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Morning Market Review for Feb. 18, 2020

Reduced Australian harvest sends Chicago wheat soaring. (Comments are updated by 7:30 a.m. Central Time.)

Reduced Chinese tariffs, 12-year low Australian wheat harvest send grain prices higher

  • Corn up 2-4 cents
  • Soybeans up 1-2 cents, soyoil down $0.03, soybean meal up $0.9
  • Wheat up 8-12 cents

*Prices as of 6:50am CST.

China announced early Tuesday morning it would begin accepting applications for tariff exceptions on 696 U.S. products including agricultural and energy products. The announcement comes as the Chinese economy has stalled amidst combatting the deadly coronavirus outbreak. U.S. farmers have been waiting for positive trade news out of China since the Phase 1 trade agreement was signed over a month ago.

Corn: March futures prices rose on the optimistic trade sentiments with China, up $0.03 to $3.8075 in overnight trading. May futures followed higher as well, rising $0.0275 to $3.8475.

Cash corn prices rose at processing facilities and elevators last week but fell at several rail locations. New sales were relatively light through last week as many farmers were content to leave their crop in storage until they saw a substantial futures price rally.

CFTC’s Commitment of Traders report was issued last Friday. Speculators added 10,939 short positions to the week ending February 11 to increase their net short position to 72,084 contracts following a week of futures price declines due in large part to lower than expected export demand.

China purchased between 7.9 million and 19.7 million bushels of corn from Ukraine last week, a move that does not bode well for American corn producers following the January signing of the Phase 1 trade deal. Pricing was estimated between $5.39-$5.46/bushel c&f to be shipped in February or March of this year.

South Korea issued a 5.3 million-bushel tender for corn to be purchased from optional origins overnight. The shipment was expected for delivery in South Korea by June and was expected to be sourced by South America or South Africa.

Soybeans: Renewed prospects for Chinese agricultural purchases to offset the economic impacts of the coronavirus outbreak led March soybean futures prices $0.015 higher to $8.9525 following the holiday weekend. The Chinese government is in talks to purchase U.S. agricultural products by early March to solidify promises made in the Phase 1 trade deal, though no official details have been released.

March soybean meal futures followed prices upwards, gaining $0.9 to $292 overnight. March soybean oil futures were down $0.03 to $30.54 in afterhours trading, following palm oil prices which slipped on higher than expected output and lower demand from China.

Cash soybeans strengthened across the Midwest last week as slow farmer sales caused terminals to raise basis to attract more soybean bushels to market. Soybean basis generally remains below March futures prices, but last week’s cash market rally found a few locations across the Corn Belt posting basis prices slightly ahead of futures prices.

Speculators added 12,044 short positions to soybeans in the week ending February 11 in last Friday’s Commitment of Traders report despite a slight uptick in March futures prices over that time. Managed money remained net sellers of soybeans by 92,172 positions. Hedge funds added 5,872 short positions to their net selling position on soybean meal, raising the net position to 68,150 contracts. Speculators remained bearish on the soybean complex last week due in large part to the economic impacts caused by demand reduction in China due to the coronavirus outbreak.

The hedge funds moved more bearish on soybean oil in last week’s report, trimming 8,968 long positions and adding 6,249 short positions on the week. Speculators remained net buyers of soybean oil but ended with a tighter net position of 52,669 contracts due in large part to falling palm oil prices as demand reductions due to the Chinese coronavirus and Indian import ban continue to send the vegetable oil complex lower.

The Brazilian soybean harvest is 21% complete. Progress is in line with the five-year average but remains about 15% behind last year’s completion pace following a delayed planting season due to heavy rainfall. The record-breaking harvest has already resulted in historic yields in several key soybean-producing states except Rio Grande do Sul due to dry conditions this growing season.

Protests over high taxes on gasoline and diesel fuels took place at the Santos port in Sao Paulo on Monday. While protests had not disrupted the flow of goods to market, particularly soybeans, U.S. farmers will be watching President Jair Bolsonaro’s proposed tax decrease legislation as unsuccessful passage could result in higher shipping costs for Brazilian soybean producers and in turn make U.S. soybeans more attractive. Santos is the largest port in South America and moves the most soybeans and corn out of Brazil.

Wheat:

Wheat contracts price changes

Chicago wheat futures rose overnight after Australian production estimates came in nearly 25 million bushels lower than anticipated for the 2019/20 year following a severe drought. The 557 million-bushel crop is the lowest harvest seen by Australia since 2008. The ICE Dollar index provided a cap on gains, trading 0.14% higher this morning.

Cash prices for both soft and hard winter wheat saw slight weakening last week in a couple locations following the futures prices in Chicago and Kansas City lower. The weakened cash prices in addition to falling futures prices deterred farmers from making any significant sales going into the long weekend.

Protein premiums on hard red winter cash wheat delivered to or through Kansas City by rail were unchanged over the weekend, as shown below:

wheat protein content, basis range, change

After adding 4,316 short positions on the week ending February 11, speculators were still net buyers of Chicago wheat futures to the tune of 45,940 positions despite falling futures prices during that time. Speculative traders were surprisingly bullish on Kansas City wheat in last week’s report, adding 1,513 long positions following a week of sideways trading. Managed money held on to their net long position on Kansas City wheat by 10,479 contracts. The hedge funds were even bearish on Minneapolis wheat, adding 1,513 long positions to end the week as net buyers by 10,479 contracts.

European Union wheat continues to reap the benefits of a falling euro. The currency dropped to a near three-year low against the dollar. The windfall comes as the competing Black Sea region wheat prices dropped amid strengthening Russian production forecasts for the 2020 crop and falling U.S. wheat futures prices. The resulting market conditions make European Union wheat increasingly attractive on the global stage.

The U.S. wheat market saw some strong international demand over the holiday weekend.

  • Morocco issued a tender yesterday to purchase 13 million bushels of durum wheat from the U.S. as part of a preferential tariff import quota for delivery by the end of May. The tender deadline is March 5.
  • Taiwan issued an international tender on Saturday to purchase 3.8 million bushels of milling wheat. The tender closes on February 21, at which time more details will be announced.
  • Japan issued a regular tender overnight for 3.4 million bushels of wheat to be sourced from the U.S. and Canada for several wheat varieties. The tender will close on Thursday.

Turkey received an offer on a 9.2 million-bushel tender for red milling wheat on Tuesday at $6.06/bushel c&f from international trading house Dreyfus. The purchase has yet to be finalized.

Weather: The Corn Belt will see mostly clear weather by this evening and well into Thursday according to NOAA's short-range forecast. The South and East will see significant rainfall as a low-pressure system moves across the eastern half of the country. An Arctic blast will chill the upper Midwest today through Thursday as temperatures begin to warm after Thursday morning.

Financials: The optimistic news about the reduced Chinese tariffs did not offset concerns about disruptions to the Chinese supply chain due to the coronavirus outbreak. Apple issued a warning last night foreshadowing potential revenue losses due to reduced manufacturing production and logistical jams in China. Dow futures slipped 170 points or 0.58% to 29,225 points on the sentiment. Energy futures traded lower as well. March ultra-low sulfur diesel prices posted one of the largest losses ahead of the opening bell, down 2.23% to $1.6982/gallon.

Charts:

2-18 - Graphic 1 - Corn.PNG

2-18 - Graphic 2 - SB.PNG

2-18 - Graphic 3 - SRW.PNG

2-18 - Graphic 4 - HRW.PNG

2-18 - Graphic 5 - MN Wheat.PNG

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