Closing Comments; Thursday, April 23rd, 2020
Agrivisor - SETZ - Thu Apr 23, 2:08PM CDT

Corn, soybeans, and wheat all took early support from technical short covering to start today’s trade. This was mostly follow-through action from yesterday’s session but hopes of renewed export demand offered additional support. The market is currently void of risk-premium which also elevated buyer interest, especially with funds holing historically large short positions for this time of year. More attention to global weather outlooks also provided support as more reports of adverse conditions are surfacing. Advances were capped by a lack of fresh news and questionable domestic demand.

Export sales for the week ending April 16th were mixed. Corn sales were at the low end of expectations at 28.6 million bu but were more than enough to reach yearly expectations. Soybean sales were also at the bottom end of trade estimates with 12.67 mbu but fell short of the needed amount on a weekly basis. Wheat bookings for the week were nearly twice the expected amount at 9 mbu and just under weekly needs.

When it comes to exports, all interest at the present time is on China. China has been listed as a buyer of US soybeans in the past two days, with today’s announcement totaling 272,000 metric tons. China is reportedly looking at ways to build domestic reserves and considering the US as a source for commodities which will help them achieve the Phase 1 trade agreement goals. It is thought China is shopping for upwards of 787 million bu of corn and 367 million bu of soybeans to accomplish this. These rumors coincide with reports China is going to ease import tariffs on some products, including corn.

When it comes to demand, most attention remains on ethanol usage of corn. Research from Mid-Co Commodities shows corn demand from the ethanol industry currently totals an estimated 3.3 billion bu. For the marketing year the USDA is projecting a corn usage figure of 5.05 billion bu. In order to reach this projection, we will need to use 89 million bu of corn each week for the remainder of the year. Prior to the Coronavirus outbreak that would have been possible, but now it seems unlikely, as last week’s corn usage by the industry only totaled 56.8 million bu.

One bright spot for ethanol is that it is starting to become more competitive in the global market. US ethanol for export is currently being offered from the Gulf for 98.5 cents per gallon. Gasoline at the Gulf is currently being bid at 59.8 cents per gallon. While this still favors gasoline, the spread has narrowed. We are also starting to see an overall increase in fuel usage from just a week ago, which is benefitting the complex as well.

Trade is starting to pay more attention on South American weather than it has in recent weeks. This is especially the case for Brazil where little or no rain is being forecast for the next two weeks. This coincides with the start of the dry season in northern Brazil where the corn crop is far from being mature. This is also intensifying the drought in southern Brazil. On a whole, Brazil has seen up to 89% less than normal precipitation over the past 30 days.

These weather conditions are why we have started to see reductions to the size of Brazilian crops, especially Safrinha production. Soils in the main Safrinha production regions of Brazil are the lowest that have been seen in the past two years. While Brazil will still produce large if not record crops this may easily limit their exports, mainly on corn.

The cold storage report for beef and pork showed a division in inventory. Beef in cold storage totaled 502.4 million pounds on March 31st, an 11% increase from March 2019. This is also the highest amount of stored beef since January of last year. Pork in cold storage declined to 622 million pounds, a 4% drop from February. This is partly from seasonality’s, but also from the idling of processing facilities. Pork bellies in cold storage jumped a large 34% from a year ago though, and currently total 78.8 million pounds.

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