The following marketing analysis is for the week ending May 31.
CORN — It’s a weather market, no doubt about it, but politics reared their ugly head going into the weekend. Weather first: maps continue to forecast rain and delay planting into the first week of June, but extended maps could provide some relief. The problem is, by the time the wettest areas dry out enough to plant, there’s usually rain on the horizon.
Corn surged higher when traders returned from their long holiday weekend, hesitated at mid-week, then renewed the swing higher before politics interfered. On the continuous chart this week, corn traded to its highest level since June 2016. December corn hit a new contract high during the week at $4.54 per bushel. Weather forecasts, delayed and prevent plant chatter, and fund/speculative short covering were the drivers of the market, but trade tensions could be making a comeback.
President Trump announced (sort of out of the blue) a 5 percent tariff on all imports from Mexico effective June 10. The tariffs will ratchet higher until Mexico does more to slow the tide of illegal immigration from their side of the border into the United States. President Trump did not outline what Mexico needs to implement for it to be a win and avoid the tariffs. Reports indicated the tariffs will rise to 15 percent on Aug. 1, 20 percent on Sept. 1, and 25 percent on Oct. 1. Mexico sent their Foreign Affairs Secretary to Washington to point out all they are currently doing to stem the flow across the border. Mexico’s president stated they have no plans to retaliate, but would seek out a discussion instead. Mexico is the biggest buyer of U.S. corn and wheat and the second-largest buyer of U.S. soybeans and meal.
Speculation rose over how high the number of prevent plant acres will reach. Numbers circled around the 6-10 million-acre figure for corn alone. The record for prevent plant corn acres was in 2013 with 3.6 million prevent plant acres. Expectations for the yield drag on corn are in the 6 bu./acre area, putting the average yield at 170 bu./acre. This yield number may still be too high as high yielding acres in the “I” states are being lost. If we don’t have nearly ideal summer weather conditions, this number could look too high.
Ideas for 2019-20 carryout are ranging from the 1.2-1.5 billion bushels. The U.S. Department of Agriculture’s balance sheet in May was using 2.485 bushels. This may not be the best year for the USDA to eliminate the August objective field survey.
Corn planting as of May 26 was just 58 percent complete vs. 90 percent on average. This was a record slow pace for May 26. Illinois was only 35 percent complete and 60 percent behind its average, while Minnesota was 66 percent complete and 27 percent behind their average. The average U.S. planting progress as of June 2 is 96 percent complete.
China may be battling fall armyworms this year. Without natural predators, it has been projected China could lose up to 20 percent or more of this year’s corn crop. This could become a significant problem if they stick with their plans to expand ethanol use. Keep in mind, however, that South America had a huge crop this year to compete with U.S. supplies. South America presently has the cheapest corn and soybeans for world consumption.
Outlook: For the week, July corn rallied 22.75 cents to close at $4.27, December jumped 24 cents to $4.43.75, and December 2020 corn eked out a 2-cent increase to $4.16 per bushel. For the month, July corn was up 64.5 cents and December corn was 62.75 cents per bushel higher. July corn traded from $3.43 to $4.38 during the month for a 95-cent range. December corn traded from a new contract low of $3.63.75 to a new contract high of $4.54 during the month for a 90.25 cent per bushel range.
Without the Mexican tariff surprise on May 31, it had looked like we would have a strong close to the week. Who gets rain, and how much over the weekend and what the forecasts look like for the first full week of June will determine where we go from here. As prevent plant dates come and go, we will hear more predictions of how many corn acres won’t get planted this year. The “easy” money may be gone, but there is enough uncertainty about what is yet to come to limit nearby losses. Beware of weather changes that could push planting in the eastern belt.
SOYBEANS — Soybeans jumped on the bandwagon this week as traders realized if you can’t plant corn, you can’t plant soybeans. However, soybeans will be planted later than corn and if you want to collect any Market Facilitation Program payment you have to plant the acres. This could encourage more soybean acres even though the corn/soybean price ratio doesn’t fit, and corn prevent plant may be more attractive than planting anything. The fly in the ointment is we don’t have any payment details on how the MFP payment will be calculated. There will be some sort of first payment in July/August, but there is no guarantee of a November or January payment. The USDA doesn’t want to skew growers’ planting intentions based on the program.
Soybeans traded to their highest since mid-April on the continuous chart despite the soybean planting window is wider than corn and we have plenty of world soybeans available. U.S. planting as of May 26 was 29 percent complete vs. 66 percent on average. Illinois was 14 percent complete vs. 70 percent on average and Minnesota had 35 percent in the ground vs. 77 percent on average. The average U.S. pace for June 2 is 79 percent complete.
There wasn’t any positive news on the progress of U.S./Chinese trade talks. In fact, it seems to be going the other way. China has reportedly put a hold on buying any U.S. soybeans after the war escalated. China has 7 million metric tons of U.S. soybeans bought for old crop, but haven’t shipped them. According to reports, China doesn’t currently have plans to cancel these purchases, but won’t be making any new ones. China stated “we warned you” on further tariff or trade actions.
China continues to discover new cases of African swine fever in the country. North Korea reportedly has uncovered their first case of ASF.
Outlook: For the week, July soybeans rallied 48 cents to settle at $8.77.75, November surged 48.25 cents to $9.04.75, and November 2020 was up 28.75 cents to $9.34.5 per bushel. For the month, July soybeans were 23.75 cents higher and November was up 30 cents per bushel. From the recent low on May 13 to this week’s high on May 29, July soybeans traded from $7.91 to $8.92.75 for a $1.01.75 cent range per bushel. During the same time frame, November soybeans traded from $8.15.5 to $9.18.5 for a range of $1.03 per bushel.
The window for planting soybeans is wider than for corn, and with the current MFP2 payment based on planted acres, it is likely we will see some late planting switch to soybeans vs. corn. How high that number will be is yet to be determined. Stay tuned to weather forecasts and any trade developments. Trying to pick a high or if the rally is over is a thankless job. The market will let us know. In the meantime, take steps to manage the risk you have, whether that involves covering feed needs or looking down the curve to protect prices you can live with.
Nystrom’s Notes: Contract changes for the week ended May 31: Minneapolis July wheat managed a 4-cent increase to $5.48, Chicago was up 13.5 cents at $5.03, and Kansas City surged 31 cents higher on weather/quality concerns to $4.73 per bushel. Crude oil plunged $5.13 lower to $53.50, ULSD crashed 13.25 cents lower, RBOB tumbled 14.25 cents, and natural gas dove 15.75 cents lower.