AgriVisor Market Recap

Monday, August 03, 2020
New month positioning was the primary factor in today’s early trade. Soybeans were the leader taking support from light fund buying and the absence of deliveries against the August contract. Soybeans took additional support from another flash sale, this being 260,000 metric tons to an unknown buyer, much of which was for new crop shipment. Corn was also on the plus side but was held in check by a weaker wheat market. Overall trade was lethargic on sparse fresh news and mostly favorable weather outlooks. More interest is being shown on the global market which took some of the attention away from US developments. 

Basic supply and demand remains a primary factor in today’s market. Demand has been high in recent weeks, especially for new crop. While this is supportive, some of the bullish reaction has been negated by rising yield estimates, which may cancel the increase in usage. There are also concerns that export sales are front loaded this year and will drop off sharply once buyers have enough coverage to last until the South American harvest begins. 

When it comes to US corn exports nearly all attention is on China. China already has 225 million bu of new crop corn purchases on the books. This is very high for any buyer at this stage of the marketing year and gives the indication China may exceeded its yearly 275 mbu import projection. The question in the market is if China will continue to buy once its import quota is fulfilled or if demand will drop. This is why funds are hesitant to further reduce their short position in the corn complex. 

One unknown in the Chinese corn demand outlook is how much more the country will auction out of reserves. China has increased it corn auction activity this year and had no problem in finding demand. The average price of the latest corn auction was $7.40/bushel, which is well above what corn can be imported for. We are also seeing more uncertainty over China’s domestic corn production following recent flooding in high production areas. This comes at a time when China has seen elevated corn demand in its domestic market from feed and ethanol manufacturing. 

Just as much interest continues to fall on current new crop soybean demand and China. The United States currently has 331 mbu of new crop soybean sales on the books, a record amount for this time of year. The vast majority of these sales have been to China. In fact, sales to all other buyers are at a five-year low. As with corn the concern is what happens if China stops sourcing needs from the US and other buyers do not surface. 

The greatest concern in global soybean trade right now is how much inventory Brazil has to export. Export loadings on Brazilian soybeans have started to slow but are still at higher than usual volumes. Total Brazilian soybean commitments currently stand at 75.3 million metric tons. This is a record for this time of year and a 41.5% increase from a year ago. Brazil is also thought to have 95% of its total soybean sales projections made. In the next few weeks we will get confirmation of a drop in Brazilian sales or if their total soybean stocks have been underestimated. 

Weather conditions to start the month of August are mostly favorable. Much of the Corn Belt either has or will receive precipitation in the next week, and cooler temperatures are being predicted. Temperatures are forecast to warm into mid-month, but noting extreme is expected. These are quite favorable for crop development and cause little need for additional risk premium in futures. 

Export inspections for the week ending July 30th favored wheat over corn and soybeans, although none of the volumes were exceptionally high. Wheat loadings totaled 18.4 million bu which was above the volume needed to reach yearly expectations. Corn loadings fell short of the needed amount at 28.2 mbu as did soybeans with 20.3 mbu. With four weeks left in the marketing year it is unlikely we will reach the yearly projected totals set by the USDA. 

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