The following marketing analysis is for the week ending May 29.
CORN — Corn finally was able to kick out of the $3.12.25 to $3.25.5 trading range it has been in the entire month of May in the holiday-shortened trading week. Huge fund buying in the latter half of the week was the force behind July corn trading to a new high for the month at $3.30.75 per bushel. Funds have been carrying a large net short position for some time, nothing near a record, but the largest in over a year. The buying this week was viewed as a lightening of that position before month-end and improving demand from ethanol, feed and exports.
The forecast for the coming week is for hotter, drier conditions, which isn’t unwelcome with the crop trying to establish itself with a good root system; but could be price positive if it continues. An improving ethanol scenario was supportive as the world slowly reopens and increases gasoline demand. Farmer selling saw a small increase, but with Caronavirus Food Assistance Program money headed their way, sales were muted.
As the week ended, corn closed lower to break a string of four consecutive higher closes as the market awaited President Trump’s press conference on China.
Weekly ethanol production was up for the fourth week in a row. Production increased 61,000 barrels per day to 724,000 bpd. Stocks were down 400,000 barrels to 23.2 million barrels. Stocks have dropped 4.5 million barrels over the past five weeks — a record five-week draw. However, stocks are still 2.4 percent higher than a year ago. Margins improved 2 cents to a positive 3 cents per gallon. Gasoline demand over the last four weeks is down nearly 26 percent from last year, but was up modestly week-on-week.
Weekly export sales were below expectations at just 16.8 million bushels and the lowest since the first of the calendar year. This figure still beats the 11 million bushels per week needed to hit the USDA’s export target of 1.775 billion bushels. We are running 17 percent behind last year on total commitments. New crop sales were 1.9 million bushels, bringing total new crop sales commitments to 133.3 million bushels compared to 102 million bushels last year.
The Buenos Aires Grains Exchange pegs Argentina’s corn harvest at 47 percent complete vs. 36 percent on average. They are estimating the corn crop at 50 million metric tons, the same as the U.S. Department of Agriculture forecast.
As of May 24, corn planting was 88 percent complete vs. 82 percent average and 90 percent expected. North Dakota was only 54 percent complete, leaving approximately 1.5 million intended acres to plant. It’s yet to be seen how many intended corn acres will be switched to soybeans or left unplanted since their insurance date has passed. U.S. corn emergence was 64 percent vs. 58 percent average. The first condition report showed 70 percent of the crop was rated good/excellent.
Outlook: Corn got the kick it needed this week from fund short-covering and increased ethanol production. Limiting the upside is a crop that is off to a good start, political tensions with China, and the prospects of large carryouts this and next year. Money from the CFAP program will begin flowing quickly into growers’ hands and this is expected to allow growers to continue to hold grain off the market until flat price goals are either met or at least approached. July corn has traded around $3.20 for a few weeks. If we can keep demand trending higher and without political interference, we could move this up to $3.25 to $3.30 per bushel. December corn has been trapped between $3.30 and $3.40 per bushel for most of the month. This range may stay intact without a demand or weather impetus to push us into a $3.40 to $3.50 range. The long-term attitude is still negative, but short-lived bounces can’t be ruled out as weather will be watched closely and you never know what’s around the next political corner.
For the week, July corn was 7.75 cents higher at $3.25.75 and December was 6 cents higher at $3.38.75 per bushel. Seasonally, July corn trends lower from the last half June to the last half of July.
SOYBEANS — Soybeans were kicked higher with double digits gains when traders returned from the Memorial Day weekend. There wasn’t a clear-cut headline for the jump, but gains were held until later in the week when political and technical considerations capped the upside. China’s new legislative laws concerning Hong Kong, and how China handled the coronavirus outbreak pushed the United States to respond. The trade was cautious ahead of President Trump’s May 29 comments. China was reportedly buying Brazilian soybeans for fall during the week at a premium to U.S. origin.
As I write, President Trump has just completed his press conference. Trump said he wants an open conversation with China, but we must protect our interests. He says China has broken promises to us. The United States will suspend entry of certain Chinese nationals into the U.S. who have been identified as security risks (likely officials responsible for actions in Hong Kong). Hong Kong is not autonomous enough to merit special treatment from the United States. The U.S. will terminate its relationship with the World Health Organization, saying China has total control over the WHO. Those funds will be diverted to other global organizations. This in not all inclusive, but they were viewed favorably by the stock market as it recovered early losses after the statements. Now we wait to see how China responds.
Argentina’s soybean harvest is nearing completion at 97 percent complete, according to the BAGE. They kept the production estimate at 49.5 mmt vs. USDA’s 51 mmt. Logistics continue to be a problem on the Parana River in Argentina with water levels at 22.3 percent of normal. Freight costs are rising as vessels must load a portion of their capacity upriver, then load additional tonnage down river. Some vessels have run aground and there was talk of some shipments being switched to Brazil due to logistical problems. Conab predicts Brazil’s soybean production will increase 33 percent over the next 10 years to 152 mmt, with bean acreage up nearly 27 percent. Brazil confirmed that a vessel crew member tested positive for Covid-19. The entire crew was tested, the vessel anchored in quarantine offshore, and the berth was closed for the day. This highlights the possibility of more problems associated with Covid-19 in Brazil.
Weekly export sales were as expected at 23.7 million bushels. The weekly sales were higher than the 9 million bushels of weekly sales needed to meet the USDA’s export forecast of 1.675 billion bushels. Total old crop sales commitments are 9 percent behind last year. The USDA is forecasting a 4.2 percent decline in year-on-year exports. China has bought 14.8 mmt of U.S. soybeans so far this year vs. 13.5 mmt by this time last year. China only has just over 2 mmt of unshipped bushels left for this marketing year. New crop sales were 7.5 million bushels. Total new crop sales commitments stand at 85.7 million vs. 53.1 million bushels at this time last year. China imported 5.9 mmt of Brazilian soybeans in April which was 88.5 percent of China’s total soybean imports. The United States accounted for just 665,600 metric tons of China’s April soybean imports.
China has found new cases of African swine fever as they rebuild their hog herd. China’s largest hog producer built nine new pig farms in the first quarter with more under construction.
As of May 24, 65 percent of the soybean crop was planted compared to 55 percent average and estimates for 70 percent complete. Emergence was 35 percent vs. 27 percent average.
Outlook: There are some wet areas in the United States where planting is delayed, but the corn belt weather is mostly a non-issue. The popular talking point in soybeans this week was how the United States would officially respond to China’s actions in Hong Kong. In post-President Trump’s trading, the Dow recovered losses from earlier in the day (see comments above). How China will react to these statements will be monitored for their impact on commodity markets. The market needs to see additional Chinese business, weather threats, or logistical problems in South America to push another leg higher.
Nystrom’s Notes: Contract changes for the week as of the close on May 29: Chicago July wheat gained 12 cents at $5.20.75, Kansas City rallied 26 cents to $4.70.5, and Minneapolis was up 12 cents at $5.25 per bushel. Crude oil had its largest one-month rally on record as it finished the week up $2.24 at $35.49 per barrel.