The following marketing analysis is for the week ending June 14.
CORN — Let’s just say “wow” and leave it at that. December corn jumped to a new contract high at $4.65 per bushel as we headed into the weekend. December corn settled the week at $4.63.5, surging 29.75 cents higher for the week. July corn also set a fresh contract high at $4.57.25, soaring 37.25 cents for the week and settling at $4.53 per bushel. December 2020 corn managed a 6.75 cent rally to $4.19 per bushel.
The U.S. Department of Agriculture certainly shocked the trade with their changes to the June World Agricultural Supply and Demand Estimates report on June 11. They slashed the projected yield forecast 10 bushels per acre to 166 bu./acre. This was well below the 172.4 bu./acre trade estimate and an unprecedented change for this report. Planted acreage was cut 3 million acres to 89.8 million acres — again a bold move for the USDA to make on this report. But again, this year is unlike any other year with record slow planting and wet conditions.
The only change made on the 2018-19 balance sheet was a 100 million bushel decrease in exports which pushed ending stocks up to 2.195 billion bushels. This carried over to the 2019-20 balance. The new crop balance sheet calculated production at 13.68 billion bushels (the lowest in four years) with ending stocks down 810 million bushels from last month at 1.675 billion bushels. This would be the smallest carryout in six years. The average trade estimate for production was 14.25 billion bushels and 1.917 billion bushels for the carryout. The new crop category changes included the 100 million bushel increase in carry-in, a 15 million bushel increase in imports to 50 million, feed/residual decline of 300 million, and exports down 125 million to 2.15 billion bushels. The new crop stocks-to-use ratio dropped from 16.9 percent last month to 11.8 percent this month. The average farm price was raised from $3.40 to $3.80 per bushel.
The 2019-20 world corn carryout was 290.5 million metric tons compared to 305 mmt estimated. Last month it was projected at 314.7 mmt. Argentina’s corn production was unchanged at 49 mmt. Brazil’s number was increased 1 mmt to 101 mmt. Conab is forecasting Brazil’s corn crop at 97 mmt. The Rosario Grain Exchange increased their Argentine corn project from 48.5 mmt to 50.5 mmt.
Weekly export sales were dismal at just 6.6 million bushels for old crop and 3.7 million bushels for new crop. There were 200,000 metric tons of old crop cancelled, which kept the net number low. Old crop sales fell to 14 percent behind last year and we need to average 16.9 million bushels per week to hit the updated export target. New crop sales now total 106.6 million bushels, well behind last year’s 130.4 million bushels. The USDA announced the sale of 175 tmt of new crop corn to Mexico and 126 tmt corn to unknown this week.
Weekly ethanol production increased 52,000 barrels per day to the highest production for the year and the third-highest ever at 1.096 million bpd. Ethanol stocks fell by 800,000 barrels to 21.8 million barrels — the largest decline in nine weeks and at the lowest level in 46 weeks. Imports were 13 million gallons, the first imports since November. Net margins were down 3 cents per gallon to a negative 9 cents per gallon.
The threatened 5 percent tariff on Mexican imports was not implemented on June 10. It could be revisited in 90 days. Reportedly, President Trump was satisfied with Mexico’s move to stem illegal immigrants that flow across the border. U.S. Agriculture Secretary Perdue this week reiterated that prevent plant acres will not be eligible for MFP 2 payments. Any payment would have to come through the disaster aid bill. No specifics on how this will be accomplished were released. He restated that farmers should plant for the market and not for the program.
On crop progress as of June 9: 83 percent of the crop was planted vs. 99 percent average, leaving over 15 million acres left to plant based on the updated acreage estimate. Emergence was just 62 percent vs. 93 percent average. The initial crop rating of the year was 59 percent good/excellent, better than the expected 54 percent rating.
Fall armyworm was found in South Korea after already being found in China. If unchecked, production declines of 20 percent or more could result. This should be monitored as it could be supportive for world demand. Currently, South America is the cheapest source of corn.
Just one more thing: what will you need for drying needs this fall with such a late planted crop? You may want to be looking ahead for your fall propane needs.
Outlook: Looking ahead, how soon (or if) growing degree days catch up, what the yield drag will be on full and shorter season varieties, and weak ratings will be the major focus of traders. The current weather forecast looks wet for the Midwest’s breadbasket for at least another week. One well-respected private consultancy pegged this year’s corn acreage at 84.8 million acres, down 8 million acres from the USDA March estimate. Most trade outlooks expect corn acreage to decline by 5-10 million acres from the USDA’s 92.8 million acre forecast. The June 28 Acreage report may be skeptically viewed since planting was not nearly complete by June 1.
