Closing Comments; Monday, March 23rd, 2020
Agrivisor - SETZ - Mon Mar 23, 2:29PM CDT

Soybeans and wheat posted solid advances in today’s session which corn hung back. Logistical issues were the main benefits for soybeans and wheat as these are happening at the same time demand is starting to rise. The commodities are starting to distance themselves from the equity market which is also beneficial for values. We are finally starting to see safe haven buying surface in the market with gold posting a sizable jump today as well. Advances were capped by a hesitation to extend buying at this time, as well as long-term concerns over the US economy and what it could mean for commodity demand.

Over the weekend Congress tried to put together a $2 trillion stimulus package, but this fell short of receiving necessary votes to pass. The main reason for its failure was the lack of clarity when it came to corporate funding. Under the proposal, large businesses would receive a significant payment and be allowed to spend money as they wished without detailing expenditures. This package would have provided a reported $50 billion in Ag relief through Commodity Credit Corporation loans. The Fed instead announced it would be buying mortgage backed debt with no limit, and even though this provided early support, it is not a long-term solution to the current economic recession.

Export loadings for the week ending March 19th fell short of weekly needs on corn, soybeans, and wheat. Corn inspections for the week totaled 32.1 million bu, soybeans came in at 21 mbu, and wheat inspections totaled 12.8 mbu. While these were lower than we have seen in recent weeks, thoughts are numbers will increase in upcoming weeks as more buyers have surfaced for US offerings.

Much of the strength in commodities recently has come from logistic issues, which have developed at the same time global demand has ramped up. This is especially the case on soybeans into China, where the country booked a reported 35 to 40 vessels from South America last week. This is from a rebound in China’s crush demand as feed usage rises. Soybean supplies in China have dropped to a point where crushers have had to slow operations, with crush capacity going from 87% last week to just 39% now. While China has been buying South American soybeans, they are struggling to get them loaded in a timely manner which may cause a shifting in origination to the US if disruptions continue.

While soybeans and wheat have shown strength in recent sessions, corn continues to struggle as weakness in the energy market impacts corn futures. This is from the correlation formed with the ethanol industry. Energy values were initially pressured from a build in output, but now pressure is coming from a lack of demand as travel becomes restricted across the United States and around the globe. The world energy market is now over-supplied, and futures continue to drop. This has caused many ethanol plants across the US to slow operations or simply halt operations, reducing corn demand. Some industry officials believe this could reduce domestic corn demand by 250 to 300 million bu.

Weather conditions remain less than perfect in both the United States and South America. Current models indicate the US Corn Belt will remain wet for the next several days, although conditions may shift in early to mid-April. Even so, this is not conducive to an early start to the spring planting season. South American weather remains dry for Southern Brazil, but a drying trend may develop for northern parts of the country. Argentina is also forecast to see rains, but these may do little to improve crop quality at this stage.

The March cattle on feed report gave the complex some much needed support. As of March 1st, the US had nearly the same volume of cattle on feed as last year at 11.8 million head. February placements dropped a large 8% though to just 1.7 million head. At the same time marketings jumped 5% from a year ago. These numbers indicate the tight US beef supply is likely to continue for the next several months.

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