The following marketing analysis is for the week ending July 2.
CORN — The June 30 Planted Acreage and Grain Stocks as of June 1 reports certainly didn’t disappoint us as they lived up to the high volatility history told us to expect! Both reports were a shock to the market, but in different ways.
The Planted Acreage report showed a much smaller number than expected, while the stocks number exceeded the average estimate. The ending result was the biggest weekly rally in a year. On the day of the report, September corn closed 12.75 cents higher and the December corn settled 15.75 cents higher. Corn held true to its pattern of closing the day after the report in the same direction it closed on report day — in this case higher. The average move on report day over the last 10 years in corn was 19 cents.
The U.S. Department of Agriculture slashed corn acreage to 92 million acres, down 5 million acres from the March 97 million acre intentions report. This was the largest March-to-June cut in 37 years. And we didn’t even have any major planting issues this year!
June planted acreage of 92 million acres is up 3 percent — or 2.3 million acres — from last year’s 89.7 million acres. This is the highest acreage since 2016. The average trade estimate was 95.2 million acres. North Dakota’s corn acreage showed an 800,000-acre decrease vs. the March report and South Dakota a 600,000-acre decline. Nebraska was down 700,000 acres, Illinois was down 400,000 acres, and Minnesota 300,000 acres lower vs. March intentions. Total acreage for the eight major crops was 246.7 million acres compared to 247 million acres planted last year, but down 6.7 million acres from the March intentions report. Where did the acres go? Prevent plant? USDA underestimating overall acreage?
Corn stocks were pegged at 5.224 billion bushels and 273 million bushels higher than the 4.951 billion bushel trade estimate. Total stocks are up less than 1 percent from last year’s 5.202 billion bushels. On-farm stocks, at 3 billion bushels, are up 3 percent from last year. Off-farm stocks, at 2.2 billion bushels, are down 2 percent from last year. This puts implied third quarter demand at the lowest in seven years. Implied feed usage was down 29 percent from last year in the third quarter. We’ll be looking for a smaller feed use category figure in the July 10 World Agriculture Supply and Demand Estimates report and a bigger 2019-20 ending stocks number.
Weekly ethanol production rose for the ninth week in a row — up 7,000 barrels per day to 900,000 bpd. Production is down 17 percent from a year ago. Stocks fell 800,000 barrels to 20.2 million barrels and the lowest level since January 2017. Margins declined 8 cents to just a penny per gallon. Gasoline demand remains 10 percent behind last year.
Weekly export sales were 14.2 million bushels for old crop and 10.4 million bushels for new crop. Overall sales were disappointing. Total commitments are running 14 percent behind last year. This week we saw one daily announcement of 202 million metric tons of new crop corn to China. There were rumors that China had purchased up to 10 U.S. corn cargoes over the last two weeks; but we are still waiting for confirmation on the remaining bushels.
Outlook: We’re back to trading weather and there hasn’t been a lot of confidence in the extended outlooks. Current weather is hot and dry, but we are in pretty good shape going into the next two weeks. Corn conditions as of June 28 were up 1 percent at 73 percent good/excellent and the fourth-highest since 2007. U.S. corn is a 30-50 cent per bushel premium to South America, giving a dim view for export business. And U.S. growers have bushels to sell. The June 30 reports moved expectations for next year’s balance sheet from very bearish; but were not enough to put it in the “very bullish” category. Funds remain very short even after this week’s short covering.
Although being pushed aside for now, political tensions between the United States and China are tight due to action being taken in Hong Kong and cases of Covid-19 are on the rise. All eyes will be focused on the forecasts, but rallies should be rewarded with at least some sales. December corn essentially hit the $3.63 50 percent retracement from the $4.04.75 high in January to the contract low of $3.22 set just last week. The next resistance is $3.73 per bushel. For the week, September corn closed 24.25 cents higher at $3.43.5 and the December contract jumped 28.25 cents to settle at $3.53.5 per bushel. From last week’s $3.22 low to this week’s $3.63 high, December corn traded a 41-cent range.
The monthly WASDE report will be published July 10. The report will incorporate the June 30 numbers.
