Closing Comments; Wednesday, April 22nd, 2020
Agrivisor - SETZ - Wed Apr 22, 1:55PM CDT

Trade was mixed for much of today’s session, but for the first one in a long time, corn was the leader. Corn is currently oversold technically and undervalued in the world market which gave the complex support, along with the possibility of further reductions to South American production. Reports of elevated interest from China on US corn was also supportive today. Soybeans tried to follow corn as that commodity had plenty of demand news as well but could not find the buying interest corn did. Wheat struggled most of the session as follow through buying did not surface on Monday’s rally and has weighed on the complex since.

Trade anxiously awaited the weekly ethanol production report that was released today to see if output declined even lower. While ethanol manufacturing for the week ending April 17th was down, production only decreased 7,000 barrels per day which was much less of a decrease than what has taken place in recent weeks. There are hopes this means we have seen the worst when it comes to loss of production in the industry. Weekly production was still record low at 3.94-million-barrels, a 46.4% decline from a year ago. Ethanol stocks grew by 220,000 barrels during the week to a record 27.7 million barrels.

There is an old adage that low prices cure low prices, and if nothing else, they do attract buyers. Yesterday we reported that China was again showing interest in US corn, and today a flash sale of 198,000 metric tons of soybeans were listed to China. This is in addition to rumors that China picked up 8 cargoes of US soybeans yesterday. While China has been booking the majority of its soybean needs from Brazil, it will still need US supplies later in the summer.

Even though it is early, there are two different patterns developing in the Corn Belt on crop production. Some regions of the Corn Belt are seeing active planting while others claim it will be at least another week before they will be able to turn a wheel. Given current weather patterns, this may not change until we get closer to May 1st. There is little doubt this will impact production in the lagging areas, but the real question is what it may mean for overall crop sizes.

South American weather has also been less than perfect recently, although trade seems to be overlooking this issue. Nearly two-thirds of Brazil’s Safrinha producing regions have seen less than normal precipitation over the past 30 days. Brazil is now entering into its dry season which will further reduce rainfall events. We have already seen decreases to Brazilian production estimates, and these conditions will likely drop them even further.

We have started to see a slight uptick in country movement across the Corn Belt, especially in regions where fieldwork has yet to take place. Farmers are waiting to get into fields and until they can they are moving their remaining old crop bushels into commercial storage. Some of this is also being done to avoid springtime storage issues that historically develop every year at this time. We have also started to see some pushes for delivery into feed processors who need additional coverage.

Despite potential government intervention in sales, Ukraine wheat exports remain higher than usual. The Ukraine government is becoming increasingly concerned with domestic reserves of wheat and wants to limit exports. At the same time Ukraine exporters want to capture as much of the current market share as they can before this happens which has led to a 47% increase in exports in the past week.

The US hog industry had been hoping for a profitable 2020, but the outbreak of the Coronavirus has changed that considerably. The infection has caused a breakdown in the US supply line that is starting to cause a backup of hogs in country markets. In some cases, this is even leading to hog herds being euthanized. The concern now is how long it may take for packers to resume operations and process the huge hog inventory. Economists believe this disruption could cost the hog industry close to $5 billion.

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