AgriVisor Market Recap

Monday, September 21, 2020
Sizable losses were posted in the market today as fund selling developed. This was the result of several factors with losses in the equity markets being a primary one. Weather was also negative for trade today as conditions in the US are favorable for a rapid harvest pace, and in South America, they are favorable for planting of the Brazilian soybean crop. Although trade ignored them, our flash sales streak continued today with soybean sales of 132,000 metric tons to China, 132,000 metric tons to Pakistan, and 171,000 metric tons to an unknown. 

The United Kingdom has indicated it may lock itself down again for two weeks to prevent the spread of Covid which started the selling in equity markets. This has generated concerns over the state of the global economy and potential commodity demand as well. Further equity market losses came from the uncertainty in US politics as a result of the passing of Supreme Court Justice Ginsburg over the weekend. Building tensions between China and Taiwan only added to the negative tone in the financial markets. 

Details of the new Covid-19 relief package have been released. The subsidy package will total nearly $14 billion and cover the three major US crops along with livestock and dairy and other products. Data shows that a US farmer with a 200 bushel per acre APH on corn will receive roughly $46.00 an acre. For a farmer with an APH of 60 bushels per acre on soybeans will receive an estimated $18.72 an acre. The intent of these payments is to help offset ongoing losses from trade disruption due to the Covid outbreak. 

Weather remains a significant factor in today’s trade. While most of the attention is on South America, we are also seeing conditions in the Black Sea impact trade. This is more of a case on wheat right now with dry soils likely to limit plantings and production of the winter crop. As a result, farmers in the Black Sea are not making sales, which had US futures to rally. 

US weather is also a factor as we head into the harvest season. We are also seeing interest on long-range weather outlooks for the US, mainly the maps that are indicating warm, dry conditions across the Corn Belt this winter. While early, these are already generating thoughts that next spring could be drier than what we have seen in recent years. Given the fact balance sheets have already started to tighten, this is getting more attention, and earlier than usual. 

Export inspections for the week ending September 17th were released today with slightly lower numbers than the previous week. This is not surprising given the logistic disruptions due to Hurricane Sally in the Gulf. For the week the US inspected 29.7 million bu of corn, 48.2 million bu of soybeans, and 17.3 million bu of wheat for loading. Of these numbers, only the soybean total was above what is needed to reach its yearly USDA projection. 

A term we have started to hear in the market again is inflationary buying. Inflationary buying is a trend that develops when investors become concerned with the state of an economy and fear we will see inflation, so they shift ownership to physical products such as commodities. While this can be supportive for a market, its also generates trade such as we had today, when investors simply walk away from all markets and drive values down. 

Not only did a reversal of buying weigh on today’s session, but so did a shift in fundamental attitude. Harvest is getting underway in the United States and it appears as though progress will be rapid. Not only is this putting hedge pressure on futures, but on basis as well. We are also hearing more yield data, and while under initial estimates, several are coming in as “better than expected.” This is giving trade the indication that the USDA may not be far off in their yield expectations, and crop sizes may actually increase in future balance sheets reports. 

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