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By Staff | Jul 19, 2018

In the news:

Total grains production forecast lowered

The International Grains Council (IGC) lowered its forecast for total grains production in 2018-19 to 2.077 billion tonnes, down from 2.089 billion tonnes in late May, and down from 2.09 billion tonnes forecast for 2017-18.

Total grains consumption is forecast at 2.131 billion tonnes, down from 2.136 billion tonnes in late May and compared with 2.11 billion tonnes in 2017-18. The forecast for total grains carryover stocks was lowered to 544 million tonnes, down from 556 million tonnes a month ago and down from 598 million tonnes in 2017-18.

CFTC awards whistleblower

The Commodity Futures Trading Commission (CFTC) announced an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action. The award is the largest award made by the CFTC’s Whistleblower Program to date and is the fifth award made by the program. Whistleblowers are eligible to receive between 10 percent and 30 percent of the monetary sanctions collected.

All whistleblower awards are paid from the CFTC Customer Protection Fund established by Congress and financed entirely through monetary sanctions paid to the CFTC by violators of the CEA. No money is taken or withheld from harmed investors to fund the program.

‘No one wins in a trade war’

As expected, the U.S. slapped levies on $34 billion of China’s exports. This follows Beijing’s decision to levy duties of the same value. In a statement, China’s Commerce Minister accused the U.S. of launching the largest trade war in economic history forcing China to counterattack.

Since the talk of tariffs began in March, soybean prices have dropped more than $2 per bushel. In a statement, the American Soybean Association said soybean farmers will feel the full impact of this trade retaliation. China has added a 25 percent tariff on U.S. products, totaling $34 billion. From that total, soybeans represent more than 40 percent of the value on the products on China’s tariff list.

Minnesota Soybean Growers Association President Michael Petefish agrees, saying no one wins “in a trade war.”

Corn analysis

Corn closed the week $.18 1/2 lower. Last week, private exporters announced sale of 113,000 mts of corn to Egypt and a cancelation of a previous sale of 152,00 mts of grain sorghum to Mexico.

Weekly export sales of corn totaled 20.9 mb (530,100 mt) as of July 5 with 15.8 mb (454,000 mt) for the 2017-18 season. Total shipments plus outstanding sales in 2017-18 are now 2.287 bb, 4 percent above the previous marketing year. In the weekly crop conditions report, NASS reported U.S. corn crop conditions 75 percent good/excellent versus 75 percent expected, 76 percent last week and 65 percent last year.

This is one of the highest ratings in history In the weekly EIA report, crude stocks saw a drawdown of 12.63 mb versus estimate of a drawdown of 4.50 mb. This is the largest weekly drawdown since September, 2016 and 5th largest since 1982. U.S. ethanol production declined to 1.033 million barrels/day (304 million gallons/week) from 1.067 mbpd (314 mil gal/week) the week prior and was the lowest production rate in seven weeks.

In the USDA monthly Supply and Demand report, the USDA estimated 2018/19 corn yield at 174 bpa, unchanged with last month with harvested acres at 81.8 million, up 1.1 million acres and U.S. carryout at 1.552 bb, down 25 mb due to a large 125 mb increase in corn exports and a 75 mb increase in feed usage. The U.S. corn stocks to use ratio was seen at 10.5 percent, down from 10.8 percent in June, and the lowest level since 2013/14. World stocks to use was seen at 13.9 percent, the smallest number in over 25 years.

Strategy and outlook

Producers should have either made sales or bought puts to establish a price floor. Exit these options when the trend turns higher and re-own sales with cheap out of the money calls.

Soybeans analysis

Soybeans closed the week $.59 3/4 lower. Last week, private exporters announced sale of 132,000 mts of soybeans to an unknown destination.

Weekly export sales of soybeans totaled 15.8 mb (429,400 mt) with 5.8 mb (158,600 mt) for the 2017-18 marketing year. Total shipments plus outstanding sales are now 2.111 bb, 4 percent less than a year ago.

In the weekly crop progress and conditions report, U.S. soybean crop conditions are 71 percent good/excellent versus 70 percent expected, 71 percent last week and 62 percent last year.

The USDA reported 2018/19 soybean yield at 48.5 bpa, unchanged from last month while harvested acres increased 700,000 acres to 88.9 million acres. U.S. carryout increased by 195 mb to 580 mb due to softer export business as USDA lowered exports by 250 mb.

This was well above pre report estimates. U.S. soybean stocks to use ratio for 2018/19 is seen at 13.7 percent, the highest level since 2006/07.

Rain events that occur in late July and the first week of August should be sold as this will help the development of the crop. Conversely, dry weather in this timeframe should rally prices as it will limit yield potential.

The closely watched weather cycle turns hotter and drier around July 23.

Strategy and outlook

Producers should have either made sales or bought puts to establish a price floor. Exit these options when the trend turns higher and re-own sales with cheap out of the money calls.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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