The following marketing analysis is for the week ending Aug. 20.
CORN — Well, the bullish enthusiasm from the Aug. 12 World Agriculture Supply and Demand Estimates report was short-lived. Within a week we are lower than the day before the report — when December corn closed at $5.59.25 per bushel. The high on the day of the report was $5.94.25 per bushel. December corn closed lower in five out of six trading sessions from Aug. 13 through Aug. 20.
U.S. corn conditions for the week ended Aug. 15 fell 2 percent to 62 percent good/excellent, a bigger decline than had been expected and compared to 71 percent good/excellent last year. The Pro Farmer crop tour was conducted during the week which confirmed the good crop in the eastern Corn Belt and variable yields in the western belt.
A big risk-off day came late in the week after the Federal Reserve seemed to signal they may ease their stimulus measures before the end of the year and increasing cases of Covid around the world led to caution about economic growth.
The tour found Illinois corn yield at 196.3 bushels per acre vs. 189.4 bu./acre on last year’s tour and the tour average of 184.4 bu./acre. Iowa’s corn yield was estimated at 190.8 bu./acre vs. 177.8 bu./acre last year on the tour and the three-year tour average of 183 bu./acre. Minnesota’s corn yield came in at 177.4 bu./acre vs. 195.1 bu./acre last year and the tour’s three-year average of 181.4 bu./acre. Nebraska’s corn yield was pegged at 182.6 bu./acre vs. 175.2 bu./acre last year and 175.6 bu./acre average. Indiana’s corn yield was estimated at 193.5 bu./acre vs. 179.8 last year and 174.5 bu./acre average. Last year, the tour’s overall U.S. corn yield was 5.5 bu./acre over the final U.S. Department of Agriculture yield. On average, the tour’s U.S. corn yield runs 6 bu./acre above the USDA’s final yield. In their final report, they estimated this year’s U.S. corn yield at 177 bu./acre with a crop at 15.116 billion bushels. The August USDA report used 174.6 bu./acre for a crop of 14.75 billion bushels. The tour’s organizers used harvested corn acres 910,000 acres higher than the USDA.
Weekly export sales were above expectations for old crop at 8.5 million bushels, bringing total commitments to 2.768 billion bushels. The USDA’s target is 2.775 billion bushels so we should make the projection. New crop sales at 20.1 million bushels were within estimates and brings total commitments to 732.2 million bushels vs. 480.4 million on the books last year on this date. Over half of the new crop sales are destined to China. The latest USDA 2021-22 export forecast is 2.4 billion bushels, down 375 million year-on-year. China’s corn imports year to date are 18.2 million metric tons, up 298 percent from last year.
Weekly ethanol production fell for a sixth straight week to 973,000 barrels per day, down 13,000 bpd. Ethanol stocks fell for a third week, down 718,000 barrels to 21.56 million barrels. Margins improved a nickel to 33 cents per gallon. Gasoline demand was lower at 9.33 million bpd from 9.43 million bpd. This is down 3 percent from pre-Covid 2019 levels.
Outlook: Time is winding down for corn yields to benefit from rainfall with some in the East wanting drier conditions to push them toward harvest — even though 73 percent of U.S. corn production areas were said to be in some level of drought. Minnesota indicates 42 percent of the state in extreme drought, up from 35 percent the previous week.
The week was quiet until a risk-off session was ignited by crude oil prices falling to their lowest price since May and the U.S. dollar soaring to its highest since November. Ideas that the Federal Reserve may cut back on its stimulus program earlier than expected and increasing cases of Covid slowing economic growth were cited as factors in the risk-off action. This pushed December corn back to prices below the day before the bullish Aug. 12 WASDE report. Seasonally, December corn gains on the March from early September to early October (narrower carry).
For the week, September corn fell 29.5 cents to $5.38.75, December plunged 36 cents to $5.37, and December 2022 retreated 17.75 cents to $4.99 per bushel. We’ll see how the next few weeks’ weather pans out, but for now, we’re returned to the $5.25 to $5.65 trading range, but don’t rule out a test of $5.00 per bushel.
SOYBEANS — November soybeans suffered the same pattern as seen in December corn despite an 11-day streak of new daily soybean export sales announcements to either China or unknown. From Aug. 16 through Aug. 20 the USDA announced new crop soybean sales of 36.9 million bushels to either China or unknown.
