Trade issues have been an underlying theme in the grain markets for a long time. The US/China trade war is still unresolved with both Presidents scheduled to see each other at the G20 summit later this month. Nafta 2.0 is also unsigned and looks to remain that way for a while. The latest spat between the US and Mexico has cast some doubt on how and when that agreement will move forward. Precipitation models for this weekend are still calling for upwards of 2 inches of rain across the eastern corn belt. The 6-10-day forecast continues to call for above average precipitation and below average temperatures across the Midwest as well. We are in a historic time. We have never planted so many acres so late in some of the key growing states. There is no analog years or even a trusted model for determining where yields could go.
The safrinha corn crop in Brazil is forecasted to be record large. Brazil stands poised to steal market share away from the US as we endure trade wars and potentially small crops. The Rosario Grain Exchange increased their Argentine corn project from 48.5 million tons to 50.5 million tons. ProAgro consultancy bumped up its Ukrainian 2019 corn production forecast 1.4 mmt to 32.6 mmt.
US corn planting remains the slowest on record. Acreage will be down sharply from the March intentions, but even now we don’t know how much. The government aid programs are still lacking specifics making it hard for producers to decide what to do. Weather forecasts have widespread rains across the Eastern corn belt, so planting might not get done, and what does get done late should come with a large yield drag. The USDA surprised the market this week and dropped their yield estimate 10 bpa to 166 bpa in the latest supply and demand report. That was well below the average analyst estimate. The USDA also dropped planted acres 3 million to 89.8 million. The US carryout dropped to 1.675 billion bushels and the world carryout estimate dropped to 290.5 mmt. The WASDE report was certainly a bullish surprise that is going to point the market in one direction for a while. This also places a bigger emphasis on weather this year with such big cuts to the carryout.
Iraq’s head of state grains said that the country has enough wheat until the end of 2019, although it will continue to import in order to bolster its reserves. The grain board head also stated they have imported 400,000 tons of wheat since January and look to procure 4 million tons from their local harvest.
The USDA made some slight adjustments on the wheat balance sheet in the June WASDE report: 19/20 yield was raised 0.1 bpa, 18/19 exports went up 25 million bushels, and 19/20 feed demand was raised 50 million bushels. All told, ending stocks went down 69 million bushels to 1.072 billion bushels.
Kazakhstan is implementing a program to raise domestic soybean production up to 3 million tons annually over the next 5 years through government incentivized programs for growers. This continues the recent trend of more production coming out of the region.
Export sales for soybeans came in at 255,900 tons for 18/19 and 275,200 tons for 19/20 vs estimates of 200,000-500,000 tons and 100,000-300,000 tons respectively. Soymeal exports were 112,500 tons 18/19 and soy oil was seen at 5,100 tons 18/19. In the June WASDE report release, the USDA did not make any adjustments to the US soybean acreage, 84.6 million acres, or their yield estimate, 49.5 bpa. They did however cut 18/19 demand, bringing the old crop carryout above one billion to 1.07 billion bushels. That also brought the 19/20 carryout to 1.045 billion bushels. The world carryout was nominally lower at 112.66 mmt. Robert Johansson, USDA Chief Economist, is quoted as saying the USDA is set to revise its US soybean acreage and yield estimate in the July Supply and Demand report. He also said, “I think we didn’t have enough information to go on right now to change those soybean numbers”.
African Swine Fever continues to ravage the Chinese hog herd. The Chinese government is finally giving some details by saying their sow herd is down 24% year on year for the month of May. Hope remains that China will come to the US for pork supplies. A trade war with high tariffs makes that a tougher thing to do. Cash cattle traded in a wide range between $110 and $115 this week. The market does not appear very willing to embrace a summer grilling demand rally. Packers have money to pay up with margins improving this week to a very robust $189/head.
For a second time in nearly a month, oil vessels have been attacked. Thursday’s attack on 2 vessels in the Sea of Oman is adding concerns and the U.S. is blaming Iran for the attack increasing tensions. The U.S. Military released a video showing Iran’s Military removing a mine from the side of a Japanese-owned tanker. Iran is denying involvement to the U.S. claims. The International Energy Agency (IEA) cut demand for 2019 due to global concerns caused by trade disruptions. In a Bloomberg survey 47% of analysts are bullish, 35% bearish and 18% neutral. Gasoline prices at the pump are averaging $2.716 per gallon. Last week the average price was $2.783 and $2.904 a year ago.