The following marketing analysis is for the week ending Feb. 7.
CORN — Corn continues to navigate the trading range it’s been in since mid-December from $3.75.25 to $3.94 per bushel. It is balancing a combination of decent demand, limited farmer selling, and high animal numbers against an upcoming large South American crop, strong U.S. dollar, and a surge in U.S. corn acres this spring. This combines for a boring market for the average trader.
New crop corn prices have slipped well under $4.00 per bushel that many deemed not high enough to sell earlier. While we still have a long way to go to new crop, and could very well see rallies in the next few months, it will be more difficult to work our way back to the $4.05 - $4.10 per bushel area in December corn without a significant weather or political event.
The U.S. Department of Agriculture announced this week the Feb. 11 World Agricultural Supply and Demand Estimates report will not factor specific details of the Phase 1 trade deal with China into the report, but they will consider the broader goals of the agreement. This leads me to believe they will consider what information has been made public, but no commodity specific numbers have been made available.
An update on the elephant in the room, the novel coronavirus: over 31,000 people have been infected, over 630 people in China have succumbed to the disease. At last count, 27 countries have confirmed cases. There were reports of a breakthrough in a vaccine to combat the virus, but the World Health Organization said there is “no known effective therapeutics” against the coronavirus.
China will release nearly 3 million metric tons of reserve corn to meet feed shortfalls in the south as the effects to battle the virus have disrupted logistics within the country. It is too early to say with any conviction how this will affect the global economy — specifically China’s. There are concerns China will delay U.S. purchases which were agreed to in the Phase 1 trade deal due to the coronavirus. However, on Feb. 7, Chinese President Xi told President Trump that China would meet their obligations under the agreement.
Weekly export sales were very good at 49.1 million bushels. We are 37 percent behind last year with total commitments of 897.2 million bushels. We need to average 27.4 million bushels of sales per week to reach the USDA’s forecast of 1.775 billion bushels of exports.
The Buenos Aires Grain Exchange lowered Argentina’s corn rating 1 percent to 59 percent good/excellent; but recent rains should limit further downside for the time being. Their corn is 99 percent planted vs. 96.4 percent on average. China’s tariff reduction this week did not include corn since the only tariff on corn was put on in July 2018 at 25 percent and only the tariffs put on in September were affected.
Weekly ethanol production indicated good demand this week. Production increased 52,000 barrels per day to 1.081 million bpd. This was the biggest weekly production increase of the year. Ethanol stocks fell 700,000 barrels to 23.5 million barrels, down 3.2 percent week-on-week. Margins improved a nickel to a positive 1 cent per gallon.
The average trade guess for U.S. ending corn stocks on the Feb. 11 balance sheet is 1.864 billion bushels. This is down slightly from the January 1.892 billion-bushel forecast. World ending stocks are estimated at 297.2 mmt vs. 297.8 mmt last month. Brazil’s corn crop is estimated at 100.85 mmt compared to 101 mmt last month and Argentina’s crop at 50 mmt, unchanged from January.
Outlook: March corn has traded from $3.75.25 to $3.94 since Dec. 12. The next support level on the downside is the low made in December at $3.71 per bushel with next resistance at the magical $4.00 level. Growers become disengaged in the lower half of the range and only limited selling has been seen in the middle. Basis levels have remained firm to attract bushels into the pipeline as demand has been improving. Without something significant to kick prices out of this range, it feels like we will be stuck here for a while longer. U.S. corn is the cheapest on the world scene, but a big South American crop is right around the corner. December corn will continue to deal with the assumption of a large increase in U.S. corn acres this spring and a year-on-year carryout increase to over 2 billion bushels.
For the week, March corn gained 2.25 cents to $3.83.5, July managed a 1.25 cent higher close at $3.92.25, and December rallied 3.25 cents to $3.94 per bushel.
SOYBEANS — Soybean prices started the week on the defensive and fell to their lowest level since last May before gaining traction. The week’s low was set on Feb. 3 at $8.68.75 per bushel before bouncing and closing higher every day this week. In a goodwill gesture ahead of any Phase 2 trade talks, China announced they would rollback 50 percent of the tariff increases on $75 billion worth of U.S. goods which were part of the September retaliatory tariff increase. For soybeans, this means the tariff will be reduced from 30 percent to 27.5 percent. The original 25 percent tariff put on in July remains in effect and is included in the 27.5 percent rate. This is not enough to make U.S. soybeans competitive with Brazilian soybeans in the near term. This also coincides with a January decision by the United States to cut tariffs on $120 billion worth of Chinese goods from 15 percent to 7.5 percent. Traders want to see actual Chinese purchases of U.S. soybeans or at least a tariff-free quota released before becoming confident buyers.
There is concern that China may delay purchases of U.S. goods due to the coronavirus outbreak — which could reduce demand and/or weaken their economy. There is a clause in the Phase 1 trade agreement which would allow China breathing room on making U.S. purchases due to circumstances beyond their control. These concerns were addressed when Chinese President Xi assured President Trump they would meet their obligations despite any delays associated with the coronavirus. In the first four months of the marketing year (September through December), China has accounted for 43 percent of U.S. soybean exports or 9.6 mmt.
In South America, recent rains in Argentina have reduced the dry areas. In Brazil, rains have slightly delayed soybean harvest and as a result, slowed the planting of the second or safrinha corn crop. In general, crops are benefiting from the moisture, but the export boat line-up is growing. Trade talk during the week included suggestions that China purchased 20-25 soybean cargoes from Brazil. Brazil’s soybean harvest was 16 percent complete as of Feb. 7 vs. 8 percent on average and last year’s speedy 17 percent completion rate.
Brazilian soybeans have been running at least 20-25 cents/bushel cheaper than U.S. origin as the U.S. dollar traded to four-month highs and the Brazilian real slipped to all-time lows vs. the dollar. The strong U.S. dollar and weak ocean freight market are not helping our case for China to buy U.S. origin. Safras and Mercado put Brazil’s soybean crop at a new record of 124.6 mmt. The U.S. ag attaché in Brazil upped the soybean estimate to 124.5 mmt vs. the January USDA figure of 123 mmt. The BAGE pegged Argentina’s soybean crop at 53.1 mmt, — in line with the USDA’s 53 mmt forecast.
Weekly export sales of 25.9 million bushels were within expectations but dropped us to 7 percent behind last year. Total commitments are 1.2 billion bushels and need to average 19.3 million bushels of sales per week to hit the USDA’s current 1.775 billion target.
The average trade estimate for the February WASDE report’s U.S. ending stocks number is 443 million bushels, down from 475 million in January. World ending stocks are pegged at 96.9 mmt vs. 96.67 mmt last month. Brazil’s soybean crop is estimated at 123.65 mmt vs. 123 mmt last month. Argentina’s soybean crop is projected at 53.15 mmt compared to 53.0 mmt last month.
Outlook: We need to see a pickup in soybean demand or at least a bigger move by China to buy U.S. origin to get the market excited. As in corn, soybeans are facing a huge South American crop ready to hit the market and an expected significant increase in U.S. soybean acres this spring. Soybeans may be poised for a technical bounce and from spillover strength from corn and wheat.
For the week, March soybeans were up 9.5 cents at $8.82 per bushel. This is the first higher weekly close in four weeks. July soybeans were 7.5 cents higher at $9.08 and November was 6.25 cents higher at $9.18.5 per bushel.
Nystrom’s Notes: Contract changes for the week as of the close Feb. 7: Chicago March wheat was a nickel higher at $5.58.75, Kansas City gained 7 cents at $4.72.5, and Minneapolis was 2 cents higher at 5.35.75 per bushel.