Grain markets this week were mostly lower as complex continued to trade sideways. They faltered on Friday with a strong US employment data report and poor US export sales from last week. US corn sales dropped 22% from the week previous, wheat export sales were down 85%, and soybeans were down 69% week-over-week to a marketing year low! That being said, basis for corn and soybean has been relatively steady to higher, supporting cash prices.

20151013_corn augerWhile managed money covered a lot of wheat shorts last week, there was expectation more of that could happen this week (and it appeared to come to fruition). However, there’s speculation that the only reason wheat markets have enjoyed some higher pops are because hedge funds are getting out of their short positions, meaning as soon as that’s through, prices will pull back again.

The rest of the fund positioning was relatively quiet except for soymeal, which saw a sell-off because of concerns over China pushing more of its own domestic feedstuffs into the market there (AKA less feed imports) and because of the “bombastic” headlines declaring processed meats cause cancer, which affects pork more than beef.

On that note, US ethanol production has increased as of late, with 969,000 barrels of the biofuel being manufactured last week, which is more than 2.6% above the previous week & well ahead of market expectations. With margins fairly decent, it’s expected that production will remain near the highs likely through to the end of November (it’s not like there’s not a lot of corn available or something…).

Looking ahead, fertilizer company CF Industries is already forecasting US corn acres to rise next year, pegging the number at 90.5M acres. This would represent a 2.1M-acre increase from this past year and is above the USDA’s long-term estimate of 90M acres, but below Informa’s forecast for 90.8M acres. That being said, the company also noted that fertilizer demand is expected to be slightly higher in 2016 with the increase in corn acres, albeit not by much.

A few major grain companies reported their quarterly earnings this week and executives at multiple firms are admitting that farmer selling around the world has been slow except for in South America and the Black Sea regions. Accordingly, there are strong expectations that farmers will start to blink sometime in 1Q2016 as cashflow needs for the spring 2016 seeding season will be a priority.

On Tuesday, November 10th, the U.S.D.A. will put out the monthly update of its world agricultural supply and demand estimates. In the October report, the U.S.D.A. pegged the goalposts at 13.555 billion bushels off a 168 average corn yield and 3.888 billion bushels of soybeans at a 47.2 bu/ac average yield. If history is any indicator and I was a betting man, we might expect higher soybean yield estimates, but lower average yields for the U.S. corn crop.

That being said, INTL FCStone and Informa put out their forecasts seeing the US corn crop at 13.543 and 13.718 billion bushels respectively at 168 and 170.1 bu/ac average yields For soybeans, FC Stone is forecasting U.S. production at 3.917 Billion bushels off 47.5 bu/ac average yield whereas Informa is estimating 47.9 bu/ac for 3.952 Billion bushels.

In the Land Down Undaa, while eastern Australia is getting some rains, Western Australia is getting served up some frost and, a bit of hail previous to that. As a result, Australia’s biggest grain handler, CBH Group, downgraded the grains harvest in the region by 500,000 tonnes to 13 million tonnes, although that would still be above the 10-year average production number. The real question that needs to be answered is how much difference in the dry weather in Western Australia make up for the forecasted wetter conditions in Eastern Australia?

Rains fell all last week across the US Southern Plains, welcomed by the freshly-planted winter wheat crops down there. Canada also got some rains which helped the winter crops as well. The wet weather will have obviously slowed the rest of the American corn and soybean harvest, and, more intuitively, added to the costs of taking the crop off as now there’s drying fees involved for many. However, many areas are reporting that grades and bushel weights have been below ideal so the rain may be welcome on a few of the remaining fields! More than anything though, the precipitation will certainly be welcomed by those areas in Western Canada and parts of the northern U.S. states as soil moisture going into Plant 2016 is going to be questionable in a few areas!

Over in Russia, the Ag Ministry there reports that at least 25% of their fall-seeded crops are in poor condition thanks to a lack of rain this fall, yet 92% of the planned acreage was in the ground at the end of October. As I’ve previously mentioned, a harsh winter would result in re-seeding in the spring with something other than wheat (i.e. corn). Comparably, next door in Ukraine, only 55% of the fall seeded crops (or about 8.7 million acres) has emerged, and only 69% of fields were in “good or satisfactory” condition. Ukrainian rapeseed crops are in the worst condition in the last 7 years with more than 1/3 of the crop considered “weak and thinned”, almost double than of last year.

Further, according to UkrAgroConsult, a little more than 14 million acres of wheat will go into the ground in Ukraine, a similar acreage number to 2004 and 2006 when just 16.5 million and 13.8 million tonnes of wheat was taken off, respectively. However, the data analysis company thinks that the 2016/17 Ukrainian wheat crop could yield closer to 19 million tonnes, but keep in mind that the Black Sea state took of 27 million tonnes of wheat this past year.

With only 27.2% of the wheat crop in “good” condition and 32% in the worst condition, it looks like Ukraine will surely see a decline in production year-over-year. Overall, lower wheat production out of the Black Sea might be just the news that the wheat market is looking for, especially considering the International Grains Council is only seeing planted acres in 2016/17 down a measly 3 million acres year-over-year to 546 million. With wheat acreage relatively steady, the only bullish stuff we should really be looking for in the market should be related to production shocks (likely as a result of weather issues!)

Related: Wheat Market Looking for News

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