The corn has the bullish story and most believe prices have not effectively traded how tight the 2019-20 balance sheets could get. On the continuation chart, corn reached its highest level since June 2014! Corn basis in the eastern corn belt is surging higher and basis in other parts of the country is firm. If long, or have old crop left to sell, consider using stops under the market, or at least write down what level prices would have to drop to prompt you to sell. Otherwise, we’ll let the market tell us when the uptrend is finished.
SOYBEANS — Soybeans eased lower to begin the week after weekend planting was helped along by less rain than expected; but popped back to erase the previous week’s losses. The WASDE report was not outright bullish for soybeans, but uncertainty over how the next few week’s weather plays out and strength in corn supported prices. July and November soybeans each skyrocketed 40.5 cents higher this week to close at $8.96.75 and $9.23.5 per bushel respectively. November 2020 soybeans were 23.25 cents higher at $9.47 per bushel.
The 2018-19 soybean balance sheet made one adjustment this month by lowering exports 75 million bushels to 1.7 billion bushels. This translated to an increase in ending stocks to 1.07 billion bushels and a stocks to use ratio of 25 percent. The USDA decided not to make any acreage or yield adjustments to the 2019-20 soybean balance sheet this month despite making them in corn. Soybean acreage was left unchanged at 84.6 million acres with yield at 49.5 bu./acre. The trade was anticipating a yield of 49 bu./acre with production of 4.123 billion bushels. A crop of 4.15 billion bushels, plus the increase in carry-in of 75 million bushels increased ending stocks to 1.045 billion bushels. This was larger than the 983 million bushel ending stocks the trade was expecting. The new stocks-to-use ratio is 24.9 percent. The average national farm price was raised from $8.10 per bushel to $8.25 per bushel. In post report comments, the USDA indicated they would make changes to soybean acreage and yield on the July report.
2019-20 world ending stocks were in line with the 113 mmt estimate at 112.7 mmt. Brazil’s soybean production was left unchanged at 101 mmt. Argentina’s number was also steady at 56 mmt. Conab increased their Brazilian soybean crop projection to 114.8 mmt. The Rosario Grain Exchange lowered their Argentine soybean forecast from 57 mmt to 56.5 mmt. The USDA left China’s 2019-20 soybean imports unchanged at 87 mmt.
Weekly export sales were deemed okay at 9.4 million bushels for old crop. Using the fresh USDA export estimate of 1.7 billion bushels, total commitments at 1.724 billion bushels have surpassed the forecast. However, it was reported that China is asking U.S. shippers to delay a portion of July/August/September shipments they have already purchased. While not outright cancellations, it does look like we will be pushing a portion of old crop sales into next year. China has 231 million bushels (6.2 mmt) of U.S. soybeans yet to be shipped. Late in the week, the USDA reported China bought 130 tmt of old crop soybeans and cancelled 136 tmt of old crop soybeans. New crop sales were 10.2 million bushels. Total new crop commitments are a disgrace at just 66 million bushels compared to 244.5 million bushels last year at this juncture.
U.S. crop progress as of June 9 showed 60 percent of the soybeans planted vs. 56 percent estimated and 88 percent on average. This left nearly 34 million acres of soybeans left to plant. Emergence was 34 percent compared to 73 percent average. Planting on June 17 is estimated between 80 percent and 85 percent complete vs. 93 percent average. No soybean condition report is expected on the June 17 report.
North Korea is reportedly reinforcing their measures to combat the deadly African swine fever. China’s sow herd is down 24 percent from last year due to the disease. Vietnam reported they have culled 2.5 million pigs or 7.5 percent of their pig crop due to the disease.
One more thing: heard this week that Brazilian grain traders are seeing loan defaults by farmers in Mato Grosso. In Brazil, it is not unusual for farmers to put up a future crop in exchange for fertilizer and chemicals in loan and barter agreements. Will this become a problem and affect how farmers there obtain input money? It may be something to watch far out on the horizon.
Outlook: The outlook for soybean prices is not as rosy as for corn. We still do not know what soybean acres and yield will look like a month down the road, how South America planting will react to good prices, and the uncertainty over Chinese demand. We have never faced the scenario we are currently dealing with. What we do know is even with an acreage and yield cut, we will have plenty of soybeans next year without a South American disaster. However, funds have not covered their net short position and the strength in corn has had a spillover effect on soybeans. A rising tide raises all boats and soybeans will enjoy the benefits while they can.
Nystrom’s Notes: Contract changes for the week ended June 14: Minneapolis July wheat fell 5.5 cents to $5.63.25, while Chicago jumped 34 cents to $5.38.5, and Kansas City rallied 27.25 cents to $4.76.25 per bushel. Crude oil fell $1.48 to $52.51 this week, ULSD was up a half-cent, RBOB was down a half-cent, and natural gas was a nickel higher.