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Morning Market Review for Jan. 23, 2020

Global wheat and corn demand support higher overnight prices. (Comments are updated by 7:30 a.m. Central Time.)

Chinese demand and South American production cap upward price potential

  • Corn up 1 cent
  • Soybeans down 4-5 cents, soyoil down $0.4, soybean meal unchanged
  • Wheat up 2-3 cents

*Prices as of 6:10am CST.

Please note: USDA’s weekly export sales report usually due out on Thursdays will be released tomorrow due to last Monday’s holiday.

Corn: March futures gained a cent overnight to $3.8975 while May futures rose half a cent to $3.9475. Cash corn prices were steady to weaker on Wednesday as processors in Texas lowered their basis $0.02. Basis remained strong at $0.83 over at these locations despite slightly weakening.

U.S. corn exports are beginning to pay the price for a wet harvest as Asian feed buyers have started to source higher quality corn from Ukraine due to the poor quality of last fall’s harvest. Shipments to the Pacific Northwest en route to Asia have seen an increased amount of number three and number four grades of corn while higher quality number two grade corn in the U.S. Gulf is increasingly cost prohibitive for most Asian exporters. As a result, Ukraine has been able to capture the Asian market as their exports soared 118 million bushels higher than the same time in mid-January of last year. Supplies of higher-quality corn will remain tight until South America begins harvesting in March.

The Energy Information Administration will release their weekly Petroleum Inventory report today. Weekly production was up 3% last week following two straight weeks of decreases. The four-week average of fuel ethanol production has risen steadily at a rate of about 294,000 gallons per day week over week in the past eight weeks. A continuation of this trend could provide a glimmer of hope for domestic corn demand as well as futures prices.

Soybeans: Uncertainty about soybean purchases from China led March soybean futures $0.0425 lower to $9.095 prior to the opening bell. Reduced demand from India following the country’s import ban on Malaysian palm oil drug palm oil prices lower in afterhours trading. March soybean oil futures prices fell $0.4 to $32.63 as a result. March soymeal futures were unchanged at $297.90.

Cash soybean prices strengthened across the Midwest on Wednesday as basis rose $0.05 at Indiana and Ohio terminals and up a cent on an Illinois River location. Markets moved to incentivize farmers to bring grain to market amidst lagging grower sales.

Brazilian weather through February and March is forecasted to be warm and will see below average rainfall. This forecast bodes well for soybeans planted on time but less so for second crop corn planting. Late planted soybeans in the Center West and Northeast may be most at risk for decreasing soil moisture levels. Markets will be closely watching for news of reduced soybean yields as harvest approaches in these areas.

China continues to play a waiting game with any potential soybean purchases. Futures prices will likely see little movement on trade going forward unless China books soybean sales. China has not made any purchases of soybeans since before signing the trade deal at the White House last week. Tomorrow’s weekly export report will be closely watched for any significant export activity from China.

What is the potential of the Phase 1 trade deal with China to provide price stability to U.S. soybean producers? Bryce Knorr evaluates the likelihood of increased Chinese purchases in the Ag Marketing IQ column for soybean growers interested in the direction the trade agreements may take the markets.

Wheat:

Wheat contracts price changes

Tightening global supplies and a weaker dollar helped wheat regain momentum overnight after yesterday’s losses, led by Chicago and Minneapolis wheat futures. The ICE Dollar Index dropped 0.03% in overnight trading to encourage wheat higher this morning.

Wheat basis strengthened a cent at a Texas rail facility on Wednesday. Basis in Texas for hard red winter rate now ranges from $1.02-$1.65 ahead of nearby March futures prices. Cash prices were stable elsewhere across the Plains and Midwest. Farmer sales slowed as futures prices retreated yesterday. Protein premiums on hard red winter cash wheat delivered to or through Kansas City were unchanged from yesterday, as shown below:

wheat protein content, basis range, change

The month-long public transport workers’ strike in France continues to prevent grain from reaching terminals despite rising cash prices. Some 16.5 million bushels of grain worth an upwards of $111 million remains trapped in French ports as the strike drags on. Buyers are beginning to consider alternative sources of cheaper grain in the European Union, eroding French wheat futures prices.

Increased Egyptian demand and a proposed export quota fueled seasonal highs for Russian wheat last week. Some buyers of Russian wheat may turn to Ukraine should the quotas prove too restrictive to international demand. Abnormally warm and dry weather does not seem to be significantly impacting yields though the markets will closely monitor soil moisture levels to ensure production forecasts.

Jordan issued a tender to purchase 4.4 million bushels of hard wheat yesterday. It requests the total be split into separate 2.2 million-bushel sales to be delivered in August and September. The tender closes next Tuesday.

Japan also issued a tender to purchase wheat from the U.S. and Canada. The regular tender requests 3 million bushels of food-grade wheat from the U.S. Japan issues tenders for milling wheat about three times a month.

Weather:  Rainfall is more favorable in Argentina in February and March, though models are showing high variability of the total amount. Temperatures will trend on the cooler side of normal which should not significantly impact corn and soybean yields, though wet corn could be a risk if wetness lingers into early-planted corn acres.

A snowstorm will continue to batter the Western Corn Belt through Saturday morning. Total accumulation will vary between three and eight inches through much of the Upper Mississippi Valley while the Southern Plains and Southern Mississippi Valley could see up to an inch of rainfall today according to precipitation estimates from NOAA.  The system will push east into the Ohio River Valley and onto the Northeast where a rain-snow mix will be likely by Saturday afternoon.

Financials:  Concerns over the rapid spread of the coronavirus outbreak in China halting global economic growth weighed significantly on global stocks overnight. Increased travel restrictions and quarantines ahead of Saturday’s New Year celebrations will likely reduce consumer spending, sending Dow futures 23 points lower in overnight trading.

On a positive note for the overall economy yesterday, December 2019 sales of total existing homes increased by 540,000 from December 2018 to 5.54 million sales. Median home prices rose to $274,500 in December, which was a $19,800 increase from a year ago. The results were slightly higher than analysts’ expectations and were indicative of other sources of economic strength, such as low unemployment and wage growth. However, the demand uptick comes at the price of availability as units available this December decreased by 130,000 units to 1.4 million units on the year.

Energy prices continued to trend lower on the fear that the coronavirus outbreak would curb Chinese demand as travel restrictions are enforced ahead of the Lunar New Year holiday. The March light crude futures price lost $0.93 to $55.81 as a result.

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