#Grain #Futures Comments

-US/China “truce” brings optimism back to ag markets
-Australia lowers wheat crop estimate
-USDA Oilseed Crushings report this afternoon
-Brazilian soybean crop ideas ticked higher
-US wheat lowest in Iraqi tender
-CME ag markets open Wednesday – financial markets closed

 

CME announce interest rate and equity markets will be closed on Wednesday in observance of President George H.W. Bush’s passing, but ag markets will trade regular hours.

 

ï‚· Quotes from this President Trump and/or various White House officials following this weekend’s meeting with Chinese President Xi: “was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.†China would purchase “a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries,” “China has agreed to start purchasing agricultural product from our farmers immediately.” The truce has been called. The devil is still very much in the yet-to-be-determined details, though. The threat to further raise import tariffs on Chinese products effective Jan 1 has been taken off the table as the 90-day truce/negotiating period commences. This morning, Treasury Secretary Mnuchin said Trump will lead the negotiations along with several Cabinet members and that the U.S. has received a commitment from China there will be a “real agreement†to address the U.S. trade concerns. The general line of thought is that China may make initial state (Sinograin) purchases of U.S. soybeans for reserve purposes, but there remains concern/doubt that purchases can/will be made in larger scale by private Chinese crushers as long as the 25% import tariff on U.S. ag products officially remains in place. A change/elimination of the 25% import tariff is what the market would really like to see sooner than later. There is absolutely no denying that this weekend’s developments were better/more optimistic than expected going out on Friday and it likely does set the table for some level of soybean purchases to be made in the near term, which will keep the market optimistic, and likely well supported, for a longer-term and more substantive improvement in U.S. soybean exports moving forward. However, what must be kept in mind is where we currently stand in terms of export demand so far relative to the USDA’s export projection. Over the first 12 weeks of 2018/19, soybean export sales averaged 21.2 million bushels/week in the absence of Chinese buying, including the one sizable sales week of 53 million bushels in late September. Without that week, sales have averaged just 18.4 million bushels/week. With most of the non-Chinese demand being supplied by the U.S., if we were to assume no exports to China this year and steady non-Chinese sales continuing at an average of 20 million bushels/week throughout 2018/19, total exports would be on a pace to reach only around 1.630 billion bushels vs USDA’s 1.900 billion bushel export projection. The 270 million bushel difference equates to roughly 7.5 MMT in sales which could be made to China and potentially not materially impact the USDA’s export projection. If the 25% tariff gets removed and private crushers return to buying U.S. soybeans, the potential for exports proving larger than the USDA’s current estimate would clearly have to be reconsidered once again. On the other hand, the USDA’s current 2018/19 ending stocks estimate of 955 million bushels is more than double last year’s 438 million, with the currently-projected 517 million bushel stocks increase equating to 14 MMT of soybeans. We don’t want to downplay the importance of this weekend’s developments, as they absolutely were substantial and a likely game-changer in terms of market perspective/psyche, but soybeans are now back above the 2017 lows of near $9.00 and yet export demand of more than 20 MMT would likely be needed to bring 2018/19 ending stocks back near last year’s levels.

 On a final note regarding the Chinese situation, the comment of them buying a “substantial amount of agricultural†products is also creating optimism/hope of potential corn, wheat, ethanol, DDG purchases, as well, as it’s all “light at the end of the tunnel†vision this morning.

 Australia lowered their estimate of this year’s wheat crop to 16.95 MMT from 19.1 MMT last estimated in September and is modestly below the USDA’s last estimate of 17.5 MMT and would down from last year’s 21.3 MMT and a 10-year low.

 U.S. wheat was the lowest offer in Iraq’s recent tender at $320.31/tonne c&f, with the lowest Australian offer being $344.50. 400k tonnes of U.S. wheat was offered from $320.31-$329.75, while an optional US/Canadian 50k tonnes was offered at $327.00/tonne.

 The USDA will release the monthly Oilseed Crushings report this afternoon, providing U.S.-wide crush/product data for October. The average trade estimate of October crush is 182.9 million bushels (181.0-184.4 million range) vs 169.3 million in September and would be up 4.0% from last year’s October crush of 175.9 million. The average estimate reflects total crush 6.1% above NOPA’s crush for the month, which is right in line with the average difference over the most-recent 5 months. The average estimate of end October soybean oil stocks is 1.909 billion pounds (1.710-1.985 billion range), which would be down from Sept stocks of 1.990 billion, but still solidly above year ago Oct stocks of 1.626 billion pounds. The average estimate reflects total stocks 27.0% above NOPA-reported stocks of 1.503 billion pounds, which is below the 29.9% difference in Sept and would be the smallest deviation in 7 months as U.S.-wide stocks have averaged 31.4% above NOPA stocks since April.

 Late Friday, AgRural raised their estimate of the coming Brazilian soybean crop to 121.4 MMT from 120.3 MMT previously and would be up slightly from last year’s 119.8 MMT.

ï‚· USDA reported the sale of 147.5k tonnes of soybeans to unknown for 2018/19 delivery this morning.