US Corn Ethanol Production Lowest in Years; China Demand for US Soybeans Nearly Filled

Feb 6, 11:28 am | Mid-day Commentary | Share this:

** Dull has been the morning with the summer row crops slightly lower while wheat futures are firm on tightening cash supplies. AM trading volume is low and the ranges are tight as few want to position ahead of Friday’s volatile USDA Crop Report. ARC notes that the trade is positioned for bullish corn/ wheat reports, and while expecting slightly bearish data on soybeans.

  The big surprise in the report would be a US corn yield that does not drop more than 2 BPA! Remember that WASDE is expected to cut US corn use to produce ethanol by 100 Mil Bu and feed/residual by 50 Mil Bu which mandates that US corn yield must decline by more than 2 BPA for the report to be bullish.

 The difficult aspect for WASDE analysts is their void of current US corn, soy and wheat sales data. USDA analysts are aware that China has secured 10 MMTs of US soybeans, but they (like the trade) are in the dark in terms of demand from other non-Chinese buyers and whether US wheat sales have recovered?

** CBOT brokers estimate that funds have bought 2,100 contracts of soybeans, 1,100 contracts of corn and 3,500 contracts of wheat. In soy products, funds have bought 4,700 contracts soyoil while selling 500 contracts of soymeal.

 ** USDA reported that China secured another 786,000 MTs of US soybeans. The sales were split between 586,000 MTs to China and 182,000 MTs to an unknown destination (widely rumored to be China). Known Chinese soy purchases amount to 4.6-4.7 MMTs. Pricing in the CBOT has been dramatically diminished from prior trading sessions. Now that 5 MMTs of China pricing is completed, US traders are starting to wonder who is going to be the next substantial buyer of US soybeans until China removes their 25% retaliatory tariffs? This tariff reduction is not expected to occur until a US/China trade deal is signed. 

** The average trade estimate for Friday’s report is looking for a US corn yield of 177.8 BPA (down 1.1 BPA from November), a soybean yield of 51.7 BPA (down .4 BPA from November) with US all winter wheat seeding at 31.97 Mil acres (down 600,000 acres). In talking to traders, ARC gets the impression that their US corn yield estimate is even lower than published expectations.

 ** 967,000 barrels of US ethanol were produced in the week ending Feb 1st, down 45,000 barrels from the prior week, the lowest since Oct 2017! US ethanol stocks fell slightly to 23.9 Mil barrels. The use of US corn to produce ethanol is holding in a bearish trend based on marginal margins. ARC looks for WASDE to cut its US 2018/19 corn use for ethanol by 75-100 Mil Bu on Friday.   

** Midday GFS South American Weather Discussion: The midday GFS is drier with diminished rain chances for the southern third of Brazil. Northern Brazil has solid rain chances with 10-day totals of 3-7.00”. The rains will finish off the crop and aid winter corn crop establishment. A slightly wetter forecast is offered for Argentina which is helpful to crops. No heat is expected across Argentina which will help preserve soil moisture. The Argentine corn crop is filling, and soybeans are blooming. The South American weather forecast is favorable for the next several weeks.  


** AgResource Market Analysis: Friday’s USDA crop report is highly important to short term CBOT price direction. However, ARC doubts that any strong rally can be sustained as US/S American farmers sell any 8-15 cent rally in corn and soybeans.US/China trade negotiations are far more important to long term CBOT price determination with March 1st just a few weeks away. Brazilian soy yields are variable and not a disaster with CONAB expected to come out around 116-117 MMTs soy crop estimate on Friday. Our trading bias is to buy corn on breaks and sell soybeans on rallies.