The following marketing analysis is for the week ending Aug. 14.
CORN — We saw something this week we haven’t seen in the last three years: a higher close on the day of the August World Agriculture Supply and Demand Estimates report! In addition, we saw historic winds hit Iowa, northern Illinois and Indiana, and southern Wisconsin early in the week. The extent of both crop and storage losses have yet to be determined, but Iowa estimates 10 million acres of corn were affected with 350-450 million corn bushels lost. In 2019, Iowa produced 19 percent of all U.S. corn. How many of these acres will come back and be able to be harvested is unknown.
What is also a big issue is the storage which has been lost — both on-farm and commercial storage. These facilities will be pushed to recover before harvest, but local production in those areas will be smaller also.
Corn was edging higher in the days leading up to the report and after the derecho. But history favored a lower close on report day. The trade in recent years has underestimated the August yield estimate, which they did again this year. This year’s report was viewed neutral to bearish on its face, but buyers were quick to come in when the December contract hit the $3.20 contract low for the third time this month.
The National Agricultural Statistics Service released updated prevent plant acres on Aug. 13. The corn number was nearly 6 million acres, which was perceived as higher than expected. Prices rallied further, but fell short of filling overhead gaps left from July 13.
The only change to the 2019-20 WASDE balance sheet was an export increase of 20 million bushels which dropped ending stocks to 2.228 billion bushels. This was a little lower than the 2.268-billion-bushel estimate.
According to the WASDE report, we were looking at record yields and production this year as of Aug. 1. On the 2020-21 U.S. balance sheet, planted and harvested acres were unchanged at 92 and 84 million acres, respectively. The yield was amped up 3.3 bushels per acre to a record 181.8 bu./acre! This exceeded the average trade estimate of 180.5 bu./acre. Production increased by 278 million bushels from July to 15.278 billion bushels. The pre-report estimate was 15.182 billion bushels.
On the demand side, feed usage and exports were each raised 75 million bushels to 5.925 and 2.225 billion bushels, respectively. Ending stocks were 108 million bushels higher than last month at 2.756 billion bushels and compared to the estimate for 2.8 billion bushels. This is the largest carryout since 1987-88. The average farm price dropped 25 cents to $3.10 for 2020-21 and 50 cents lower than the $3.60 for 2019-20.
Prevent plant acres were released by the Farm Service Agency this week showing 5.375 million acres of corn were in this category. This is leading to speculation that planted acres may decline 1.5 to 2 million acres. Prevent plant soybean acres were 1.22 million acres, suggesting acreage may decline slightly on future reports. Keep in mind that the U.S. Department of Agriculture doesn’t have to use the FSA numbers.
World ending stocks for 2019-20 at 311.3 million metric tons was slightly lower than the 312.5 mmt trade estimate and last month’s 311.9 mmt figure. The 2020-21 ending stocks number was 317.5 mmt vs. 320.4 mmt estimated and 315 mmt last month.
Weekly export sales were neutral with 14.8 million bushels for old crop and 21.8 million bushels for new crop. Old crop commitments now total 1.74 billion bushels, down 12 percent from last year. We need just 6.8 million per week to hit the USDA’s 1.795 billion bushel target. For new crop, total commitments are 452 million bushels, eclipsing last year’s 172.5 million bushels, and are the largest for this date in 24 years.
Weekly ethanol production fell 13,000 barrels per day to 918,000 bpd. Ethanol production dropped 596,000 barrels to 19.75 million barrels. Stocks are the lowest since December 2016. Net margins were 6 cents better at 8 cents per gallon. Brazil’s tariff-free ethanol import quota of approximately 200 million gallons is due to expire Aug. 31. Any imports over that level are subject to a 20 percent tariff. The United States essentially uses all the quota as Brazil is the biggest buyer of U.S. ethanol. The United States has exported between 340 and 500 million gallons of ethanol to Brazil over the last three years. The United States has requested the quota be extended and President Trump has asked the tariff over the quota be eliminated.
Outlook: There’s an old saying that triple bottoms and triple tops on the charts don’t hold. This week, December corn established a triple bottom at $3.20 per bushel and we have a record corn harvest facing us. Crop conditions were the second highest in 10 years as of Aug. 9.
One mitigating factor against lower prices this week was the high wind that stomped through Iowa early in the week, damaging crops and storage facilities. Even if we take the high side of current estimates and lost 450 million bushels of corn, the 2020-21 ending stocks number would still be 2.3 billion bushels.
The fund short-covering action in post-storm and USDA report broke the string of five lower weekly closes. Overhead gaps may be upside targets, but a big harvest is just ahead. The gap in December corn is from $3.42 to $3.43.75 per bushel.
