Trade was on both sides today as positioning ahead of the long holiday weekend took place. Some traders became uneasy with their newly established long positions and liquidated them ahead of the weekend, which was mostly an influence on wheat values. Funds added to their long soybean position which gave that complex support, while funds were absent from the corn complex most of the day. Weather forecasts were benign today and turn more favorable next week, which limited their impact on commodity trade. We did see an increase in trade tensions between the US and China which limited interest in all markets.
The region of the United States getting the most attention when it comes to planting is North and South Dakota. Between these two states there were 4.5 million unplanted corn acres as of last Sunday. Since then, very little fieldwork is thought to have been completed. There are also other regions of the US where flooding has developed, and washouts have happened. Given the current spread between market values and insurance payments it is unlikely farmers will push to seed or re-seed crops in less than perfect conditions.
Officials in Brazil believe the country will export 14.7 million metric tons of soybeans this month. This makes the 3rd consecutive month of large exports from the supplier. Fresh sales are slowing though as Brazil works through its available soybean supply. This is being verified by a rising soybean basis in Brazil, which in turn is making their soybeans more costly to an import buyer. This is benefiting the US soybean export outlook as it narrows the price spread.
We are also seeing less export competition out of Argentina this year on soybeans. So far, Argentine farmers have only sold 29,000 metric tons of their new crop soybeans, about half the normal amount. A slow harvest pace is one reason for this reduction, but so is the higher tax rate Argentine farmers are facing on soybean exports. Transportation issues are also reducing soybean sales in Argentina, as low water levels have restricted barge movement, meaning the commodity might not be shipped even if it was sold.
The last part of this week’s trade was spent with farmers and analysts trying to decipher the latest Covid-19 relief package from the USDA. While the details seemed confusing, the most interest from an elevator side is what it might mean for grain movement. Given the historical response to these support programs, farmers tend to use the payments for cash flow and not make commodity sales. This time may be no different. This may further reduce the amount of available cash grain for buyers and cause basis to tighten more than normal.
Another factor that is supporting basis at this time is uncertain crop development. Many of the regions of the US that suffered from abnormal growing conditions and crop loss last year are facing the same conditions again this year. As a result, not as many farmers in these areas are willing to part with their remaining old crop bushels at this time, nor are they willing to market new crop bushels not knowing if they will be produced. We have already seen a divergence in interior basis from these conditions from last year, and this trend will likely be continued this year as well.
Tensions continue to build between the United States and China on trade. China has lowered its economic growth targets which could easily lower its commodity demand as well. China has also imposed security laws in Hong Kong, a move which the United States has opposed in the past. The concern is the combination of these factors could limit future trade between the two countries and void the Phase 1 agreement that is in place, even though China maintains the opinion they will fulfill their commitments.
The cold storage report for April has been released, with numbers that somewhat favored pork over beef. Pork supplies at the end of April totaled 614.8 million pounds, down from the 621.5 million from 2019. Pork bellies were considerably higher on the year though, coming in at 80.87 million pounds versus 61.11 million a year ago. Beef in cold storage jumped considerably though, from 430.2 million pounds a year ago to 490 million pounds this April.
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 firstname.lastname@example.org.