Closing Comments; Friday, March 20th, 2020
Agrivisor - SETZ - Fri Mar 20, 2:27PM CDT

Corn, soybeans, and wheat all started today’s session higher as the recently uncovered buying interest continued. This follows a week of wide price swings that both dropped grains and soybeans into oversold territory, and then rallied them back. Looses were attributed to the volatility in the outside markets, mainly energy and equities. An increase in export interest also benefitted today’s trade, as did further reductions to South American crops. Advances were capped by a set-back in the outside markets and light pre-weekend profit taking.

Several flash sales on US commodities were announced this morning, with the bulk of the business to China. China bought 756,000 metric tons of corn for delivery during this marketing year. We also had confirmation of China buying 340,000 metric tons of wheat for delivery next year. This was most likely the business that was rumored to have taken place yesterday. An unknown was listed as a buyer of 110,000 metric tons of soybeans, which is also suspected of being China given the export issues in South America.

Another reason for the increase in Chinese soybean demand is the rally in meal to a 5-month high. Crush margins are improving in China as feeders start to rebuild the nation’s hog supply following the outbreak of African Swine Fever. This comes at the same time Brazil has started to limit movement in the country to try and contain Coronavirus, same as the US is doing. Ongoing delays to the Brazilian soybean harvest are preventing the country from making exports of soy meal, as shippers are trying to satisfy as much demand on whole soybeans as possible. We have also seen ports in Argentina close to prevent the spread of Coronavirus, shutting off the world’s leading soy meal supplier.

There is some question as to how long this Chinese buying interest will continue. The United States is competitive with Brazil for soybeans from the end of April forward so to see bookings is not surprising. What is giving trade mixed signals is that the vessel line up for US grain shipments is at a 32-month low. This has some questioning how long China will continue to buy, and possibly that the purchases were made as a backstop in case South America has a hard time fulfilling its sales commitments.

We continue to see reductions to the size of Brazil’s soybean crop and trade is starting to take note. The latest has the Brazilian soybean crop at 121 million metric tons compared to the 125 mmt the USDA projected in its latest balance sheets. At the rate of the decrease we are seeing it is not out of the question the crop could eventually total no more than last year’s 117 mmt. While this is still a large crop, it will definitely impact world balance sheets.

The Buenos Aires Grain Exchange has also revised its estimate on the Argentine soybean crop. This group has the crop at 50 mmt compared to the USDA figure of 54 mmt. The exchange has also lowered its soybean crop rating to 35% Good/Excellent, down 4 points from last week. The question now is if the ratings will continue to fall and bring the crop size down as well.

One of the greatest driving forces in the market this week, especially on corn, has been crude oil. The main reason for this is the correlation between crude oil and corn through the renewable fuel industry. Gasoline futures have dropped well beneath ethanol futures which caused many ethanol plants to alter production rates, with some totally suspending operations. The last time crude oil dropped to today’s levels it pressured corn futures down to $2.00 to $2.50. While a drop in corn of that volume is not expected in today’s market, it is applying pressure.

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.




 

Market Commentary provided by:

Karl Setzer Grain Commentary