Closing Comments; Tuesday, May 26th, 2020
Agrivisor - SETZ - Tue May 26, 1:50PM CDT

Corn and soybeans started out the week’s trade on the positive side while wheat struggled. Renewed buying in soybeans and short covering in corn were the main sources of support while wheat was pressured by improved global weather conditions. Reports of less than perfect stand on newly seeded corn and soybean fields were also supportive, while improved weather outlooks limited gains. Soybeans took additional support from flash sales of 264,000 metric tons to China and 216,000 metric tons of meal to an unknown. All commodities benefited from strength in investor confidence as Covid-19 restrictions are lifted and a sharp decline in the US dollar.

Weather conditions for the Corn Belt have greatly improved. Rains have fallen in regions where it was needed and in spots where drying was needed it is also taking place. Heat is now building across much of the Corn Belt, and with a full tank of moisture, it is just what a developing crop needs. The real focus on weather remains on the Dakotas and the far Eastern Corn Belt as that is where the most planting is needed to be done.

Export inspections for the week ending May 21st were on the light side. Corn inspections totaled 43 million bu for the week, 3 mbu under the amount needed to reach the yearly USDA projection. Soybean inspections were less than half of the needed amount at 12.24 mbu. Wheat inspections were also less than half of the needed volume per week at 16.8 mbu.

China has released its April import data with some mixed numbers. China imported a huge 6.7 million metric tons of soybeans in April as the Brazilian harvest ramped up. Unfortunately, this cut into US soybean shipments to China as they were down 62% from a year ago. This spike in Chinese soybean imports cut into the country’s corn imports, as unloadings of that commodity were down 88.4% from a year ago. Wheat imports were also impacted by the strong soybean deliveries with a 49% decrease in trade.

China also made sizable meat imports in the month of April. Pork imports were a record for the month at 400,000 metric tons which was twice the volume of April 2019. For the calendar year China has imported a total of 1.35 million mt of pork, three times the volume of the same period in 2019. China’s beef imports in April were up 28% from 2019 at 160,000 mt, and for the year, beef imports are up 54%.

The annual corn usage estimate for ethanol manufacturing is being questioned. The USDA is currently estimating a yearly corn demand figure by the industry at 4.95 billion bu. In order to reach this, we will need to see weekly corn demand of 93 million bu. While this would have been easily met prior to the Covid-19 outbreak, since then corn usage has only averaged 64 million bu per week. Even with production levels starting to resume in recent weeks this level may be hard to achieve.

When it comes to the US ethanol industry, we are now starting to see concerns over production coming back on-line too quickly. Last week’s ethanol production was up 7.5% from the prior week making it the 3rd consecutive week of elevated output. At the same time total gasoline demand was down 8%, indicating travel is not building as great as thought. We did see another decrease in ethanol reserves of 564,000 barrels, but this was down from the draw in recent weeks. Given the fragile state of the US energy market it would not take much and we could again see over-production develop.

The May cattle on feed report was released last Friday with supportive numbers for the contracts. As of May 1st, the United States had 11.2 million head of cattle on feed, just 95% of the year ago total. Placements in April were down 22% from the previous year at 1.43 million head. Markets were down a sharp 24.3% at 1.16 million head as the industry struggled with packing plant closures. The concern these numbers raise for the grain market is a likelihood of decreased feed demand.

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