The following marketing analysis is for the week ending March 13.
CORN — Well, this was one heck of a week! Just when you think you’ve had enough bad news thrown at you, something else comes along to pile on. March 9’s price plunge across the agricultural, energy and equity sectors was a case in point; only to be followed up on March 12 with the Dow’s biggest one-day loss since 1987! But on March 13, the stocks market staged a huge rebound after President Trump declared a national emergency and how the federal government will respond.
On March 11, the World Health Organization officially declared Covid-19 a pandemic. This was followed up with President Trump’s announcement of travel restrictions between the United States and Europe. The stock market has officially moved into a bear market after plummeting 20 percent from its high.
With the coronavirus and global demand concerns serving as a backdrop, Saudi Arabia responded to Russia’s refusal to join in an oil production cutback with retaliation of their own. Saudi Arabia announced on March 7 they would increase oil production to 12.3 million barrels per day from 9.8 million bpd and began cutting prices to their customers. Russia responded by indicating they would increase crude oil production 500,000 bpd to a record 11.8 million bpd. This sent energy markets into a freefall on March 8. Crude oil fell as much as 33 percent at the lowest point of $27.34 since the Gulf War in 1991 before gaining traction.
The U.S. stock market had to use their trigger to halt trading temporarily at least twice during the week to let traders regroup before resuming trading. The U.S. dollar index was hit as well, but any benefit for U.S. exports was erased as other currencies fell at a faster pace. A new test for coronavirus was approved this week by the FDA that reportedly will be ten times faster than current tests. Faster tests mean faster results to act on anyone testing positive. A quick response would hopefully help to slow the spread of the virus.
The March World Agricultural Supply and Demand Estimates report was a non-event. The only thing the U.S. Department of Agriculture changed on the U.S. corn balance sheet was the average farm price. They lowered it from $3.85 per bushel to $3.80 per bushel. The ending stocks number was left alone at 1.892 billion bushels vs. expectations for 1.882 billion bushels. South America’s corn estimates were also unchanged and in line with pre-report estimates with Brazil at 101 million metric tons and Argentina at 50 mmt. World ending stocks were 297.3 mmt, in line with estimates and slightly higher than last month’s 296.8 mmt figure.
AgRural put Brazil’s first corn harvest as of March 9 at 41 percent complete, right at the average. Safrinha corn planting was pegged at 78 percent complete vs. 86 percent on average. Late in the week, the Buenos Aires Grains Exchange left Argentina’s corn crop at 50 mmt, but cut the corn rating from 50 percent good/excellent to 38 percent good/excellent. Harvest is 7 percent complete. The Rosario Grain Exchange is pegging it at 50 mmt.
Weekly export sales were above estimates at 57.9 million bushels, bringing total commitments to 31 percent behind last year. We need to average 22.5 million bushels of sales per week to cover the USDA’s 1.725-billion-bushel outlook.
Weekly ethanol production fell 35,000 bpd to 1.044 million bpd. Stocks were down 630,000 barrels at 24.3 million barrels, but a record high for this week. Net margins fell 3 cents to a negative 12 cents per gallon. Margins are expected to suffer as ethanol RBOB prices fall below ethanol prices, reducing the incentive to blend ethanol any more than required.
Outlook: The agricultural markets are being overshadowed by macro events that are out of our control. And now we don’t even have March Madness to distract us! Demand for commodities is uncertain, but won’t people still need to eat? The monthly WASDE report took a backseat to the crude oil war between Russia and OPEC, coronavirus news, and world equity markets. U.S. planting weather will become a larger issue as we approach the March 31 U.S. Prospective Planting report. Wet forecasts for the Delta and the southern United States are delaying early planting in those areas, but it isn’t driving prices yet. The two-week forecasts for much of the Midwest also leans to the wetter, cooler side. And we haven’t seen any business that is attributed to the Phase 1 trade deal. At some point, buyers should find value, but until the market tells us so, we will flounder along. There are tools to manage your risk and this is the atmosphere where it’s prudent to investigate them.
May corn set a new contract low this week at $3.63.5 per bushel and the December corn’s new contract low is $3.70.75 per bushel. For the week, May corn dropped 10.25 cents to $3.65.75, July fell 10.75 cents to $3.68.5, and December was 8.5 cents lower at $3.73 per bushel.
