Closing Comments; Friday, May 15th, 2020
Agrivisor - SETZ - Fri May 15, 1:57PM CDT

Trade was on the positive side to start today’s session as short covering ahead of the weekend took place. Commodities are oversold and in need of risk premium which offered support. Soybeans took additional support from this week’s Chinese demand, with bookings of 730,000 metric tons being made to that buyer alone. Improved weather on a global scale limited advances as did building trade tensions between the United States and China.

The global market is receiving mixed signals when it comes to Ukraine grain production. Even with elevated plantings, total grain production in 2020 is expected to be down 3.5% in the country from last year due to adverse weather. Wheat production in Ukraine is expected to post the greatest loss of 11% to a 25.4 million metric ton crop. Ukraine corn production is forecast to increase 4% this year though to a 37.3 mmt crop.

A result of the smaller crop estimate on Ukraine wheat production is leading to a similar decrease in exports. Ukraine officials have decreased the country’s wheat export estimate by a large 17.5%. Even with the larger corn crop the country believes it will export 1.8% less grain as more will be needed domestically to cover the short wheat crop. This is welcomed news for the US, as Ukraine has been a leading competitor on export sales, primarily into the Asian market.

We are seeing interest in Russian wheat production as well. Recent weather in Russia has not been favorable for wheat production which has caused officials to reduce their crop estimate to 81.2 mmt from the previous 84.4 mmt prediction. Even with this decrease, it would still be the 2nd largest wheat crop for the country on record.

When it comes to new crop production, the country getting the most attention right now is Brazil. The USDA is predicting soybean production for the 2020/21 year at 131 mmt compared to this year’s 124 mmt. For corn Brazilian production is expected to go from this year’s 100 mmt to a 106 mmt crop. A return of more normal weather and increased acres from higher returns are the leading reasons for the increase in production estimates.

More interest is again being placed on the fringe areas of the Corn Belt, with most on North Dakota. The USDA cut 2019 corn production by 29 million bu due to unharvested acres in several Midwestern states, but the most of these acres are in North Dakota, which is now being surveyed for the June WASDE report. Thoughts are this will cause a further decrease in old crop production. What could be more of an issue in balance sheets is new crop corn planting in North Dakota, as planting delays continue as we start closing in on the final plant dates for insurance.

Ethanol production is starting to rebound in the United States as more plants resume operations. Ethanol margins are still negative but are much better than in recent weeks. Ethanol production across the US increased 3.2% last week, but still remains 41% under the volume that was seen prior to the Covid-19 outbreak. Energy industry experts believe we will see ethanol production and demand gradually increase, but some doubt it will ever get back to historical levels as travel habits on a whole have changed, not just in the US, but around the world.

The National Oilseed Processor Association, or NOPA crush report for April was released today. April crush by NOPA members totaled 171.75 million bu, the 2nd highest November total on record, and 1.3 million bu above trade estimates. This was a decrease of 5.3% from March though as product inventories started to fill and processing slowed. Soy oil reserves at the end of April were above estimates at 2.11 billion 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