January 17 – Short Covering Lifts Grain Prices Wednesday

It was a mostly positive day for grain prices here in Chicago.

Short covering largely pushed prices higher. With very little data on exports or ethanol Wednesday, most traders turned their attention to South America.

Dryness continues to batter Argentina, while rains in Brazil raised concerns about harvest progress in the region.

Let’s dive into today’s trading news from the Chicago Board of Trade.

Corn Prices Push Higher

Short covering was all the rage today for grain prices.

Ongoing concerns about dry Argentine weather continue to ripple through the complex. The March contract added 4 cents on the day and closed at $3.5225. The May contract added 4 cents and closed a tick above $3.60.

Argentine analysts have cut their 2017/18 corn production forecast by roughly 145.7 million bushels, according to FarmFutures.

Drought continues to hurt yield expectations.

As I noted in GrainCents, this isn’t an emergency just yet.

However, the government is monitoring conditions. Certain provinces have experienced just 50% of their historical rain averages.

Given that the EIA has delayed its ethanol report to next week, we turn our biofuel discussion to South America.

Down in Brazil, a major development in the ethanol market will affect grain prices moving forward.

The nation’s agricultural minister said that they may eliminate the 20% import tariff on U.S. ethanol shipments exceeding the annual quota of 158.5 million gallons. Naturally, that has upset the good people in the Brazilian ethanol business. [1]

They don’t want the competition… but then again, who does?

For this tariff to vanish, there’s like a catch: Brazil is pushing for the U.S. to end its ban on fresh beef exports.

On a separate note, the USDA announced that South Korea purchased 5.4 million bushels of U.S. corn for April and May delivery.

Soybean Prices Fight Back Wednesday

Soybean prices spent most of the day in reverse only to battle back in the final hour of trading.

The March contract added 0.75 cents to close the day a tick under $9.69 per bushel. The May contract gained 0.5 cents and closed at $9.80. It’s been four weeks since the contract traded at this level.

A light day of data showed the sale of 4.8 million bushels of soybean beans to unknown destinations. That sale, however, is set for the 2018/19 marketing year.

Today, most of the attention centered on conflicting data out of Argentina.

The USDA’s attaché isn’t in the mood to revise its Argentine soybean crop forecast. Despite concerns about burned leaves and significant drought, the agency believes that it’s too soon to start downwardly revising its expectations.

That hasn’t stopped other analysts from taking action. Local analysts in the region have slashed their production estimates to a range of 52 million to 55 million MT.

The Rosario Grain Exchange cut their number last week to 52 million MT. That’s a 2.5 MMT cut from the previous report.

Finally, the Buenos Aires Grains Exchange lowered its soybean acreage figure by roughly 250,000 acres for the year. [2] I’ll be talking a lot more about this tomorrow in GrainCents. This story is similar to events that transpired in 2015/16.

We’re going to explain more on how farmers can play weather premiums in the months ahead.

Short Covering Propels Wheat Prices

Wheat found some sorely needed support from short-covering Wednesday. The SRW contract for March added 5 cents to close the day at $4.215 per bushel.

Down in Kansas City, March HRW contracts added 4.25 cents and finished the day just over $4.26. Finally, Spring Wheat MGEX prices finished at $6.115 per bushel after a 0.25-cent gain.

Today, we were paying attention to updates out of Ukraine Ag Ministry. The country’s wheat exports during the 17/18 marketing year have come in at 11.7 million metric tonnes. The figure is off from the previous year’s pace by 600,000 MT.

Japan didn’t receive any offers to its tender for feed wheat and feed barley. Zilch.

The country was looking for 4.4 million bushels and 9.2 million bushels for the two respective crops. [3]

While that story generated a bit of buzz today, the story under the radar has been the advancement of Trans-Pacific Partnership talks.

As I explained in GrainCents today, this is becoming a very bearish story for U.S. wheat producers and a positive tale for Canadian producers. The U.S. currently comprises 45% of all Japanese wheat imports.

But that’s about to change.

In addition to Japan’s TPP membership, the country is about to kick off its free trade agreement with the European Union. The U.S. is poised to lose market share to Australia, Canada, Russia, and the EU. What’s worse is that Japan has already hinted it will not engage in bilateral talks with the U.S. anytime soon.

Crude Oil Prices Rise Ahead of Inventory Numbers

Brent crude pushed back above $69.00 USD per barrel, while WTI crude topped $64.00.

Markets anticipate the ninth-straight week of U.S. inventory drawdowns. The American Petroleum Institute will provide its private report later this afternoon.

The Energy Information Administration will release its official report on Thursday morning.

Analysts anticipate that crude oil prices will continue to climb this year. In a research note Tuesday, Morgan Stanley made the case for $75.00 Brent crude by the third quarter of the year.

They also suggested that U.S. crude could touch $70.00 per barrel.

We’ll be back tomorrow with more insight on grain prices.

Be sure to sign up for the daily Breakfast Brief by FarmLead President and CEO Brennan Turner, right here.

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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