A week that started with fireworks ended with a fizzle. By Friday’s close, corn and wheat continued their downside bias losing 6 and 20 cents while soybeans finished the week on a 5-cent decline.
Early in the week the trade got excited with weather that showed more dryness in store for parched soils in Argentina. By later in the week the market failed to hold the gains not so much on changing forecasts but more on the reality of a market filled with big supplies and active sellers above the $10 mark. Nonetheless, the market will likely keep some leaning to the upside as La Nina weather conditions look to persist at least for the next few months, possibly giving a drier bias to parts of South America. Some weather forecasters are even starting to suggest that the La Nina could persist into the US growing season which would signal greater chances of drought in the US, especially the southern Plains which are entering a prolonged dry spell. Key wheat areas of OK haven’t seen any measurable moisture for 6 weeks running.
In international news, Chinese domestic corn prices hit a 16-month high this week and traders expect corn imports to start occurring. While China still sits on a large 80 MMT corn stockpile, these stocks are of questionable quality and the country is running a deficit of 25 MMT in terms of domestic use versus production on the year. Add on to that the ethanol mandate in China which will require an extra 35 MMT of corn to produce the needed biofuel (either in China or abroad), it appears the longer term global glut should reverse course.
On the demand front US ethanol production continues to post solid numbers. Production was a new record up 4% at 1.108 mil bbl per day but margins for ethanol producers continue to be weighed down by huge ethanol stocks. As for exports, soybean deals topped 2 MMT for the first time in 6 weeks. However, with only 36.3 MMT booked so far versus 43 at this point last year, business will need to pick up sharply in the coming months to reach USDA’s expected 3% year-on-year growth. For corn sales were 876 TMT or 34 mil bu. That takes total year to date to 22.8 MMT vs 31.5 last year or 28% lower. USDA expects exports to be off only 16% on the year.
For wheat, the major driver to the downside this week was news out of Canada where the crop there was pegged at 29.98 MMT much higher than expectations of 28 MMT. In the US cash basis levels for protein continue to be sky high as the disconnect between board & physical values continue to widen.
In the cash market we saw strong gains for corn with basis popping 5 cents a bushel but beans languished with only a fractional boost on average across the country.
Export basis premiums at the Gulf continued to fuel the rally as basis bids there were up 6 cents on the week. This helped lift river terminals by 4 cents on the week with the biggest strength along the OH River which had recently experienced shipping delays due to lock closures in KY. For ethanol plants they posted a 6-cent advance on the week, and 15% of the plants across the country had double digit gains. The biggest strength was in the Southeast were feed buyers posted strong gains on the week.
For soybeans there was little upside in the market as the early week rally in futures helped give the cash pipeline fresh supplies. Gulf bids were off 2 on the week which filtered upstream to river terminals. Soy crushing plants were mostly flat on the week.
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