Closing Comments; Monday, April 27th, 2020
Agrivisor - SETZ - Mon Apr 27, 2:00PM CDT

Sharp losses were posted in the grains to start the week while soybeans tried to hold to the upside. Grains were pressured by a variety of factors, including mixed demand reports, active US plantings, and more favorable world weather outlooks. Several regions of the world that have been suffering from drought conditions are now forecast to see rains which will at least slow further crop deterioration. Soybeans tried to rally but developed more of a mixed tone as month end contract rolling took place. This lack of a desire to establish new positions ahead of month end weighed on all contracts, and likely will most of the week.

One of the biggest stories in today’s trade was news that Russia had reached its export quota on grains. Last week Russia announced it would only export 7 million metric tons of grain until its new crop supply becomes available in July. This quota was reached over the weekend, but that does not mean the end of export competition from the grain supplier. Exporters were quick to book exports even though there were no buyers, as this will guarantee them the ability to keep shipping old crop bushels until the new crop harvest begins.

Trade also received bearish news from Ukraine that impacted today’s grain values. Last week Ukraine officials announced they may place limits on corn exports until supplies could be better determined. This decision was reversed over the weekend with officials claiming they want to keep selling corn to capture the high values they are currently receiving given currency exchange rates. US exporters were hoping this suspension would generate additional sales, but these are now less likely to take place.

Export inspections for the week ending April 23rd were mixed. For the week the USDA inspected 42.5 million bu of corn, 20.4 mbu of soybeans, and 18.4 mbu of wheat for export. While volumes were mostly higher than a week ago, they all fell short of what is needed to reach yearly projections by the USDA. This is more concerning for wheat as that old crop marketing year ends in another six weeks.

One hindrance to US corn exports at the present time is quality, especially out of the Pacific Northwest. A reported 94% of the corn being loaded out of the region is #3 grade, while most buyers are shopping for #2 quality. The main issue is test weight, with many terminals struggling to reach 50 pounds per bushel. To be categorized as #2 corn needs to have a bushel weight of 56 pounds. This is a result of last years harvest conditions in the Dakotas and Minnesota where much of the PNW corn is sourced from. As a result, corn importers are being forced to source needs from the Gulf, which is more expensive into the Asian market. This is deterring our current export business, especially with China.

Another issue for US exports at the present time is the drop in South American currencies, especially the Brazilian Real. Political unrest is taking place in Brazil, and as it does, the value of the Real has dropped to historically low levels. Farmers in Brazil have made large commodity sales to try and capture the spread between the Real and the record high value of the US Dollar, as that is what all grain sales are based on. This is generating farmers in South America record revenue for their crops, especially soybeans.

This currency spread has led to Brazilian farmers marketing a huge amount of the soybean crop they have just harvested. It is believed that by June, Brazilian farmers will have sold 70% of their new crop soybeans by June. This will leave the US as the main supplier of soybeans to the world market until the next South American harvest begins. The question will be how much coverage buyers will have until that time.

The April cattle on feed report was released last Friday with some supportive numbers for the complex. The United States had 11.3 million head of cattle on feed on April 1st, 95% of the number that were being fed a year ago. March cattle placements were the lowest since data started to be collected in 1996 with 1.56 million head, which was just 77% of the volume from a year ago. Cattle marketings in March were 13% higher than a year ago, and the 2nd highest since 1996.

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