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December 10th - Closing Market Commentary

12/10/2019
December 10th - Closing Market Commentary

Grains closed higher on Tuesday:

Corn + 1 ¼ cents/bu (Mar @ 3.77)

Soybeans + 4 cents/bu (Jan @ 9.01 ¼ )

Chi Wheat +1 cent/bu (Mar @ 5.23 ¾ )

Cdn $ -0.00010 (75.58 cents)

WTI Crude Oil +0.22/barrel (59.24)

The USDA December Crop Report has come and gone, and as expected, it provided little in the way of fireworks.  USA 2019/20 corn and soybean balance sheets were left unchanged from the November Report, while 19/20 wheat carryout was pared by 40 million bushels.  The smaller wheat number was a combination of a projected 25 million bushel increased  export program, and a 15 million bushel smaller import program.  World grain stock numbers saw corn rise, on a bigger projected Chinese corn crop, while world wheat stocks also inched slightly higher.  South American production numbers were also left unchanged from November’s projections.  Actual USDA data is listed below:

USA 2019/20 Carryout (in Billion Bushels)

                                                Actual                              Ave Trade Guess              Estimate Range                 USDA Nov 2019

Corn                                          1.910                                    1.919                             1.890 to 1.960                             1.910

Soybeans                                  0.475                                   0.476                           0.455 to 0.500                          0.475

Wheat                                       0.974                                    1.010                            0.989 to 1.025                            1.014

2019/20 World Carryout (in Million Tonnes)

Corn                                         300.56                                  295.52                        292.00 to 298.20                     295.96

Soybeans                                  96.40                                    95.46                           93.90 to 96.80                         95.42

Wheat                                      289.50                                   286.18                         283.90 to 288.50                      288.28

2019/20 South American Production (in Million Tonnes)

Argentine Corn                         50.00                                   49.77                           49.00 to 50.00                             50.00

Argentine Soybeans                 53.00                                  53.00                           52.00 to 54.00                            53.00

Brazilian Corn                           101.00                                 100.93                            100 to 101.50                              101.00  

Brazilian Soybeans                   123.00                                123.03                           122.00 to 124.00                         121.60

Strength in corn futures today did not come from the USDA Crop Report, but from optimism surrounding the USMCA trade agreement and from potential good news on the ethanol front.  Senior officials from Canada, the USA, and Mexico gathered in Mexico today to announce that they are ready to sign the USMCA agreement (Nafta 2).  It is believed that this new trade agreement further solidifies demand for USA corn and meat products within North America, and therefore was viewed positively by the market.  The potential for greater ethanol production was in the news today as senior USDA officials spoke of a “Ethanol Compromise 3.0”, which is a rework of earlier administration efforts to appease the ethanol lobby.  This compromise is based on increasing demand for ethanol, and the market seemed to like what they heard.

Conflicting reports today of how close the USA and China are to concluding their Phase One trade deal.  Some news agencies report that the two parties are closer than ever to a deal, while others report that President Trump is prepared to postpone the December 15th implementation of new import tariffs on Chinese goods because of how well the talks are going.  Either way, it appears the “nuclear” option of new tariffs is off the table, which has the markets breathing a collective sigh of relief.  Recent Chinese buying of soybeans, coupled with optimism over the trade talks has allowed soybean futures to close higher for 6 consecutive sessions now.  Questions still remain as to overall Chinese demand due to African Swine Fever devastating their hog herd, but the recent rally has some analysts pointing to increased poultry feeding as offsetting at least part of the demand destruction from ASF. 

Chicago wheat futures ended the day in the middle of their trading range, after trading up as much as a nickel/bushel following the release of the Crop Report.  The total USA wheat carryout for 2019/20 was less than the lowest trade guess going into the report, so that created some buying right off the bat.  Concerns remain over the scope of wheat production issues in a few major exporters, so the potential for further production declines cannot be discounted.  However, some of the lustre of the USDA report was lost when it was confirmed that an Egyptian tender for 355,000 tonnes of wheat today was filled by Ukraine (60,000 mt), Romania (60,000 mt), Russia (115,000 mt), and France (120,000 mt).   

On the day, funds were thought to have been buyers across the board, buying an estimated 3,000 corn contracts (short 104,000), buying an estimated 7,000 soybean contracts (short 66,000), and buying an estimated 2,000 Chicago wheat contracts (long 17,000 overall).

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