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Corn and soybean fundamentals vary

By Staff | Dec 7, 2018

As the end of harvest tries to wrap up, farmers seem to be in a wait and see mode-marketing grain. Basis levels are beginning to firm as the bin doors on the farm are shut and the end of the year draws closer. Soybean basis may or may not return to “normal” levels depending on what part of the country you are located. Western basis levels will likely remain wider than normal, as trade out of the Pacific Northwest remains stalled. Eastern basis levels could improve to average as pork and poultry demand for soybean meal in the Southeast may help.

U.S. exports to China have fallen dramatically in the month of October. A stark difference can be seen when one looks at the origin of soybean imports in China. According to Chinese government data, the U.S. made up just one percent of total soybean imports while Brazil accounted for 94 percent.

When compared to October 2017, Chinese imports from the U.S. were marked at 23 percent while Brazil was pegged at 58 percent. This gives a very clear picture of where soybeans are being originated, and the changes in the market place are becoming apparent.

Wheat markets have seen a slight uptick as tensions mount over heated relations with Ukraine and Russia over territorial shipping channels. Russia’s export program has been pushing exports to beat government cut backs expected next year. Egypt and other Middle East countries have stepped up to buy wheat from the U.S.

Export inspections released Monday the 26th, were near the high end of expectations for corn and soybeans but below the low end on wheat. Corn loadings totaled 44 million bu, 4 million bu below the weekly needed amount to reach the USDA’s estimate. 40.6 million bushels of soybeans were loaded which was above the weekly total needed. Wheat loadings totaled 9.3 million bu, which is 15 million below the needed amount.

Cumulative corn inspections stand at 516 million bu. which is ahead of last year by 229 million bu. The USDA is predicting a year over year increase of 12 million bu. Some analysts believe the USDA has the corn demand underestimated, yet others believe that sales are front loaded. An argument for each side is valid because of the largely increased pace versus the favorable Ukraine freight values currently offered.

Even with more ethanol plants idling or shutting down, ethanol production for the week ending November 23rd increased slightly from the previous week. Ethanol production came in at 1.048 million barrels per day, up 6,000 barrels per day from a week ago. Stocks jumped up by 139,000 barrels from last week, putting it at 22.93 million barrels. With the large stocks it’s frustrating to hear that another shipment of Brazilian ethanol is headed for California which is expected to arrive this weekend.

Recent work from FC Stone has looked into price action of new and old crop corn contracts, post-harvest. The results showed that in the past four years, the December contract has reached an average high price of $4.36. The new crop highs for those years were made in May, June, and twice in July. The July contract is currently trading around $3.85, and each of the past four years, the contract was above that level at some point prior to going off the board.

The corn and soybean fundamentals look vastly different at the present time. The domestic stock-to-use ratio for corn currently stands at 11.5 percent, which is the tightest recorded for this time of year since 2013. That year, it was calculated at 5.8 percent following the drought induced crop of 2012. Domestic soybean stocks-to-use currently stands at 23.3 percent, which is the largest ratio seen since 1987.

Export sales for the week ending November 22nd fell within trade’s expectations for soybeans and wheat and exceeded expectations on corn. Corn sales totaled 49.9 million bushels; 13 million more than needed to reach the USDA’s target. Soybean sales totaled 23.1 million; 3 million shy of the weekly sales totaled needed. Wheat sales totaled 13.9 million; 3.8 million short of the needed total.

Reports of the great start to Brazil’s soybean crop have made numerous headlines in the past month but issues in Argentina are now starting to surface. The Rosario Exchange reported that between 300,000 to 500,000 hectares of soybeans have been lost in Argentina due to flooding. It is very early so impact this will have is largely unknown. The early crop ratings are not favorable, at three percent rated very poor, 21 percent poor, 59 percent fair, 17 percent good and zero percent excellent. Trade will monitor the situation going forward but the bears are quick to point out the excellent start in Brazil and large U.S. supplies.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. 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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