Closing Comments; Wednesday, May 20th, 2020
Agrivisor - SETZ - Wed May 20, 2:11PM CDT

Soybeans and wheat were the leaders in today’s session, taking their support from fund buying. Funds are content with their short position in corn, which kept those futures under pressure today. Soybeans took additional support from rumors of Chinese interest although no flash sales have been announced since last week. Wheat found additional strength in a reduction to Russian crop estimates. Weather limited all contracts today as conditions are seen as more beneficial than harmful at the present time.

US ethanol production for the week ending May 15th rose for the 3rd consecutive week. A total of 4.64 million barrels of ethanol were manufactured during the week, a 7.5% increase from the previous week. Production is still down 38% from last year as the industry continues to recover from lost demand. Ethanol stocks continue to decrease and were down another 564,000 barrels and are now just above those of a year ago. Mid-Co Commodities estimates 67 million bu of corn was consumed by the industry last week.

The United States is starting to see an increase in corn demand. Exports have perked up in recent weeks as not only is the US the lowest priced source in the global market, but the one with the most available stocks. We are also starting to see ethanol demand creep higher as more plants slowly start to resume operations. These factors have combined to help firm corn basis values across many regions of the US, along with the gulf as well. The United States still has an abundant old crop corn supply and new crop reserves are expected to be even higher, which is limiting basis strength.

China has been an active buyer of US soybeans in recent weeks, but cumulative bookings are not up to trade expectations. Since February when the Phase 1 agreement was implemented China has only booked a reported 2.2 million metric tons of soybeans. At this pace it will be quite difficult to meet China’s objective on imports for the year. This is one of the reasons President Trump has voiced his displeasure with Chinese trade progress on a whole.

Russian officials made a sizable reduction to its grain production forecast today due to drought conditions. Russia is now forecast to produce a 120 million metric ton grain crop this year, down from the previous estimate of 125 mmt. This is also under the 2019 grain production of 121.2 mmt. This decline will likely reduce Russian exports, especially on wheat.

There is a mixed opinion being formed when it comes to current US weather conditions. Drier forecasts are being made for regions that have been suffering from perpetual rains, and dry regions are expected to receive some much-needed precipitation in the next few days. While some regions of the United States are struggling with slow planting and unfavorable weather, the majority of the US is not. This is limiting the amount of risk premium we have seen added to futures so far.

Concerns over the US economy remain, but we are now starting to see an adjustment to what a post-Covid 19 market may look like. It is believed that once states open back up, roughly 50% of the population will be willing to go about their business as usual. This actually fits in well with safety guidelines, which have limited capacity in many shopping centers and restaurants to 50% of capacity. Economists are taking this as a sign we may open back up to max allowable business and build from there.

We are starting to see a gradual improvement to US slaughter numbers following the closure of several US packing plants following the Covid-19 outbreak. This has started to pressure cut out values, which should eventually lead to lower consumer prices as well. How far prices decline is unknown though, as it is doubtful processing numbers will reach pre-Covid levels for several months, and possibly never. This is the result of new safety measures being implemented at packing plants and how they are expected to slow the entire process.

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