The following marketing analysis is for the week ending April 23.
CORN — Let’s just take a moment and absorb this week’s impressive rally to prices not seen since July 2013! Old crop corn contracts locked up the 25-cent limit on April 22. The nearby contract closed above $6.00 for the first time since 2013. A combination of demand (high basis levels), cool temperatures in the United States (which will slow germination), stress on Brazil’s safrinha corn crop caused by a lack of moisture, and the willingness of money to flow into the market on the long side combined to punch prices to multi-year highs.
Brazil’s forecast is dry into May when their normal dry season begins. This year, a higher-than-normal percentage of the safrinha corn crop will pollinate in May due to late planting outside the “ideal” window. Private estimates are beginning to suggest Brazil’s corn crop will drop below 100 million metric tons. As of April 16, Brazil’s first corn harvest was 79 percent complete vs. 76 percent on average.
The U.S. attaché in China projected China will import 28 mmt of corn this year which compares to the official U.S. Department of Agriculture forecast for 24 mmt. Other private thoughts are closer to 30 mmt. China issued new guidelines for feed rations to reduce the use of corn and meal in hog and poultry feed. They suggest using wheat, rice, DDGs, barley, sorghum, corn protein powder, and amino acids, etc. as substitutes where appropriate.
Private estimates for Brazil’s total corn crop slid lower this week with one prominent private consultant falling 2 mmt to 103 mmt. Rabobank cut their forecast 2 mmt to 105 mmt. AgRural dropped their outlook 3 mmt to 103.4 mmt. A Reuters survey of analysts put Brazil’s corn crop at 107.3 mmt, down 90,000 metric tons from the survey’s February outlook. There has been chatter in the trade that Brazil’s total corn crop may drop closer to 100 mmt. Does anyone buy the USDA’s 109 mmt outlook? Brazil has also suspended their import duty on non-Mercosur corn, soybeans, meal, and soyoil through 2021 as they try to slow food inflation.
In Argentina, the Buenos Aires Grain Exchange put the corn harvest at 17 percent complete vs. the average of 28 percent complete. The crop rating fell 1 percent to 37 percent good/excellent; but they kept the production estimate unchanged at 46 mmt. The Rosario Grains Exchange lifted their corn estimate from 47.5 mmt to 50 mmt. The USDA attaché in Argentina put their corn crop at 47 mmt. The USDA is at 47 mmt.
U.S. corn planting as of April 18 was 8 percent complete, spot on the average and slightly less than the 9 percent expected. Illinois corn planting was 12 percent complete, 4 percent ahead of average. Corn emergence was 2 percent vs. 1 percent on average.
Weekly export sales were on the lower end of expectations at 15.3 million bushels, bringing total export commitments to 2.645 billion bushels. The USDA is forecasting sales this year at 2.675 billion bushels. We have 1.1 billion of the sales left to ship. China accounts for 539 million bushels of the unshipped bushels. Corn inspections, what is actually shipped, are up 84 percent for the year vs. last year while the USDA is expecting a 50 percent increase in exports year-on-year.
U.S. ethanol production for the week held steady at 941,000 barrels per day. Stocks fell 100,000 barrels to 20.4 million barrels while margins improved 6 cents to 16 cents per gallon. Gasoline demand hit a 34-week high at 9.1 million bpd. Over the last five weeks, gasoline demand was an average of 5.4 percent below 2019 levels. (Last year was Covid, so it’s hard to compare to last year.)
Political events are rising once again as Russia amassed its largest military presence since 2014 along the Ukrainian border. Any issues in this area put a strategic waterway at risk. Also this week, Russia “recommended” the U.S. ambassador leave the country as tensions between the United States and Russia escalate. Russia banned several U.S. officials — including members of the U.S. Cabinet — in retaliation for recent sanctions the United States placed on some Russian diplomats and companies.
And in the United States, the administration is signaling they want to add 4 million Conservation Reserve Program (CRP) acres to bring the total to 25 million acres. This comes at a time when we are fighting for additional corn and soybean acres to solve the tight ending stocks situation and futures prices are at eight-year highs. It’s surmised they will have to increase incentives to accomplish their goal.
Outlook: Demand has not subsided as noted with the huge inverse between the May and July futures contracts. It traded out 23.5 cents as May options expired. Posted basis levels aren’t meaningless, but pushes are getting paid for nearby and new crop supplies. Corn closed higher in seven of the last nine trading sessions. Weather and demand, demand and weather. Growers are holding tight to the old crop stocks they have left, seemingly more willing to part with a few new crop bushels at these multi-year highs. We saw a few old and new crop export sales announced this week and we have yet to see any wholesale export cancellations.
