July 18, 2019

USDA Sees Big Yields for Corn and Soybeans

Good Morning! From Allendale, Inc. with the early morning commentary for September 13, 2018.

Grain market traders were shocked with the numbers USDA is using in their September S+D. However, it seems to be a time where end users are willing to take some coverage in corn and wheat. Looking ahead for the balance of the month headlines will determine the trend in soybeans with any movement in trade negotiations between US and China providing support. Harvest results will also be a feature for grain traders as the question on everyone’s mind; is the yield really as big as the USDA forecasts?

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USDA September Supply and Demand surprises trade with a record corn yield of 181.3 bushels per acre and a soybean yield of 52.8 bushels per acre. However, increased production was offset by increases in domestic demand. Stock to use ratios for corn of 14.2% remains well below 2017/18 ration of 18.19%. Soybeans have moved in the opposite direction, 2017/18 stocks to use ratio was 9.1% and 2018/19 ratio currently is projected at 19.8%.

Rich Nelson, Allendale’s Chief Strategist says, “USDA has raised corn yields from Aug to Sep in 9 of the past 20 years. Of those 9 years, there was another increase from Sep to Final in 6 years.”

USDA Weekly Export Sales report will be released at 7:30 am today. Trade estimates are wheat 300,000 to 500,000 mt, corn 800,000 to 1,200,000 mt, soybeans 500,000 to 1,000,000 mt, soybean meal 100,000 to 300,000 mt and soyoil 0 to 20,000 mt.

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Hurricane Florence is expected to influence crop production along the Atlantic coast especially in North Carolina. The damage and recovery time to get back to normal will be a concern for traders as the balance of week unfolds.

Funds were estimated to have been net sellers of 47,000 corn contracts and 11,000 wheat contracts. They were thought to have been net buyers of 9,000 soybean contracts on Wednesday.

Canada’s Foreign Minister is in Washington with plans to continuing talks on a NAFTA solution. A final decision is not expected but the hope is getting closer to an agreement.

U.S. ethanol production for the week ended 9/07/18, plunged to 1.020 million barrels/day from 1.087 the week prior and was 2.6% below last year's same-week production. Additionally, last week's production was the lowest in 21 weeks. With the new corn marketing year just underway, based on the USDA's 2018/19 corn for ethanol usage estimate it would suggest an ethanol production increase of 1.3% over last year.

Economic traders will be watching for any adjustments in interest rates by the European Central Bank. Announcement today at 6:45 CT in a press release and US August CPI will be released at 7:30 this morning.

Cash cattle trade is expected to be steady higher this week. Feed Cattle Exchange auction yesterday offered 444 head however all went unsold. Packer margins remain at level that keep chains running as fast as possible. However, trade is still worried that retail prices will drop sharply as its history suggests.

October live cattle futures closed sharply higher on Wednesday however with in recent trading range. Resistance crosses at 112.15 and support at 108.50.

Swine Fever outbreak in China continues to spread. Authorities there are controlling movement of hogs from large producers but site problems from small farmers which make up 42% of production.

Lean hog futures are currently at a premium to the cash index vs. the 5-year average has December futures at a discount of $10.00. Is the hurricane moving on shore in the Carolinas the reason for the change from normal? Packers have been running aggressive production ahead of the storm which is projected to affect 10% of the North Carolina hog processing industry.

December futures are in a near-term uptrend with support at 52.50 and resistance crosses at 57.60.

Dressed beef values were lower with choice down 1.28 and select down 1.04. The CME Feeder Index is 152.63. Pork cutout value is up 1.62.

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