Weekly Review; Friday, February 15th, 2019

Weekly Review

With last week’s release of multiple reports, trade has had plenty of time to analyze and develop an opinion on the data available. One of the most notable changes was the final corn yield adjustment, the largest corn yield decrease from the November to January report since 1990. Many analysts were shocked last year as USDA yield forecasts continued to climb throughout the summer. The USDA reduced the final corn yield 2.5 bushels from the November report, with 19 of the 25 major corn producing states showing a reduction in yield in Friday’s report. An extremely large increase in on farm stocks of soybeans were reported in certain states, including Illinois with an increase of 161 million bushels.

The lack of acres switching to corn from soybeans, adds further to the bearish argument. The USDA will begin to put together acreage estimates in a few weeks for the March 31st acreage report. Initial private estimates are not indicating a large acre switch, but Mother Nature could always throw a wrench into producers’ intentions. A cold, wet, late spring like in 2018 can push acres from corn into soybeans by force, not economics. The elephant in the room for soybeans remains the export program, which the USDA has not adjusted lower. The day of reckoning will happen eventually and further add to carryout.

Large soybean stocks continue to be a discussion in the markets. FC Stone analysts stated that even if Brazil’s soybean crop is reduced to 115 MMT, the western hemisphere would still have 5 MMT higher soybean stocks than March 1st of last year. The crop would have to drop to 110 MMT to be equal to last year’s figure, while the current USDA figure is 117 MMT.

Export Inspections for the week ending February 7th, were reported lower for both corn and soybeans compared to the prior week. Corn inspected for export came in around 29.2 million bushels, with Japan being the top destination. Although corn inspections have slowed down due to more competition, export inspections for corn are still ahead of the pace compared to last year. Soybean inspections were at 39 million bushels, with shipments heading to China and shipments leaving ports in the Gulf and Pacific Northwest. Wheat came in at 20.6 million bushels, with Japan, Mexico and Egypt being the leading destinations.

The catch-up export sales report for the week ending January 3rd fell below the expected range and the volume needed to reach the USDA’s estimate for corn, soybeans and wheat. Corn sales totaled 18.1 million bushels. Soybeans showed a negative 22.5 million bushels as China and unknown destinations cancelled sales. Wheat sales totaled 4.8 million bushels.

The trade war with China continues to plague the grain markets with a lack of enthusiasm. Bloomberg, released news yesterday indicating the U.S. and China have made little progress reaching a deal on structural reforms to China’s economy. The U.S. is standing firm that China needs to cut back subsidies on state owned enterprises and that it has been a major hold up with Chinese negotiations. Both sides are working to avoid slatted increases in tariffs from 10% to 25% on March 1. Sources indicate the White House may agree to push back the tariff increases for another 60 days to help further negotiations. The lack of progress could be signaling a needed meeting between the two presidents to push negotiators to resolve the issues.

For more information, you may contact Kristi Guse at (712)-260-6486, or e-mail at kguse@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Kristi Guse. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.




 

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