- EU livestock farmers continue to struggle in their search for feed. The late summer has not helped with the dire drought ongoing which has left farmers short of forage. The USDA’s projected EU grain stocks/use match the previous low in 2013. The EU will have to work hard to import corn and export less wheat.although EU wheat exports to date are down 41% and show no sign of increasing as domestic prices are high in relation to the global marketplace. EU wheat exports might reach 18 million mt, which is some 5 million below the WASDE forecast. Combined lost EU and Australian wheat demand should be pushed to the US from November onward.
- Fund buying in the summer row crop markets supported early soy buying, while rumors that Argentina had secured as many as 10 cargoes of US soybeans fueled a rally into the close. Argentina was also rumoured to have sold 10-15 cargoes of their own soybeans to China, and replaced them with cheaper US supplies. Two weeks into the 2018/19 crop marketing year, the US export outlook is murky. Sales in the last two weeks have been routine even without Chinese buying. However, US soybean export commitments are 1.4 million mt under last year and at a three year low. Historically, there is a moderate relationship between early year commitments and annual exports. The current USDA forecast is well over the trend forecast. Without Chinese exports, future USDA export forecasts are likely to be unchanged or lower. Early harvest yields in the E Cornbelt have been good, but the market awaits more results from IA and MN. The MN harvest has been brought to a standstill by another round of rain. Longer term, it is the export outlook that will drive US prices. A US/China trade deal is needed for any lasting rally, but prices are cheap and some macro traders are fearing inflation.
- Dec corn rallied 7 cents and tested chart-based resistance at $3.57. Exports sales through the week ending Sep 13 were a healthy 54 million bu. We note that exporters need to average just 35 million per week to meet the USDA’s annual forecast. Otherwise, there is not much market-specific news. Speculative investors view corn as being too cheap (and we agree). Funds bought an estimated 28,000 futures contracts. Gulf corn is the world’s cheapest feedgrain, basis fob and holds a discount of $3-5/mt into Asia vs. Argentine. It remains that European feed operations are struggling to find supply, and we expect EU corn futures to rally to levels that make imports attractive. Dec corn is hovering at the same levels of last year in late Sept while US and world stocks are much tighter. Crude has maintained support above $70, and the incentive to produce/consume biofuels worldwide will be rising as crude’s rally is structural. A US 2018 corn yield of 178 bushels/acre would justify a rally in December corn to $3.75-3.85.
- US and EU wheat futures ended slightly higher. There is not a lot of fresh news available, but drought will continue to deepen across the EU, Australia and regions of the Black Sea. What needs monitoring are chart patterns with futures pushing against major chart-based resistance. A solid weekly close is needed, but the issue ahead is whether bull flag patterns are forming. The EU market is on the cusp of breaking out to the upside. US weekly US wheat export sales totlaled 17.2 million bu, not exciting, but the largest in five weeks. White wheat sales were the largest of the marketing year as importers worry about Australia’s availability. Better US exports are needed to attract consistent fund buying, but following further Aussie yield loss this week, we are confident that this demand is in the offing. A bullish wheat outlook is advised, until it’s confirmed world producers have added 12-14 million acres in early 2019, fair value lies between $5.00-6.50 basis spot Chicago. Highs are projected in Q1 2019.