AgriVisor Market Recap

Thursday, May 21, 2020
Wheat was once again the leader of the market today. Yesterday wheat benefited from a drop in the Russian crop estimate, and today it took support from the tour of western US states that is showing more damage to the crop from the April freeze than thought. Corn and soybeans were quieter today as funds showed little interest in altering their positions on either commodity. Longer range weather models indicate more favorable conditions for the Corn Belt which further reduced fund interest in commodities. More attention was placed on the outside markets as unemployment again jumped in the US last week, bringing into question the stability of the US economy. 

Export sales for the week ending May 14th were favorable across the board as all were at the top of estimates and above the volume needed on a weekly basis. Corn sales were split with 38.4 million bu old crop and 1.5 mbu new crop. Soybean bookings came in at 44.28 mbu old crop and 24 mbu new crop. Wheat sales totaled 6.46 mbu old and 7.48 mbu new crop. These were most supportive for wheat as commitments on that grain are now 5.75 mbu above yearly USDA expectations. 

The most interest in this sales report was on soybeans. Even though the USDA lowered its old crop soybean export forecast in the May supply and demand report, there are indications it may need to be reduced even further. This is from the pace of soybean exports we have seen compared to the stage of the marketing year we are at. Using this method, we could see the USDA lower old crop soybean exports another 100 million bu, putting ending stocks at a near burdensome 680 million bu. 

Current weather conditions across the United States are having a divided impact on market values. Persistent rainfall has caused planting delays in some regions of the US while others need precipitation. Neither of these are getting too much market interest at this time though, especially the wet regions. This is a result of the large crops that were raised last year with similar planting and growing conditions. This is also why the remains very little risk premium in commodity values. 

Long range weather outlooks are more favorable. The official 30- and 90-day outlooks from NOAA were released today and showed benign conditions for much of the Corn Belt. June is expected to bring normal temps for much of the Corn Belt with normal to slightly above normal precipitation. These same conditions are forecast in the 90-day outlook that will take us through August. If correct, this is favorable for crop production, and will lessen the amount of risk premium placed in commodity values. 

Another country being significantly impacted by weather is Argentina. This is not just on production, but for transportation. Water levels on Argentine rivers has dropped to such a low level that barges are now stranded and not able to make it to port. This is starting to impact Argentina’s ability to make exports. The Paraguay government has agreed to open water reservoirs to raise the water levels on these rivers, allowing barge movement to resume. 

Fund attitude is having a mixed impact on market direction. Funds have held an unseasonably large short corn position for the past several weeks and show no signs of reversing it. At the same time, funds are holding a sizable long position in soybeans, and seem content with that as well. A primary reason for this split position is that ending stocks of corn are showing no signs of decreasing in the immediate future, while soybean reserves could tighten as the marketing year progresses. 

We are seeing interesting but somewhat confusing numbers on new crop corn demand. Right now, the USDA is predicting new crop corn demand of 4.95 billion bu for ethanol and 1.775 billion bu for exports. These would be the lowest volumes of use for these since the 2012/13 marketing year. That year usage was restricted by low stocks however, which is not the case for this year. Poor usage is from demand destruction and elevated global competition, which are harder for a market to overcome.