Closing Comments; Monday, May 18th, 2020
Agrivisor - SETZ - Mon May 18, 1:48PM CDT

Soybeans were the leader in today’s trade, taking support from fresh fund buying. Funds continue to add to their long soybean position, and when combined with an increase in demand, values have started to recover from recent losses. Corn tried to follow soybeans but struggled from a lack of buying interest and a weak wheat market. Prospects for improved planting and growing conditions across the Corn Belt weighed on all commodities today, while a general lack of risk premium offered support. Additional strength came from a rally in the equity market on news of a promising vaccine for Covid-19.

Brazilian farmers have been active soybean sellers in recent weeks. Data indicates Brazilian farmers have already marketed 30% of their 2020/21 soybean crop that will start to be planted in September. By then it is believed up to 50% of the crop could be sold, well ahead of the average volume. These heavy sales are the result of the record soybean values being seen in the country from currency exchange rates. It is not out of the question this could lead to increased plantings as well.

The Chinese government has started to push for elevated ag imports. Officials want to see importers build their reserves for food security needs, including soybeans, gains, and meats. This is the main reason behind the record soybean imports China made from Brazil in March and April, and likely in May as well. Hopes are this will carry over into the US for the remainder of the summer months and throughout harvest as well.

Even with the recent increase in US trade with China, the overall volume remains below targets set in the Phase 1 agreement. Through March China had imported $5.1 billion of US ag products, well short of the $9.1 billion target. Total US exports to China through March were at $19.8 billion, which is also short of the $43.2 billion target. Even with this slow pace, which was caused in part by the Covid-19 virus, Chinese officials remain confident they will meet set guidelines.

It is possible that trade could be overestimating acreage for both corn and soybeans. As of last week, North Dakota had only seeded an estimated 10% of its intended corn acres. South Dakota was at just 50% on corn planting. Given weather over the past week, field scouts claim not much activity took place. As we start to near the final plant dates in this region the possibility of fields switching to soybeans increases, as does the likelihood that some may go unplanted altogether.

Economists believe we will see the current market situation and low commodity prices impact other ag segments, including land values. This was already noticed when investor returns on land turned negative for the first time in several years. It is also thought that unless commodity values rebound soon, rent contracts will be negotiated for the next year as well. Economists also believe we could see a softening of land values on a whole if the current market trend continues.

Export inspections for the week ending May 14th all fell short of the volume needed to reach USDA yearly projections. Corn was just under the needed amount at 45.3 million bu. Soybean inspections were only half the needed amount with 12.9 million bu. Wheat inspection were just over half the amount needed at 16.2 million bu.

Chinese groups have stepped forward to claim the country’s hog production may be back to normal by 2021. According to the New Hope Group, China’s leading hog breeder, hog numbers will grow at an elevated rate in the near future. Large incentives to hog farmers to rebuild their herds is a primary cause of this, but so is weakened demand from the Covid-19 outbreak. This may be an optimistic outlook though, given the fact China lost 40% of its hog herd from African Swine Fever, and new cases are still being reported.

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