Rain in the driest areas of the northern Plains was viewed as helping limit losses and in some cases could add bushels. U.S. soybean crop conditions fell 3 percent in the week ended Aug. 15 to 57 percent good/excellent, a larger drop than had been expected, and compared to 72 percent last year for this week.
Outside macro markets lent a bearish tone to commodities with ideas the Federal Reserve will raise interest rates earlier than expected that sent the U.S. dollar to its highest level since November. Energy prices slumped as Covid cases rose worldwide. And to add fuel to the fire, an Aug. 20 news article reported the Environmental Protection Agency was going to recommend to the White House to cut U.S. biofuel blending mandate below 2020 levels for the next two years! Under the Renewable Fuels Standard, oil refiners must blend biofuels into the fuel mix to buy Renewable Identification Numbers. None of this helps demand for biofuels.
Weekly export sales were large as expected with old crop sales of 2.5 million bushels and new crop sales at 78.7 million bushels for the week that ended Aug. 12. Old crop commitments are 2.281 billion bushels, surpassing the USDA forecast of 2.26 billion bushels. New crop commitments soared to 509.4 million bushels vs. 755 million bushels last year by this date. The USDA’s 2021-22 export estimate in August was 2.055 billion bushels, down 205 million bushels year/year. China imported 8.7 mmt of soybeans in July with 7.9 mmt coming from Brazil and just 42,300 metric tons from the United States.
The Pro Farmer crop tour doesn’t measure soybean yield but counts pods. The tour estimated above average pod counts in Illinois and Iowa, and below average in South Dakota and Minnesota. In their final analysis, they put U.S. soybean yield at 51.2 bu./acre with production at 4.436 billion bushels. The August USDA report used 50 bu./acre with the crop at 4.339 billion bushels.
The National Oilseed Processors Association crush was a disappointment with only 155.1 million bushels soybeans crushed in July. The trade was expecting 159 million bushels crushed. This was the smallest July crush since 2017. Soyoil stocks were higher than anticipated at 1.6 billion pounds compared to 1.5 billion estimated.
In addition to U.S. finishing weather, attention in the next couple of months will also look south to dryness in Argentina and Brazil. Both countries are dry with chances for La Niña to last until the end of the year which would limit moisture. Argentina is battling lower river levels which are cutting loading levels by at least 25 percent. The Parana River is at its lowest in 77 years and the Argentine government has a 180-day water emergency in place.
Brazil will begin soybean planting in about a month with Argentina following in October. Safras & Mercado estimates Brazil will produce 147.4 mmt of soybeans in 2022 compared to the USDA estimate of 144 mmt. The Rosario Grain Exchange expects Argentina’s 2021-22 soybean acres at 16.4 million hectares to be the lowest since 2006. Their Argentine 2021-22 soybean production is estimated at 49 mmt vs. USDA’s latest 52 mmt projection.
Outlook: Soybeans eased higher on continued daily export sales announcements until the big risk-off day late in the week that was sparked by bearish macro action, i.e., weak energies and strong dollar, plus a better outlook for rain. The report of the lower recommendation for biofuel blending was the final touch to a weekly key reversal lower in November soybeans. Crude oil posted its longest losing streak since 2019 with seven consecutive lower closes as of Aug. 20. November soybeans closed 74.25 cents lower for the week at $12.90.75 per bushel, its first close below $13.00 since late June. The January contract dropped 73.5 cents to $12.95.75 and November 2022 soybeans were down 30.25 cents at $12.26.5 per bushel.
How the weather pattern affects the final touches on the soybean crop in the East vs. West yield fight is an unknown as we head into the end of the month. There are many years when we don’t have much confidence in soybean yield estimates until the combine rolls. For the now, a soybean yield of around 50 bu./acre seems to be the minimum for many traders. Seasonally, November soybeans usually erode vs. the January contract through late September, i.e., more of a carry. We broke technical support this week and we’ll need something bullish for all to recover.
Nystrom’s notes: Contract changes for the week as of the close on Aug. 20 (September contracts): Chicago wheat slumped 48 cents to $7.14.25, Kansas City fell 40.25 cents to $7.02, and Minneapolis lost 25.75 cents to $9.18.5 per bushel.
Phyllis Nystrom is a market analyst with CH S Hedging in St. Paul.