Morning Commentary

March corn up ¼ at $3.795

March beans up ¼ at $9.1875

The DOW is up

USD is stronger

Crude oil down $.38 at $54.18

Good morning,

Corn traders remain cautious ahead of this week’s heavy USDA data dump. South American weather has arguably improved a bit and there’s still no solid deal in place with the Chinese, hence no real race or hurry to add additional risk-premium, at least not at this point. Many parts of Argentina are expected to dry down and create a more cooperative environment. In fact, there seems to be a few more sources starting to bump their Argentine corn production estimate higher. Most inside the trade are looking for the USDA to reduce their current average U.S. yield estimate from 178.9 down to around 178.0 bushels per acre. Bulls are hoping to see the yield estimate lowered to sub-177.0 bushels per acre, bears are wanting to argue that it could stay unchanged. There’s also some ongoing debate about “harvested acres”, most are in agreement that they will be trimmed but by how much? The trade is also looking for a reduction in overall U.S. ending stocks, also a slight reduction in world ending stocks. We’ve all seen the ethanol margins tighten and estimates for corn used by ethanol plants starting to pullback. Depending on who you are speaking with, most inside the trade are looking for a -25 to -50 million bushel reduction in the USDA’s current corn used for ethanol estimate. Also interesting is that roughly 9.5 million bushels of sorghum was recently used for ethanol production (during the month of November) which is much larger than the 8.2 million used in October and was the highest sorghum used for ethanol figure we’ve seen since the summer of 2017. The short term trend is slightly positive.  The market remains in position to test the mid-upper 380 area.  Closing under 375.5 would undermine the outlook.  Short, system types will find buy stops around 384.5.  Options are implying a 370-389 trading range this week.

Using only 454.5 million bushel for ethanol in November, ethanol grind declined 5.6 million bushels or 1.2% from October and 21.2 million bushels or 4.5% from November 2017. I should mention that corn used for all industrial purposes totaled 504 million bushel in November, down 1% from October and down 4% from 2017. Also, corn-for-ethanol grind in the first quarter of the 2018-19 marketing year was 1.360 billion bu., down 31 million bushel (2.2%) from last year.

Soybean traders continue to debate Chinese demand, U.S. trade negotiations, South American production, and the upcoming adjustments by the USDA. There’s been reports of continued U.S. buying by the Chinese, but still not enough to excite potential bulls who are not yet in the market, and not enough to scare bears out of positions that are already in play. There’s been more talk that the USDA could trim the Chinese import estimate, but at this point it’s still just talk. The short term trend is positive.  A close over 925 provides targets at 937.25, perhaps the 941.  The 941 area will be key from a longer term perspective.  We need a close under 906.5 to undermine the outlook.  Long, system types will find sell stops around 913.25.   Options are implying an 900.5-937 trading range this week.

A new article released in the American Journal of Agricultural Economics details the relationship between farm size and productivity using data taken from Northern China corn producers. What the study found is that the land market reforms have helped to enlarge the average operational scale of household farms in China but did not increase land productivity. This implies that subsidizing large farms in China may not necessarily be a good policy. The article is available for a limited time. (Source: AAEA)

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