The Chicago Mercantile Exchange has closed the trading floor until further notice with trading as usual on the Globex platform. The Minneapolis Grain Exchange has closed the options trading room until further notice.
SOYBEANS — Atmosphere of uncertainty plagued the markets this week and prices retreated. School are being closed around the country, businesses are restricting travel, and meetings, concerts, and conventions are being cancelled. Disneyland and Disney World are closing through the end of the month. Museums are closing. Social isolation is having a negative effect on about everything. But Apple is reopening their stores in China.
Thanks to a weak real, Brazilian farmers are seeing record-high domestic prices for both soybeans and corn. The real traded to record lows vs. the U.S. dollar, despite the U.S. dollar also weakening. Brazil’s bean basis was jumping on March 13 making PNW soybeans competitive for late summer. Flash soybean sales to unknown this week may be to China as Brazil’s loading system is becoming backlogged.
The March WASDE report didn’t hold any surprises, although South American soybean production numbers crept higher. Brazil and Argentina’s soybean production figures both were raised 1 mmt to 126 mmt and 54 mmt, respectively. On the U.S. balance sheet, seed usage was increased 3 million bushels and residual was cut 3 million bushels. Ending stocks were unchanged at 425 million bushels versus the trade estimate of 432 million bushels. The average U.S. farm price dropped a nickel to $8.70 per bushel. World ending stocks at 102.4 mmt were slightly higher than the 99.7 mmt trade estimate and last month’s 98.9 mmt figure.
CONAB has been dragging their feet on Brazil’s soybean production forecasts. This month they did raise it to 124.2 mmt from 123.3 mmt last month, but they still lag most other estimates which range up to 128 mmt. Weather in South America has been mixed with Argentina looking for additional rainfall. The BAGE dropped their Argentine soybean number from 54.5 mmt last week to 52.0 mmt this week. The Rosario Grain Exchange stepped lower from 55 mmt to 51.5 mmt. They slashed the crop condition from 50 percent good/excellent to 39 percent good/excellent with 22 percent of the crop mature vs. 25 percent on average. Brazil has seen dryness become a topic in a few areas, but rain is in the forecast. AgRural estimated Brazil’s soybean harvest at 49 percent complete as of March 9 vs. 47 percent on average. Brazil’s farmers have been aggressive sellers recently with the weakness in their currency bringing them the highest prices in years. Safras and Mercado put this year’s sales at 61 percent sold vs. 46 percent on average, with 14 percent of next year’s crop already sold.
We saw daily USDA export sales flashes three days in a row that totaled 372,500 metric tons. Total weekly export sales were below the lowest guess at 11.1 million bushels and the second lowest of the marketing year. This week’s figure included cancellations by China of 90 tmt, leaving them with only 63 tmt on the books. Sales commitments have fallen 16 percent behind last year and need to average 22.1 million bushels per week to hit the USDA’s 1.925-billion-bushel mark. China left their soybean balance sheet unchanged this month, saying they don’t expect the coronavirus to have a major impact on yearly soybean demand. They are forecasting soybean imports this year at 87.7 mmt vs. USDA at 88 mmt and last year’s 85 mmt.
Outlook: May soybeans posted a new contract low at $8.45.25 this week and for the November contract the new low is $8.60 per bushel. Despite having three separate new export sales announcements this week and lower Argentine production estimates late in the week, soybeans continued to be overshadowed by macro events, i.e. coronavirus and its effect on general demand. The market will shift its focus more to the March 31 reports and spring planting weather for the United States; but the coronavirus will stick with us until it peaks in the United States.
For the week, May soybeans plunged 42.5 cents to $8.48.75, July 44 cents lower at $8.56, and November down 41 cents at $8.64.5 per bushel.
Nystrom’s Notes: Contract changes for the week as of the close March 13: Chicago March wheat declined 9.75 cents to $5.06, Kansas City dropped 14.75 cents to $4.31.5, and Minneapolis tumbled 17.25 cents to $5.08 per bushel. Crude oil for the week crashed 23.1 percent or $9.55 per barrel to $31.73 per barrel.