The market is in an uptrend and no one wants to stand in front of a steaming freight train. Funds are believed to hold record length, but after the exchange increased their allowed position limits last month there’s no current reason why they can’t add to their length. And there hasn’t been any reason for them yet to liquidate. Keep in mind, when (and if) the market does turn, it may go down a lot quicker than it went up. But for now, the uptrend is intact.
For the week, May corn skyrocketed 70 cents higher to close at $6.55.5 — the highest prices seen since 2013. The highest price a nearby contract traded in 2013 was $7.48.75 per bushel. The new contract high in the May contract is $6.58.5 per bushel. July corn rallied 58.75 cents to close at $6.32.5 with a new contract high of $6.36.5 per bushel. December corn closed 38.5 cents higher at $5.50.75 with a new contract high of $5.57.25 per bushel.
We will see our first 2021-22 balance sheets on the May 12 World Agriculture Supply and Demand Estimates report.
SOYBEANS — Fresh contract highs across the soybean contracts and soyoil (highest since 2008) contracts set the stage for another leg higher at a time of strengthening basis and wider board inverses as we have not satisfied nearby demand. On the continuous soybean chart, prices rose to their highest since July 2013 and closed higher for nine consecutive sessions. The 2013 high on the continuous soybean chart was $16.30 per bushel. November 2021 soybeans are the first new crop soybean contract to reach $13.00 since 2013. The May/July soybean inverse pushed out to 25.25 cents on demand for physical soybeans. Basis levels have risen along with the spread inverse, indicating how tight the situation is.
In March, China imported 7.18 mmt of U.S. soybeans, up 320 percent from last year as Brazil’s shipments were delayed by a later harvest. China imported 315,300 metric tons of Brazilian soybeans in March, down 85 percent from last year. China’s total March soybean imports at 7.77 mmt were up 82 percent from last year. Brazil has the cheapest soybeans into China through September.
Weekly export sales were within expectations at 2.4 million bushels as Brazil has the cheapest soybeans. Total export commitments are 2.23 billion bushels compared with the USDA’s outlook for 2.28 billion bushels of exports. We only need to sell 4 million bushels per week to hit the target. The unshipped sales are just 187 million bushels with China accounting for 26.2 million of those bushels. New crop soybean sales were 11.6 million bushels. Total new crop sales are 227.5 million bushels vs. 34.6 million last year at this time. Soybean inspections are up 67 percent from last year when the USDA is estimating exports to be 36 percent higher year-on-year.
As of April 16, Brazil’s soybean harvest was 88 percent complete compared to 89 percent on average. The BAGE put Argentina’s soybean harvest at 18.5 percent vs. the five-year average of 43.5 percent complete. The U.S. attaché in Argentina put their soybean crop at 45 mmt compared to the USDA’s 47.5 mmt forecast. The attaché also put their 2021-22 crop at a record 51.5 mmt. They rated the soybean crop at 9 percent good/excellent. Argentina is considering raising its export taxes on commodities. Their current export tax on soybeans is 33 percent, 31 percent on meal and soyoil, and 12 percent on corn and wheat.
U.S. soybean planting in the first report of the season was 3 percent complete, right on the average and slightly ahead of the 2 percent trade estimate. Illinois soybean planting was 5 percent complete, Indiana 4 percent, and Iowa 5 percent complete.
Outlook: I can’t remember when soybeans gained over a dollar in a single trading week! It was the same song, different verse this week as demand stays strong; i.e. translated by big basis and wide board inverses, extremely small supplies held in even tighter hands, and uncertainty over how we solve the issue in the short term. Soyoil prices have surged to levels not seen since 2008 and crush margins are profitable. The market will let us know when enough is enough and I will not pretend to know where that will occur. Manage your risk and don’t let it manage you. There are several available marketing tools to assist you. Be familiar with them.
For the week, May soybeans soared $1.06.5 to close at $15.39.75 with a new contract high at $15.49.75 per bushel. The July contract settled 93.5 cents higher at $15.16 with a new contract high at $15.25.5 per bushel. November soybeans managed a 67.5 cent gain to close at $13.41.5 with a new contract high at $13.46.75 per bushel.
Nystrom’s notes: Contract changes for the week as of the close on April 23 (May contracts): Chicago wheat jumped 57.75 cents to close at $7.10.25, Kansas City was 64 cents higher at $6.73.25, and Minneapolis rallied 54.25 cents to close at $7.18.5 per bushel. All these contracts set new contract highs.
Phyllis Nystrom is a market analyst with CH S Hedging in St. Paul.