Morning Comments – Monday August 29, 2016

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Buchheit Morning Comments from Dave Danker

Last week’s markets were sharply lower for corn, soybeans and wheat.    The energy markets were lower, financial markets lower and the Dollar Index was higher, closing the week at $95.48.  The US bond market weaker with the 10 Year Bond yielding 1.59% and the 30-year bond closed at 2.26%.  For the week, SEP Corn was 18 cents lower, closing at $3.1625, SEP Soybeans lost 36.25 cents, closing at $9.9075 and SEP wheat was 43.5 cents lower, closing at $3.835.  For the week, Crude Oil lost $1.05, closing at $47.34.  The DOW lost 156 points, closing at 18,397 and the US Dollar Index closed at $95.48, up $1.03.  September Heating Oil futures closed at $1.4932, down $0.0208 for the week.  CBOT closes in the NOV-DEC contracts were $3.25, $9.6725 and $4.075 for 2016 DEC Corn, 2016 NOV Soybeans and 2016 DEC Wheat, respectively.  JANUARY 2017 soybeans traded 35.25 cents lower for the week and settled at $9.6975.  MARCH 2017 corn closed at $3.345, down 19 cents for the week, MAY 2017 corn closed at $3.4175.  MARCH 2017 wheat lost 32 cents, closing at $4.32, MAY 2017 wheat closed at $4.4675, JULY 2017 wheat closed at $4.5575.  The Baltic Dry Index closed at 718, up 36 points from last week’s 682, a new all-time low for the index was set on 2-12-16 when the index hit 290, establishing a new low for the index stretching back thirty plus years.  The Baltic Dry Index is up 50.21% YTD. 

The Jackson Hole meeting of US and global economists, hosted by the Kansas City Federal Reserve was a market mover this week due to the comments of Federal Reserve Chairwoman, Janet Yellen.  Chairwoman Yellen indicated that the US economy is strengthening and that interest rate hikes are in the near future.  This news touched off a sharp rally and much volatility in the US Dollar Index.  The Dollar Index advanced sharply and that caused commodities to sell off.  Additional pressure was applied to the markets by the realization that we are most likely going to have record corn and soybean crops.

The ProFarmer Crop Tour released their estimates of corn production at 14.728 billion bushels (170.2 bpa) with a range of 1.7 bpa in either direction.  ProFarmer’s soybean yield estimate was 4.093 billion bushels (49.3 bpa) with a range of one bpa in either direction.  Some analysts are now touting the prospect of a national soybean yield as high as 52 bushels per acre.  This would dramatically alter the soybean carryout picture. 

Weakness in the global Palm Oil markets has pressured both Soybean Oil and Soybean Meal.  October SBM closed Friday at $318.20, down $9.20 for the week and down $100.50 from the high of $418.70 set on June 13, 2016.  With the high yields being discussed for the US soybean crop, one would think that soybean meal would continue to trade lower going forward.

The USDA WASDE report estimate for corn was 15.153 billion bushels and 175.1 bpa.  The estimate for soybeans was 3.929 billion bushels and 48.9 bpa.  The estimate for 2016-2017 US Ending Stocks was 2.409 billion bushels of corn, 330 million bushels of soybeans, 60 million bushels of grain sorghum and 1.100 billion bushels of wheat. The estimate for 2015-2016 US Ending Stocks was 1.706 billion bushels of corn, 255 million bushels of soybeans and 60 million bushels of grain sorghum.  WORLD ENDING STOCKS for 2015-2016 were estimated at 209.3 MMT for corn, 73 MMT for soybeans and 241.9 MMT for wheat.  WORLD ENDING STOCKS for 2016-2017 were estimated at 220.8 MMT for corn, 71.2 MMT for soybeans and 252.8 MMT for wheat.  Corn and wheat global ending stocks are expected to grow by 5.2-5.5% for corn and 4.5-5.0% for wheat.  Global Soybean Stocks are predicted to decline by 1.8 MMT (2.5-3%). 

Our Annual I-55 Tech Park Tour was held this past Wednesday, August 24th.  We shared the past year’s plot data and discussed the new genetics, herbicide programs and plant growth regulators.  We had several agronomy folks on hand to discuss genetic programs, herbicide programs and plant growth hormones.  I received many comments on how outstanding the soybean crop looked.  Most folks told me that the depth of genetic testing and the demonstration of different herbicide programs impressed them.  One thing that really stood out to me was the herbicide demonstration where we showed people how many weeds (Waterhemp) could come from 4-year-old seed in the soil seed bank.  We had kept that particular area free of weeds for the last 4 seasons and still had a large escape of weeds in the area where we did not use the Liberty and Scepter spray combination.  More information about our test plots is available on our website:  www.buchheitagri.com

The CIF markets are weaker for corn and soybeans.  Corn exports have moved up and wheat exports continue to be soft, with the off-spec HRW wheat taking over the damaged wheat and feed-wheat markets.  August corn barges are (58 bid – 61 ask) and September corn barges are (56 bid-60 ask), October corn barges are (60 bid- 65 ask), October soybean barges are (88 bid-91 ask) and SEP wheat barges are (40 bid-52 ask) and OND wheat (55 bid-80 ask).  Most CIF elevators are focused on corn and soybean programs with little regard for wheat.