For the week, September corn rallied 16.75 cents to $3.24.5, December jumped 17.25 cents to $3.38, and December 2021 gained 11.25 cents to close at $3.72 per bushel.
SOYBEANS — For the first time in since 2014, November soybeans closed higher on the day of the August WASDE report. The uptick in report day prices came despite a record soybean yield and near record production.
World ending stocks for 2019-20 was viewed as bullish and contributed to the rally. Providing underlying support throughout the week was China’s extension of their string of U.S. soybean purchases to eight straight days. That would be nine of the last 10 days, ahead of the Aug. 15 virtual meeting with the United States to discuss progress on the Phase 1 trade deal. This may be goodwill positioning, but we’ll take what we can get as China is still well short of their Phase 1 commitment of importing $36.5 billion worth of U.S. agricultural products.
The derecho storm across Iowa, parts of Illinois and Wisconsin, was not viewed as detrimental to the soybean crop. However, storage issues may affect local movement and basis.
November soybeans rallied late in the week to tease the 200-day moving average at $9.03 per bushel. Drier weather forecasts for the next two weeks are causing chatter about pod-fill, but the cooler temperatures should mitigate the concern.
The WASDE report made a single change to the 2019-20 balance by increasing the crush 5 million bushels. This directly fed to the ending stocks with a decline of 5 million to 615 million bushels — just slightly below the 617 million trade estimate. They left the average farm price at $8.55 per bushel.
Changes to the 2020-21 balance sheet included a 3.5 bu./acre increase in yield to a record 53.3 bu./acre! This translated to a 290 million bushel increase in production to 4.425 billion bushels. Traders were anticipating yield at 51.3 bu./acre and production at 4.263 billion bushels. On its face, these numbers were bearish.
On the demand side, crush was raised 20 million to 2.18 billion, exports increased 75 million to 2.125 billion, and residual up 5 million. This added 100 million bushels to usage. Ending stocks jumped 185 million bushels to 610 million bushels, just 5 million bushels less than this year! The average trade guess was much lower at 517 million bushels. Ending stocks to use rose to 13.7 percent with the average farm price cut 15 cents to $8.50 per bushel.
Minnesota’s corn yield is forecasted at 197 bu./acre with soybean yield of 51 bu./acre! Iowa’s corn was put at 202 bu./acre with beans at 58 bu./acre. Illinois’ corn was 207 bu./acre and soybeans at 64 bu./acre.
World 2019-20 ending stocks were 95.9 mmt compared to 99.1 mmt estimated. World ending stocks for 2020-21 at 95.4 mmt were also below the 98.6 mmt estimate. World ending stocks for both years were viewed as neutral to bullish. Brazil’s soybean crop for 2020-21 was pegged at 131 mmt — the same as last month — but their exports were 1 mmt higher at 84 mmt. Argentina’s soybean production at 53.5 mmt was unchanged, but their exports were also raised 1 mmt to 7.5 mmt. China’s total soybean imports for 2019-20 were increased 2 mmt to 98 mmt and for 2020-21 were upped 3 mmt to 99 mmt! U.S. soybean exports to China in 2020-21 are expected to increase 29 percent year-on-year.
Weekly export sales exceeded expectations for both old and new crop. Old crop sales were 20.9 million bushels, bringing total commitments to 1.75 billion bushels. The USDA forecast is 1.65 billion, but there will likely be some unshipped bushels pushed into new crop. China has 99 million old crop bushels yet to ship. New crop sales were 104.3 million bushels. Total new crop commitments stand at 660.5 million bushels vs. just 164.2 million last year. China accounts for 378.5 million bushels of the new crop commitments or 57.3 percent. Some are speculating that China’s fourth quarter U.S. soybean imports could reach $10 billion, which will go a long way in fulfilling the Phase 1 trade obligation.
Outlook: November soybeans posted an outside, higher week on the charts as funds added length to their position. Daily export sales announcements were supportive, as were drier forecasts for the last half of August and the weather event in Iowa that propped up corn prices. The USDA reports were termed bearish/neutral for old crop and neutral/bullish for new crop.
The November contract has not been able to close over $9.00 and the 200-day moving average is resistance near $9.03 per bushel. We’ll need good demand to continue to hold these levels. For the week, November soybeans soared 31.25 cents to $8.98.75 and November 2021 rallied 21.25 cents to close at $9.06.5 per bushel.
Nystrom’s Notes: Contract changes for the week as of the close on Aug. 14: Chicago September wheat was 4.25 cents higher at $5.00, Kansas City was 9.75 cents higher at $4.25.25, and Minneapolis was up 3 cents at $4.97.5 per bushel.