Weekly Market Recap from Joe Lardy, CHS Hedging, September 3rd 2018

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Grains

The USDA reported its farm aid package will give producers credit on 50% of their 2018 production. Corn producers will get 1 cent/bu, wheat producers 14 cents/bu, and soybean producers get $1.65/bu. A Nafta agreement has been reached with Mexico.  Canada and the US appeared to be making significant progress towards an agreement when an off-the-record quote from President Trump derailed the whole thing.  It will be interesting to watch how the negotiations unfold next week.

Corn

The USDA Crop Progress report showed corn condition unchanged at 68% good/excellent. Corn Dough was reported at 92% vs the 5-year avg of 84%, Corn Dented was seen at 61% complete vs the 5-year avg of 42%, and Corn Mature was reported at 10% compared to the 5-year avg of 5%. Corn export sales had been strong for a while, but this week they were very disappointing at only 6.9 million bushels.  The previous 10 week stretched averaged 16.2 million bushels.

Wheat

China will release state wheat reserves after bad weather curbed output in major growing areas this year, an official at the country’s grain administration said. China is set to lower the price for some of its wheat stocks in September according to the NGTC. This is the first cut in price since they began stockpiling wheat over 10 years ago. Depending on the volumes, this could certainly play into the perceived global wheat shortage for this year. The lowest price for the most recent GASC tender was $221.51 per ton for 55,000 tons of Russian wheat. Russian wheat export prices have been falling over the last week. Russia’s Ag Minister is to meet with Russian exporters to discuss the 25mmt export limit as it appears Russia’s domestic users have been expressing concern over the rapid export pace so far. As a result, market fear that Russia will impose an export tax or limit exports is supportive.

The USDA Crop Progress report showed spring wheat harvest at 77% complete, up from 60% last week, and the 5-year avg of 61% complete. Wheat export sales continue to be poor.  Sales need to average about 17 million bushels a week, and so far this marketing year we have eclipsed that mark only twice.

Soybeans

The Chinese have sold 1.33 mmt of soybeans from state reserves in auctions this year. Industry officials are estimating India’s soybean output is going to hit 10 mmt for 18/19, a 20% rise year over year.

Nothing positive on the Chinese tariff situation. President Trump is planning to add $200 billion in new tariffs as early as next week. Chinese buyers, as reported by Reuters, evidently left an annual US soy exporters conference in Kansas City without any official frame contract promise as has happened in previous years. Mexico is reported as having promised to buy some US soybeans. Crop Progress reported soybean condition at 66% good/excellent, up 1% from last week. Soybean Setting Pods was seen at 95% complete compared to the 5-year avg of 90%. Soybean Dropping Leaves was reported at 7% compared to the 5-year avg of 4% complete.

 

Livestock

China has announced a 5th case of African swine fever. This disease is lethal and the only real treatment to stop the spread is to cull the entire herd and set up a quarantine area. The Chinese government has put the country on high alert and called in police to test animals to stop the spread. There is a very low chance that US exports will increase because of this, but it is a headline that gets attention, so we must be mindful of that.   The Chinese Ag ministry has reported that of the 20,000 samples they have taken, all are negative for African swine fever, but they cannot rule out the possibility of more outbreaks. They are claiming the outbreaks came from outside the country. It is now being reported that the African swine fever impacting China has migrated to the Korean peninsula.

Energies

OPEC and some non-OPEC producers are set to establish a framework where members would collectively coordinate oil policy. “The major issue during the next OPEC meeting will be whether producers are really ready to pump more oil to compensate Iran’s share,” the head of Iraq’s state oil marketer SOMO said. AAA is reporting the average price for a gallon of gasoline at the pump at $2.838 per gallon. Last week the average price was $3.857 per gallon. The record high price was seen July 7, 2018 at $4.114 per gallon. 

Financials

The Argentine Peso has devaluated very sharply the last 2 days. The Peso vs the US dollar is the weakest it has ever been. The Argentinian Central Bank raised its interest rate from 45 to 60% overnight to try to control inflation which is now running at over 30%.  The President also asked the IMF to speed up a $50 billion bailout package.  Grain export taxes were being reduced a little bit each month, but the government has frozen the reductions in order to keep as much tax revenue flowing in as possible.  Argentina is the world’s biggest soybean meal exporter.

 

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