- The USDA announced export cancellations from China and unknown destination, which added to the late week bearish tone. The USDA’s export cancellation notices included 180,000 mt of sales to China and 120,000 mt of optional origin sales to unknown destination. Last week China had very limited sales of less than 1 million mt on the books, and the trade expects that most of those will be cancelled. There were 7.4 million mt of sales to unknown destinations, while sales to the rest of the world were at multi-year highs. Given wide price spreads, we expect that the US will continue to win most (if not all) of the world’s non-Chinese demand in the upcoming months/year. The CoT report showed that funds had covered another 5,000 contracts through Tuesday and were net short 36,000 contracts. Our view remains that spot soybeans are caught in a wide range of $8-9 into late year. Initial support in November is at $8.45. Quality issues continue to build across the Midwest according to commercial firms.
- Dec corn fell another 4 cents and ended a shade below its 50-day moving average. Next chart based support rests at $3.55. Whether a test of this is warranted will hinge upon actual yield results over the next week. Funds on Tuesday were long a net 20,000 contracts, and long for the first time since summer. However, funds since Tuesday are believed to have liquidated net length entirely and are estimated to be marginally short as of Friday’s close. This week’s corn decline is fundamental in nature, Ukrainian yields have improved further on the week, US ethanol margins are weak, and US ethanol stocks remain record large. The Argentine weather forecast has trended wetter. None of this materially impacts world corn supply and demand, but there will be some measure of competition for world corn demand into late year. The risk of a sub-180 national yield offers support on breaks.
- US and EU wheat futures shrugged off weakness in row crops. Funds in Chicago on Tuesday were short a net 17,000 contracts, unchanged on the week. We have mentioned that Russian fob prices for Jan/Feb have rallied to levels above US and European offers. And the rally in interior Russian prices continues unabated, and it is the speed at which Russian prices have rallied that is noteworthy. Otherwise, enthusiasm in world wheat markets remains lacking. All eyes will be on deferred Black Sea offers in the weeks ahead. The Australian harvest is due in a matter of weeks, and key will be whether there has been a yield response to recent rainfall in New South Wales and Queensland. Most in the trade have kept final Aussie production estimates below 18 million mt, vs. USDA’s 18.5. Aussie futures remain perched at $8.40/bu. Wheat should trade independent from corn/beans through the balance of the year. Downside risk in our opinion is limited to $5.00.
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Weekend summary 19 October 2018
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