Closing Comments; Tuesday, April 28th, 2020
Agrivisor - SETZ - Tue Apr 28, 1:48PM CDT

Mixed trade developed today as month end positioning increased. This did generate short covering which gave the market much needed support. Additional support came from a softening of the US dollar. The higher than expected planting progress numbers capped today’s gains, even though activity may slow this week with rains moving through the Corn Belt. Even so, overall progress is likely to remain ahead of the five-year average. Fresh news was sparse today which also capped any attempt at a market rally.

Rains are forecast to move through much of the Corn Belt over the next 72 hours and will likely disrupt planting in some regions. It is questionable as to how much of an impact these events may have on planting progress next Monday though, as more fieldwork likely took place than what was indicated in the weekly data. The fringe areas of the Corn Belt will soon become the focal point for plantings as these are again suffering from slower progress. While delays are not to the extent of last year, they could still lead a reduction in overall acres.

Even with less than ideal conditions, global weather has had little impact on price discovery of commodities. Drought continues to impact South America and the Black Sea, but forecasted rains are likely to stabilize crop conditions. Even with some yield loss these regions may still produce record sized crops, especially in South America. Favorable planting conditions in the US and the lack of a weather threat to start the growing season are further limiting the addition of risk premium.

When it comes to commodities, one factor that has had as much impact as anything fundamental over the past year is the US dollar. The US dollar has rallied to all-time highs, while we have seen other currencies drop to record low values. The ones receiving the most attention is the Brazilian Real and the Argentine Peso. The spread between the US dollar and these currency values have caused importers to avoid the US as they can get a better bargain when covering needs elsewhere. These sellers have also been actively making exports as all commodity sales in the world market are based on the US dollar, and this is generating farmers record revenue. This disparity in values is why some countries are starting to push even harder for a global currency.

The US energy industry continues to struggle with demand destruction. Last week a reported 60 US oil rigs were idled due to poor returns and building inventory of crude oil. This brings the number of operational oil rigs to 378, the lowest number since July 2016. Prior to the Covid-19 outbreak the US had 683 crude rigs operating. Since then crude oil demand has dropped from 100 million barrels per day to just 70 million. In turn, this continues to pressure the US ethanol industry.

Export data for the month of March showed less business between China and Brazil than a year ago. China imported 2.1 million metric tons of Brazilian soybeans in March compared to 2.8 mmt a year ago. This lower volume was in part from wet conditions that delayed vessel loading as well as increased Chinese business with the United States. Chinese imports of US soybeans in March were up 13% from a year ago as trade relations have improved.

Numbers out of China show that the country is in fact starting to rebuild its hog breeding herd. According to China’s Minister of Ag the size of China’s breeding herd on hogs was up 2.8% from February. This is the 6th consecutive month of increases in herd size. China will remain heavily dependent upon pork imports for the next several months however, as even with this increase it will take time to replenish the country’s hog supply.

President Trump announced today he will be singing an executive order to keep US packing plants open during the Covid-19 outbreak. President Trump will use the Defense Production Act to accomplish this. The White House claims it will provide guidelines on minimizing risk to workers in packing facilities that are in high-risk of contracting Covid-19. It is believed by using this act it will maintain the nation’s food supply while providing security for meat processors.

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