Closing Comments; Tuesday, March 3rd, 2020
Agrivisor - SETZ - Tue Mar 03, 1:57PM CST

Buyers again surfaced in the market today giving commodities much needed support. This was partially from the fundamental side, but also from futures clearing technical resistance. Commodities have started to closely follow the outside markets, mainly the equities, which is causing a build in volatility. Commodities are also rebounding from oversold indicators and are now building bullish momentum. Trade is also taking more note of less than ideal weather around the world and what these could mean for production.

The soybean crush report for the month of January was a record at 188.8 million bu. For the marketing year from September through January the US has now crushed 897.7 mbu of soybeans. Elevated animal numbers and higher exports are starting to increase the US crush demand. It would not be surprising to see the USDA increase its yearly crush projection of 2.105 billion bu if the current crush rate continues.

Now that the base insurance levels have been set, trade is questioned what they could mean for the market, mainly for production. The new base rates give a ratio of 2.36:1, meaning it will take 2.36 bushels of new crop corn to equal the value on one bushel of soybeans. This ratio favors corn production, especially in fringe areas of the Corn Belt where acreage shifting is more likely.

As we approach the spring planting season, more attention is being placed on US weather. While conditions are favorable in many parts of the US, others are still suffering from saturated soils, especially in the Eastern Corn Belt and Upper Plains. In the east, some states are reporting to be even wetter than a year ago when fields were abandoned. At this stage, even normal precipitation will be an issue, primarily in regions that still need to harvest last year’s crops. This brings into question the high corn acreage number the USDA is currently predicting.

Weather in South America remains a focal point of the market as well. Argentina has seen little to no precipitation since mid-February. Cool temperatures have alleviated the lack of moisture, but we are now seeing temperatures climb. There are chances of rain for Argentina a week from now, but if these do not materialize, production loss is likely. A lack of rainfall is also slowing the planting of the Safrinha crop in Brazil, where seeding is at 50% of intended acres. Brazilian farmers are waiting to see if rains develop before extended their plantings much further.

Beneficial weather is expected to bring elevated wheat production in Australia this year. Forecasters believe there is a 70% chance of normal precipitation in Australia this year which will alleviate the country’s multi-year drought. As a result, it is believed Australia’s wheat crop will increase by 40%. Even if the crop is under this, it will likely be enough to negate losses in other wheat producing countries.

The Coronavirus outbreak remains a primary market topic. The World Trade Organization expects the virus will have a “substantial” impact on the world economy. As a result, many countries, including the US, have cut interest rates to help off-set the potential impact of the virus. Economists believe the full effect of the Coronavirus has not been felt yet, which is concerning as the financial markets have already been under considerable pressure. We are now seeing more safe-haven buying though, which has been a great benefit for the precious metals.

This commentary is the sole opinion of Karl Setzer, Senior Commodity Risk Analyst for AgriVisor, LLC. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to send an e-mail to ksetzer@agrivisor.com.




 

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Karl Setzer Grain Commentary