SOYBEANS — The soybean reports weren’t as friendly as the corn reports, but they caught a bid and took off. Soybeans had their largest one-week rally since last September. The stocks number was neutral at 1.386 billion bushels, but the planted acreage number was viewed as bullish at 83.8 million acres. August soybeans closed 17.25 cents higher on report day and November soybeans closed 20.75 cents higher. The average move on report day over the last 10 years was 30 cents.
The soybean acreage report indicated this year’s acres at 83.8 million acres compared to expectations for 84.7 million acres. This is a 10 percent increase from last year’s 76.1 million planted acres. The March intentions report was 83.5 million acres. State acreage numbers ves. March intentions were mixed: Indiana up 300,000 acres, Iowa and Wisconsin increased 100,000 acres, Minnesota was unchanged, Illinois down 100,000 acres, South Dakota down 200,000 acres, and North Dakota down 600,000 acres.
Soybean stocks as of June 1 were 1.386 billion bushels and very close to the 1.392 billion bushel estimate. Total stocks are down 22 percent from last year’s 1.78 billion bushel stocks. On-farm stocks were 633 million bushels, down 13 percent from last year. Off-farm stocks at 753 million bushels are down 28 percent from last year. Third quarter implied demand would be the lowest in seven years and down 8 percent from a year ago.
Actions by China concerning Hong Kong have raised tensions between the United States and China. Hong Kong began to implement China’s national security law which allows the Beijing government to designate and prosecute political crimes in Hong Kong. Late last week, the United States restricted visas for Chinese officials who undermine Hong Kong’s status. China retaliated with visa restrictions on U.S. officials who meddle in Hong Kong related issues. Protesters were arrested in Hong Kong at rallies opposing the law.
Brazil exported 13.75 mmt of soybeans in June, a new record for the month. Last year they exported 8.5 mmt in June. Their soybean exports from February through June were an amazing 60.5 mmt vs. 41.7 mmt last year. The previous record for this time frame was 44.7 mmt. Based on these numbers, it would be easy to believe Brazil’s soybean crop has been underestimated. Abiove this week forecasted Brazil’s 2019-20 soybean production at 122.6 mmt vs. 120.5 previously with exports at 80 mmt vs. 74 mmt previously. For 2020-21, the soybean crop outlook is 125 mmt, up from their 124.5 mmt estimate, and the export forecast went from 78 mmt to 79.5 mmt.
Weekly export sales were 8.9 million bushels for old crop and 30.9 million bushels for new crop. Old crop sales were below expectations and a marketing year low. 2019-20 export commitments are down 7 percent from last year, but have reached the USDA’s target. New crop sales were above expectations. Of this week’s new crop sales, 21.8 million bushels were to China. China has bought 147 million bushels of U.S. new crop soybeans. Total new crop sales are 255 million bushels vs. just 91 million bushels last year by this date. We had only one USDA daily sale announcement of 126,000 metric tons of new crop soybeans to China.
The monthly soybean crush report was slightly below expectations at 179.6 million bushels vs. estimates for 180.7 million bushels. This was still a record for the month of May. Soyoil stocks were 2.447 billion pounds compared to the 2.372 billion pound estimate.
Outlook: August weather makes the soybean crop, but soybeans will trade the weather along with corn. Soybean conditions as of June 28 were up 1 percent at 71 percent good/excellent and the third-highest since 2003. The crop reports ignited the rally in soybeans and corn, with underlying weather forecasts extending the rally. Although U.S. soybeans are the cheapest in the world, we saw only one daily export sales announcement in the holiday-shortened trading week.
November soybeans weren’t quite able to fill the gap at $9.03.5 left in early March. This week’s high was $9.03 per bushel. If the gap is filled, the next resistance level is the 200-day moving average at $9.13.5, then the $9.25-$9.30 per bushel area. For the week, August soybeans surged 31.25 cents higher to settle at $8.91.25 and the November contract rallied 35.5 cents to close at $8.96.75 per bushel. November soybeans traded a 46.25 cent range for the week from $8.56.75 to $9.03 per bushel. Weather and politics will set the stage for next week ahead of the monthly WASDE report on July 10.
Nystrom’s Notes: Contract changes for the week as of the close on July 2: Chicago September wheat up 16.25 cents at $4.92; Kansas City up 6.25 at $4.34.25; and Minneapolis managed a 1.5 cent gain at $5.10.25 per bushel. Crude oil was up $1.33 at $39.82 and the unemployment rate fell to 11.1 percent.