Closing Comments; Wednesday, May 27th, 2020
Agrivisor - SETZ - Wed May 27, 2:28PM CDT

Trade was mixed today with futures seeing both sides of unchanged across the board. Light buying and short covering provided the market its support, while pressure came from building concerns over future relations between the United States and China. Improved weather conditions and a high initial rating on the corn crop were also points of pressure for the market. Weak outside markets and a rebound in the US dollar were also negative. Losses were held in check by an unwillingness to sell in the current market structure, especially with limited risk premium in the futures.

The initial rating on the US corn crop came out at 70% Good/Excellent in the weekly progress report. This was in the middle of initial crop ratings since 1990 and gave little indication of how the crop actually looks, especially since planting is still taking place. What is not surprising is that the lowest rated crops are in Michigan and Ohio where cold temperatures have hindered emergence and development. While recent weather has been more favorable, there are concerns over the slow start the corn crop is getting.

The United States is starting to see some benefit from global currency values. The Brazilian Real has finally started to stabilize after months of declines that dropped it to record lows. At the same time the US dollar is starting to show signs of topping. This wide currency spread has deterred buyers from coming to the US in recent months regardless of the price of the commodity, especially soybeans. A firming basis in Brazil is even more beneficial for the United States’ export program.

Chinese officials have started auctioning off their government corn reserves. The initial reaction to this is that it is being done to avoid imports. While this is partially true, China also does this to rotate inventory ahead of harvest. The real question is if China will find any buying interest for the corn, as the country’s government stocks tend to be low in quality.

Brazil continues to export huge volumes of soybeans. So far for the month of May Brazil has shipped out a record 12.2 million metric tons of soybeans which will increase by month end. Since the country’s export program kicked off in March it has seen high shipping volumes and will likely top 40 million metric tons by month end. The previous record for this span was 33.6 mmt. The question now is how much of this demand will shift to the US when shipments decrease.

High soybean exports out of Brazil have cut into the country’s corn loadings. An estimated 100,000 metric tons of corn are expected to be shipped in May, well below the 1.5 million metric tons from May of 2019. Not only are soybean loadings limiting Brazil’s corn shipments, but so is a need to rebuild domestic corn reserves after depleting them a year ago.

There are also concerns over the size of this year’s Brazilian corn crop given drought conditions that have plagued the country all year. The Brazilian firm Agroconsult has lowered its total corn production estimate by 3 million metric tons from these conditions. Agroconsult is expecting the Safrinha crop to total just 71.7 mmt from drought. This is larger than most other estimates on the Safrinha crop though, as the firm claims acres will be 5.2% larger than thought.

Tensions continue to build between the United States and China. This comes from China’s stance on national security measures it has imposed on Hong Kong. President Trump has stated he will be taking measures against the Chinese government for its actions but has not indicated what these will be. Trade is concerned that any action taken by the US will void the Phase 1 agreement and our export sales will suffer as a result.

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.




 

Market Commentary provided by:

Karl Setzer Grain Commentary