Closing Comments; Wednesday, April 29th, 2020
Agrivisor - SETZ - Wed Apr 29, 1:54PM CDT

Futures were mixed to start today’s session as month end positioning continued in the market. This brought about short covering in corn and soybeans while selling took place in wheat. Wheat suffered additional pressure today from widespread rains moving through the driest areas of the Black Sea. A lack of fresh news and building worries over the state of the US economy weighed on all commodities as the day progressed. Soybeans held to the positive side longer than the grains today, taking support from a flash sale of 108,860 metric tons to Mexico.

Although far from bullish, the ethanol manufacturing report for the week ending April 24th was not as negative as those in recent weeks. Ethanol production for the week was a record low volume of 3.76 million barrels. This was down 4.6% from a week ago and a sharp 47.6% decline on the year. Ethanol stocks made a substantial decline at 1.35 million barrels however, as total US gas supplies dropped 3.7 million barrels. US crude oil stocks also increased less than expected at 9 million barrels, making it the 14th consecutive week of building crude oil stocks.

Economists are trying to predict how bad the demand destruction we have seen in the energy complex will become. In April the USDA reduced its corn demand projections for the ethanol industry by 375 million bu. This put yearly consumption on corn at 5.05 billion bu. We now have some economists claiming the actual usage figure will be closer to 3.25 billion bu given the number of ethanol plants that have recently closed. The wild card in this is how many refiners may halt operations to slow the build of gasoline reserves.

The greatest unknown in the renewable fuel industry is one that is impossible to predict, and that is when activity will start to return to normal levels. There are concerns that travel will take years to rebuild, and it may never reach the levels seen prior to the Covid-19 outbreak. This is not just in the United States, but globally. Some believe the timeframe will be much sooner, however. Obviously the longer a return to more normal routine takes the less energy demand. At the present time the ethanol industry is consuming nearly 7 million bu less corn per day than before the outbreak happened.

Wheat futures were under considerable pressure today as heavy selling hit the market. This was a result of global weather reports, including widespread rains moving into Europe and the Black Sea region. Favorable rains are also moving across the Argentine wheat fields, further boosting trade expectations for that crop. One area of concern that remains on wheat is the US Plains, as the crop is showing more stress from the abnormal mid-April cold temperatures. Data from Kansas State University indicates 50% of the state’s wheat crop was impacted from these conditions.

Even with rains moving into Europe, soil conditions remain some of the driest in the past several years. This is especially the case in western regions, where conditions are the driest since 1979. Not only is this impacting planting in that region, but crop emergence and development as well. The main crop being focused on is wheat and is why we have seen reductions to production forecasts.

Concerns are building over the state of the US economy, and what it could mean for commodity demand. The US Gross Domestic Product, or GDP, declined 4.8% in the 1st quarter of 2020. The GDP is the value of all finished products and goods in a country for a specific period of time. This is the first contraction of the GDP in the past six years and indicates the worst market conditions since 2009. While a weak GDP tends to be more of a financial market factor, numbers do impact investor attitude, including those who are in the commodities.

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