Spec funds made significant changes to their final positions this week.  Significant long liquidation in soybeans and soybean meal combined pushed the soy complex markets lower, while short-selling pushed corn and wheat markets lower.  Specs added to their 66,000 contracts to their short corn position to create a short position of 196,000 contracts net short.  Spec funds removed 14,000 contracts from their long bean position to make it 89,000 contracts long.  The Specs added 5,000 contracts to their short wheat position of 118,000 contracts short.  The Specs finished the week, long 40,000 contracts of Soybean Meal.  University of Illinois economist, Darrell Good is predicting that we could have a 15-billion-bushel corn crop.  Other analysts feel that we could have a soybean crop above 4 billion bushels.  Both of these production levels are huge and would result in lower prices.  The USDA WASDE report on Friday morning confirmed Darrell Good’s prediction.  Darrell also authored an article on ear weights and how one should not be too quick to dismiss the USDA WASDE corn yield estimate.  You can check his article out at FarmDoc on the University of Illinois Ag Econ website. 

Brazilian soybean plantings will be up about 1.5%.  This is the smallest increase in soybean acres in years, due to tight financial conditions and the inability of many producers to pay off this year’s operating loans.  A leading South American soybean analyst feels that they will plant 33.7 million hectares (83.3 million acres) or roughly the same amount as the US farmers will in 2017.  Brazilian interest rates are very high with the subsidized Government loan rates at 8-12% and the private bank operating loan interest at 20%+.  Due to the tight finances, it appears that there will be only limited increases in corn planting in Brazil even though the central Mato Grosso corn price is above $4.70 and the heavy livestock areas are paying as much as $6.75 per bushel of corn.          

Most major foreign currencies were weaker versus the US Dollar.  The Euro finished the week at one Euro per $1.12 US$ (down 0.01).  The Japanese Yen finished the week trading at 101.85 per US Dollar (down 1.65).  The Russian Ruble finished the week trading at 64.86 Rubles per US Dollar (down 1.01).  The Brazilian Real finished at 3.27 per US Dollar (down 0.06).  The Argentine Peso closed at 14.99 (down 0.09).  The Canadian Dollar finished at 1.30 per US Dollar (down 0.01), the Mexican Peso at 18.60 per US Dollar (down $0.35) and the Chinese Yuan finished at 6.67 per US Dollar (down 0.02).                

Live Cattle futures were lower for the week losing $3.20 to $3.90; Feeder Cattle were $5.25 to $6.15 lower and Lean Hog futures were $0.60 to $0.90 lower.  August Live Cattle closed at $110.35, down $3.20 and October closed at $106.35, down $3.90.  September Feeder Cattle closed at 139.93, down $6.15 and October Feeder Cattle closed at $135.95, down $5.25.  Lean Hogs were lower.  October closed at $61.33, down $0.60 for the week.  Cash Hogs are called steady to $1 lower on Monday and Cash Cattle are called steady to $2 lower after late week trades at $175-179 in the beef and $112-113 live.  The Pork Cutout finished the week at $76.39, up $2.13 for the week.  Beef Feedlots are asking $114-116 in the South and $182+ in the beef after seeing some offers late week trade at $175-179.  Choice Beef closed at $199.73, down $1.31 and Select Beef at $194.03, up $0.77 for the week.  The Choice:Select spread ($5.70) has narrowed considerably from spring markets that saw the Choice:Select spread trade out to $26.00+.  The conclusion to be drawn from this spread narrowing is that we are having issues with the sale of the higher value middle meats and that we are still moving hamburger and the cheaper cuts fairly well.  The biggest risk to Feeder Cattle prices was the possibility of a summer drought that dramatically increases feed costs.  This perceived risk is rapidly fading away with every rain shower and additional day without extreme heat in the Corn Belt.  With blockbuster corn crop estimates by USDA and ProFarmer, cattle feed costs should be headed lower.      
Be sure to check out our website at www.buchheitagri.com and see the marketing information available.  If you scroll down on the front page you will find our market info page supported by AgriCharts.  If you examine the left hand side of that page you will discover the options that allow you to create price graphs or charts and also to check on historical spread information.

Call us for help with marketing decisions or help in preparing crop programs!  A DP program for those producers wanting to wait for a better day in the markets is available.  Check our website or call us for quotes on DP programs.  We can help develop a marketing plan and a floor price program.  Call Katlyn, Chad, Eric or Dave at 800-622-7937, Shon at 573-667-9921 or 768-0489.