Closing Comments; Thursday, May 28th, 2020
Agrivisor - SETZ - Thu May 28, 2:21PM CDT

Futures were mixed today, with grains posting solid advances while soybeans held to the negative side. Active fund short covering gave the grains their support, especially the corn complex. Building heat in the US Plains and Western Corn Belt added to grain complex strength. Soybeans tried to follow the grains but were limited by concerns over future demand as China is again passing over the US for coverage. A weak US dollar benefitted all commodities, while pressure came from sparse fresh news.

The International Grains Council updated their world production estimates today, raising them on both corn and wheat. In fact, the IGC is now projecting a record world grain crop in the 2020/21 crop year at 2.23 billion metric tons. This is 12 million metric tons larger than the groups previous estimate. Consumption was also increased by 4 million metric tons to 2.218 billion metric tons. World grain reserves are now forecast to total 627 million metric tons at the end of the year, a 10 million metric ton jump. This is the first increase to world grain reserves we have seen in the past four years.

The grains were able to shrug off this news today, and instead focused on demand, especially wheat. The European Union lowered its wheat crop forecast today to just 121.5 million metric tons for the 2020/21 crop year compared to the latest projection of 125.8 mmt. This is well below the 2019/20 wheat crop of 130.8 mmt. Exports were also lowered to 25.6 mmt, 1.5 mmt less than the previous export forecast. This is also well below the 2019/20 EU wheat exports of 32.5 mmt.

Even though much of the focus on weather in the commodity market is on the United States right now, other regions of the globe are still being impacted by less than perfect conditions. One of these is the European Union where drought is impacting crop development, mainly wheat. The same drought is affecting Ukraine wheat production where the winter crop is expected to be 22.3 million metric tons smaller than last year. Weather in South America remains a factor as well, as not only is drought impacting Safrinha production, but now the country is seeing chances of frost on late planted crops.

Tensions continue to build between the United States and China over the handling of political issues in Hong Kong. The concern is what impact this will have in Chinese trade with the United States, especially with China continuing to book soybeans from Brazil. Reports indicate China is now booking soybeans from Brazil for fall delivery, a time when the United States normally dominates the global market. What is most concerning is that China is buying these soybeans at a 15 cent per bushel premium to those from the US. A decline in Brazilian crush is allowing for additional soybean exports to take place.

US ethanol production continues to rebound from the demand destruction that was seen in March and April. For the week ending May 22nd the US produced 5.068 million barrels of ethanol, a 9.2% increase from the previous week. Even with this increase production is still down 31.5% from last year. Ethanol reserves dipped for the 5th straight week, decreasing by 450,000 barrels. Corn use in ethanol was projected at 74 million bu for the week, which is roughly 20 mbu under the needed amount to meet USDA projections.

Livestock futures succumbed to profit taking today, giving back some of the recent grains we have seen. Cattle futures have posted a 24% rally from the low of 81 cents that was made on April 24th. Hogs put in a low on the same day at 41 cents and have rallied back 44% since then. A decline in wholesale values applied pressure to livestock futures today as well, even though the spread between futures and cash remains historically wide.

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