Morning Commentary

Sept corn up 1 ¾ at $3.5825

Nov beans up 8 at $8.7675

The DOW is up

USD is weaker

Crude oil up $.89 at $68.09

Good morning,

Corn bulls are desperately trying to hold support near $3.70 per bushel. They argue the USDA’s recent yield forecast is way too optimistic and ear weights are much too heavy. Believing the U.S. average yield will ultimately be trimmed in the weeks and months ahead and will not end up being record large, in other words, they are thinking the yield will end up being trimmed from the most recent 178.4 estimate to something sub-176.6. The bulls also argue, with “global demand” remaining strong, +37 MMTs higher than last year, and “global corn stocks” -45 MMTs less than we had viable at this time last year, at some point the traditional fundamentals will begin to matter. As of right now, new–crop prices here in the U.S. are at about the same level as last year, but U.S. ending stocks are almost -600 million bushels less.  Something interesting to think about… Last year the market posted its 2017 summer low the last week in August at $3.23 per bushel. The year before that in 2016, the market posted its summer low the last week in August at $3.01 per bushel. The year before that in 2015, the market retested it’s low down at $3.46^4 during the last week in August. The year before that in 2014, the market was a bit slower to respond and didn’t post it’s summer low until the last week in September at $3.18^2. In case you are wondering, in 2012, the all-time high north of +$8.00 was actually posted during the month of August. Moral of the story, the market tends to post many of it’s extremes during August and September. The latest USDA crop-condition report showed another slight step backwards, dropping form 71% down to 70% rated “Good-to-Excellent”. The only state showing any improvement was North Carolina who jumped +1% from 34% to 35% GD/EX. States where conditions were left “unchanged” included: Indiana at 71% GD/EX; Iowa at 75% GD/EX; Minnesota at 77% GD/EX; and Missouri at just 26% GD/EX; Ohio at 76% GD/EX; States where weekly conditions deteriorated included: North Dakota -6% to 79% rated GD/EX; Illinois -5% to 76% GD/EX; Arkansas -3% to 71% GD/EX; Wisconsin -3% to 78%; Tennessee -3% to 68% GD/EX; Kentucky -2% to 70% GD/EX; Nebraska -2% to 83% rated GD/EX; Pennsylvania -2% to 72% GD/EX; Kansas -1% to 47% GD/EX; South Dakota -1% to 69% GD/EX. The crop is reported 73% in the “dough” stage compared to just 58% last year and just 56% using the five-year average. The USDA also reported 26% of the crop is now “dented” vs. just 15% last year vs. the five-year average of just 13%. All more proof to the bulls that the crop is and has been moving extremely quickly through maturation.

Soybean traders are trying to adjust to the USDA’s recent bearish adjustment to U.S. ending stocks. Bulls are saying the picture probably can’t get any worse than the current 785 million bushels, and that U.S. exports will eventually surprise to the upside. Bears are saying the U.S. soybean crop could easily generate a higher yield estimate if weather cooperates during the next few weeks. Bears are also saying nearby trade tensions with the Chinese appear to be getting worse not better. President Trump appears content and willing to raise the stakes. In fact, some top analyst and traders on Wall Street believe the odds are increasing for a full-blown trade war. A battle that might eventually push President Trump to place tariffs on all imported goods from China. If that happens, the biggest concern is relations longer-term. In this case meaning, will the Chinese remain openly receptive to buying large quantities of U.S. soybeans, or will their switching to alternative suppliers in South America become more of a permanent play? Weekly soybean export inspection were a bit of a disappointment and overall are down about -3% compared to last year at this stage. From a technical perspective, bulls are hoping psychological support at around $8.50 can hold until the market shows improved export demand or perhaps some type of setback in yield. Bears are thinking the NOV18 contract could try to retest the previous nearby lows posted on July 16th at $8.26^2 per bushel, or perhaps the much longer-term and more painful $7.77 level. . Perhaps the market will be able to find a bit of support on the most recent crop-condition estimate showing some overall deterioration. The overall crop fell -1% from 67% down to 66% rated “Good-to-Excellent”. The only states showing improvements were: North Carolina +6;, Louisiana +3%; Ohio +2%; Indiana and South Dakota +1%. States showing deterioration were: North Dakota -11%; Michigan, Nebraska and Wisconsin -4%; Kansas -3%; Arkansas, Iowa, Mississippi, Missouri, and Tennessee down -2%; Illinois, Kentucky and Minnesota were all down -1%. The USDA also showed 96% of the crop “blooming”, which is slightly ahead of the 92% five-year average. The percent “setting pods” was reported at 84% vs. the five-year average of 72%.

With the drought cutting EU wheat and coarse grain crop projections, it’s likely they may try and offset the losses with imported soybeans and oilseeds meals. For that reason, 2018/19 soybean and soybean meal import projections are boosted to 15.8 and 18.5 million metric tons respectively. Lower U.S. soybean prices vis-a-vis Brazil, a result of China’s duties imposed on U.S.-origin soybeans, have contributed to a surge in EU imports from the U.S. While China is substituting Brazil beans for U.S., the rest of the world is taking advantage of competitively priced U.S. supplies. (Source: USDA, FAS)

The Argentine peso weakened to a new low after the central bank unexpectedly raised its key interest rate to 45 percent and pledged to keep it there until October. The decision was the fourth surprise hike by the central bank this year as inflation refuses to slow. (Source: Bloomberg)

The Kansas City Fed’s report showed the farm economy is deteriorating as commodity prices move lower. They say credit conditions eroded in the second quarter of the year and bankers reported a modest increase in the number of borrowers unable to repay loans. When it comes to land values, they are slightly lower in the KC Fed’s district as well. However, the St. Louis Fed (which covers the Midwest) showed land values are holding steady as farmland edged up 1% in the second quarter. (Source: KC Fed, St. Louis Fed)

Indian Prime Minister Naredndra Modi celebrated World Biofueld Day 2018 by announcing that India will achieve 10% ethanol blending in petrol by 2022 and double it to 20% by 2030. Modi also said that 12 new biofuel refineries will be established across the country and that 175 bio CNG plants have already been set up in India. India meets more than 80% of its oil needs through imports but is aiming to decrease oil imports to save the country $1.74 billion with the increased use of biofuels. (Source: Biofuels Digest)


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