AgriVisor Market Recap

Friday, July 31, 2020
Trade was mixed for much of today’s session with little interest being shown from the bulls or the bears. The majority of the session was spent finalizing month end positions. Commodities were supported by recent weakness in the US dollar and export demand with flash sales of 114,300 metric tons of corn being sold to Mexico and 220,000 mt of soy meal being booked by the Philippines. This was countered with favorable weather across much of the Corn Belt. 

One of the main topics in today’s market remains weather. Much of the Corn Belt is going to see precipitation in the next few days, especially southern areas. Rains are forecast to spread northerly in the next week, bringing relief to areas reporting crop stress such as Western Iowa. This outlook has greatly reduced any addition of risk premium in the market, especially since funds have already lightened their short position in recent weeks.  

Another predominant factor remains demand, especially on the new crop contracts. The United States already has 505 million bu of new crop soybean sales on the books, a record for this time of year. New crop corn sales are also high at 331 mbu, 15% more than a year ago. This is in part due to record Chinese buying at 149 mbu. Some of the strength from this demand has been negated by poor old crop corn sales, especially with cancellations taking place last week. 

Trade has been impressed with recent Chinese demand in the export market, but this is definitely a two-sided story. China has been buying record volumes of new crop corn and soybeans as well as other products to replenish domestic reserves. Even with this demand it is still unlikely China will reach the limits set in the Phase 1 agreement. In fact, through the first seven months of the calendar year Chinese purchases trail 2017, the last year before the trade war started. 

The question now is how long the current export pace we have seen will last, especially on corn. August is typically when the Brazilian corn export season begins, with the most sales out of the country taking place from now until October. Last year Brazil sold 20 million metric tons of corn over this period. Brazil over-extended its corn sales last year though, so we may see a more reserved export pace this year. One factor in this is if Brazilians think they can export corn now and import it back in at a lower value later in the year. 

It has been well publicized that Brazil will expand its soybean production this coming season. The question now is how much of an increase we may see. Most estimates are for an increase in plantings from 3% to 5% from this year. This would put soybean plantings between 94 and 96 million acres. With normal growing conditions this will give Brazil a soybean crop of 127 mmt to 131 mmt. Even at the low end of this estimate range it will generate unneeded competition for the US in the global market. 

Country movement of farm stored grain has dropped off considerably in the past week. Buyers are not showing as much eagerness to push for deliveries though as they feel another flush of inventory will hit the market prior to this fall’s harvest. Domestic processors are facing uncertain margins which is also limiting their interest in extending bids at the present time. Others already claim to have enough coverage to last until harvest gets underway and are willing to wait for new bushels rather that push for old crop. Hopes for higher quality new crop grain is also causing buyers to wait to extend coverage, mainly on corn. 

Covid-19 is starting to be more of a factor in global trade, especially for South America. China has recently detained an inbound vessel of Brazilian soybeans after crew members tested positive for the virus. In Argentina we are seeing widespread outbreaks at export terminals and vessels being redirected as necessary. Covid is also impacting how domestic commodity movement happens in South America as truckers are not willing to enter areas with elevated cases. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.