Weekly Update – September 7, 2018

Corn has struggled to find momentum this week after a decent close on Friday. Weakness in wheat and soybeans has helped keep corn from finding much strength despite its positive fundamentals. Bounce on Friday was due in part to announcement of export tax by Argentina on all grains in an attempt to resolve a deepening economic crisis. The announcement came at a time when producers are making planting decisions which may shift some acres away from corn. With the tightest world balance sheet since the 1973/1974 season the market needs these acres. USDA will issue latest supply and demand estimates next Wednesday Sept 12th. Latest weather maps have 5 to 7 inches of rain in parts of the corn belt from the remnants of Hurricane Gordon. Talks with Canada and Mexico this week are said to be very productive and there was already an announcement of a sale to Mexico.

As noted above, there is no shortage of bullish news for corn, but so far, it has not reacted. Question is not if corn will rally but when. If it were able to trade its own fundamentals, corn would already be quite a bit higher than we are right now but has been weighed on by the wheat and soybeans. We have priced in a 180 bu crop and still are losing 500 million bushels off the balance sheet and the world balance sheet continues to get tighter.

Soybeans were able to get some strength Friday from Argentina’s export announcement but has not been able to get much follow through this week. The Chinese equity markets took a hit this week and with more reported cases of African Swine Fever in China there are concerns about meal demand. The US export pace is still right in line with the 5 year average, but with no progress on trade, market is more concerned about new crop exports rather than old and there has so far been less commitments than usual by now. The next round of tariffs are scheduled to go into effect this week with China expected to retaliate. No progress seems to have been made on the talks with China so far. There is plenty of commentary out of China that they are going to increase their domestic production to offset the lack of US soybeans. See the chart below of what China says they are going to increase their domestic production to and decide how likely an increase of that magnitude will be over this short a period of time. We, as farmers, are taking all the pain from this trade war in the US, but China cannot just snap their fingers and get soybeans from somewhere else or grow all they need. If they could, they would have already done it. There has been a lack of progress so far, but both sides have a great deal of incentive to find a solution on this.

As the soybeans mature in the Midwest, the forecasted rains will not be beneficial. Estimates for the Midwest crop continue to get bigger with Allendale estimating yield yesterday at 52.17 compared to USDA’s last number at 51.6. We will get USDAs updated estimate next Wednesday but the crop is far from in the bin yet. Any sign of progress on trade will be very positive to the market.

Wheat has taken the worst hit this week as the Russian government came out over the long weekend attempting to assure the market they will not have to curb exports. I am more skeptical of this, especially since the assurances have come from the Russian government theirselves. However, with a stronger US dollar and ample rains in the Great Plains going into US planting, the funds continue to liquidate positions following first notice day last friday. Russia did make an offer on an Egyptian tender but only ended up selling a smaller amount than originally announced. There is not much moisture relief coming to Eastern Europe or Russia going into planting and dryness in Australia is spreading to southern and western areas. Funds were still long wheat going into this week but suspect there has been significant shortening of their position. Wheat is still ripe for a supply shock with not much weather relief in sight.

Cotton was able to get a bounce from Hurricane Gordon making landfall on the Gulf Coast but it was short lived as there did not seem to be much damage to the cotton crop in that area. Weakness in the stock market (especially in China) weighed on the cotton market as it tends to have a much higher correlation with the economic indicators than the grain/oilseed complex. The growing crisis in emerging markets also has cotton concerned about long term demand. Lack of progress on trade with China also puts pressure on cotton even with a US cotton crop only rated at 41% good/excellent which is down 24% from last year. The International Cotton Advisory Committee lowered world cotton ending stocks for the 18/19 crop year to 16.91 mln tonnes from 18.74 last year.

The chart below shows Chinese soybean production since 2003. The Chinese government says they can increase production to supplement their imports from South America to completely eliminate their dependence on US soybeans. The red line is their target production for 2020. Presented here visually, you decide if that is realistic or just scare tactics.

7 Day Precip Forecast