) the USDA made no changes in this report. Add in widespread drought conditions in the US and expectations for as few as 89.5 million planted acres of corn and we could have ourselves a ballgame come July.
Soybeans – a slight decrease in acres and a 0.4 bushel decrease in yield help to offset the large blow that the USDA is calculating for exports. Now at 2160 versus the prior estimate of 2225, ending stocks ballooned out to 470 million bushels from 445 million last month. It’s hardly funny when looking back at what most of us thought were ludicrous increases in export assumptions by USDA and seeing them have to backtrack those estimates now; it does show us they’re only human and can be wrong just like the rest of us. Global soybean carryout was essentially unchanged with some changes being made to Brazil and Argentina (I will error on the side of slightly larger). Based on some private estimates I’ve seen I think it is unlikely we’ll see a dramatic change in South American production going forward although my bias is for a raise. Gains made in Brazil above the current estimate could be largely offset by losses in Argentina. Quarterly stocks were 9 percent higher year over year at 3.157 billion bushels. It’s hard to get too bulled up on soybeans at this point now other than for short covering reasons. The big reasons we could have seen a rally (yield and acre decreases) are now behind us and now we have only a struggling export program and a massively short non-commercial soybean position to cling to for hope.
