- Grains headed into the weekend with corn down 1 and beans up 14 on the week.
- Argy weather still in the crosshairs as traders closely watch weather models
- Bean export deals uninspiring
- Corn demand rock solid
The focus continues to be on Argentina where the drought is showing no real signs of improving. The crop is in the critical phase of the growing season so time is running out to reverse the damage. Some modest rains of 1 inch are expected in fringe areas of the grain belt next week, but wide coverage is not expected. Crop losses there could be steep. This week the two grain exchanges pegged soybean production at 46.5-47.0 MMT off from USDA’s Feb forecast of 54 MMT and corn at 35-37 MMT vs USDA at 39 MMT. They noted that irreversible damage has occurred and abandonment rates are certain to increase.
But on the bear side for beans, US export deals continue to be uninspiring. This week saw net cancellations for old-crop sales, and cumulative bookings are about 9% off the normal pace of sales to meet USDA expectations. Current bookings are 13.7 MMT away from the final year-end estimate, and while we did see an export surge in previous Argentina drought years of 2009 and 2012, that new business amounted to only 9.5 and 11.5 MMT. So it could be a stretch to reach USDA’s total. There was some USDA flash sale announcements on Thur/Fri for soybeans for 200,000 MT combined, but half of the biz was for new-crop 2018.
Corn demand is much more promising. Exports are rock solid with another strong week of 1.5 MMT, marking the 6th consecutive week of better than 1 MMT. In fact, you have to go all the way back to 2007 when corn sales for a 6-week period have been this brisk, totaling 10 MMT in that time window. Export pace is running at 5% above the normal 10-year pace to reach USDA’s annual projection of 2,050 MB. If kept in tact that would mean an extra 100 MB tally added on to exports for 2017 and old-crop ending stocks fall by a similar amount. For ethanol, output this week showed a strong uptick as well to 1.068 million barrels vs 1.016 million barrels last week. Ethanol margins have improved in recent weeks and export business for ethanol is picking up. On Friday after the close, USDA’s Cattle on Feed number was slightly higher at 108% of last year vs market expectations of 107%. Placements were again the surprise in the report coming in at 104% versus expectations of 100%. That’s keeping corn demand robust.
USDA’s Outlook Forum gave traders a first glance of expected 2018 S&D numbers. On acreage, USDA pegged corn and bean plantings at 90 million acres both a fraction below 2017 plantings. But carryout numbers projected for the end of 2018 were quite different than some pundits have been suggesting. USDA looks for a contraction in soybean carryout from 530 MB this year to 460 MB next year thanks to really strong exports. Meanwhile in corn they expect a modest downtick in carryout to 2,272 MB from this year’s 2,352 MB due to only 1,900 MB of exports, which would be a deep cut from 2,050 MB expected this year and 2,293 MB two years ago.
National Cash Market:
- Cash Basis in holding pattern
- River markets strengthening around corn demand and logistics constraints
- Basis to resume upward trajectory?
Cash markets continued to stagnate this week as basis was mostly unchanged to weaker. The only major action this week occurred along export sensitive routes as corn basis caught a bid. The Gulf and PNW markets each were up, gaining 5 and 7 cents respectively on the week. River markets followed suit with a 4.5 cent basis improvement. However, heavy rains and melting snowpack are likely going to cause barge problems in the coming week. Barge lines suspended operations on northern sections of the Illinois River on Thursday and several grain elevators along the lower Ohio River stopped loading barges because the rising river made it impossible for the vessels to get beneath grain spouts. For beans, basis levels were mostly flat at export origins and river terminals. Gulf basis continues to be soft as values trade at their lowest February levels since 2008.
For end users, there was little noticeable movement for corn or bean plants, although beans plants had a slight negative bias. Crush margin for soy plants have catapulted high, with values trading around $1.50 a bushel vs $0.85 a bushel last fall. With Argentina’s #1 position for soymeal exporting in jeopardy there should be considerable interest in the latter half of the marketing year for US meal supplies.
Basis levels for corn should start to perk up as we get closer to spring. The board rally in the last month has helped end users meet their needs but as flat prices stall out this should put the onerous on buyers to bid up basis to keep their needs met.
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