Closing Comments; Friday, May 29th, 2020
Agrivisor - SETZ - Fri May 29, 1:46PM CDT

Trade was mixed today as funds balanced positions ahead of month end. This led to long liquidation in soybeans and short covering in the grains, mainly in wheat. Funds actively covered short positions in corn yesterday and were inactive in the complex today which allowed values to slip backwards. The market paid little attention to flash sales of 132,000 metric tons of corn to China and 101,600 metric tons of corn to an unknown and instead focused on lackluster weekly sales totals. The market was also focused on the developments between the US and China which many feel will impact trade between the two. Weather forecasts were mixed in their impact on trade, as much of the country will experience hot weather in the next few days, but this is seen as beneficial for those who have received rains.

Export sales for the week ending May 21st contained few surprises for trade. Corn bookings only totaled 16.82 million bu which was below trade estimates but above the volume needed to reach the yearly USDA projected total. Soybean sales totaled 23.7 million bu which was in the middle of trade guesses but almost three-times the amount needed on a weekly basis. Wheat sales came in at 7.7 million bu which is positive given the fact we have already surpassed the amount that was predicted for the entire year.

Meat exports were also mixed. A reported 11,483 metric tons of beef were sold for export last week. This was a rebound from recent weeks, and the highest weekly volume since April 9th. Pork exports decreased from recent weeks to 20,579 metric tons. While down on the week, cumulative pork sales are still 40.6% higher than a year ago.

Weather outlooks for the United States are starting to be more closely monitored by trade. A ridge of high pressure is set up over the Plains and Western Corn Belt which is bringing that region much above normal temperatures. This is not expected to be long-lasting though which is limiting market response, even as it shifts east early next week. No significant crop damage is expected from this system at this time which is diminishing the amount of risk premium traders are adding to futures.

The Safrinha harvest in Brazil is starting to get underway. Very little of the crop has been taken out, and so far, no yield data has been given. One number that trade is closely watching is the quality of the crop as just 43% of the Mato Grasso fields are rated as Good to Excellent. This compares to last year’s rating of 82% Good/Excellent, and gives trade the indication that the crop will be smaller than thought.

Brazil is seeing political unrest develop. There are reports that Brazilian President Bolsonaro could be removed from office due to his lack of response to the Covid-19 outbreak. Bolsonaro has downplayed the outbreak since it began, even though it has disrupted the country’s meat packing plants and led to export terminals being temporarily closed. The question is how this may impact Brazil’s exports long term, as some importers tend to limit their business with unstable countries, especially if it causes economic issues.

While the initial crop rating on the US corn crop was favorable, field reports are giving us a different indication. Agronomists claim many fields across the Eastern Corn Belt have crusted over as heavy precipitation and ponding has been followed by record high temperatures. This is a situation that can be remedied by either additional rains or by cultivating fields. The question is if this will set the crop back, and possibly impact stands as the growing season progresses.

Signs are starting to be given of an improvement to the US economy. One of these is in the foodservice industry as consumers return to restaurants. Data shows that for the week ending May 10th, US foodservice demand was down 40% from a year ago. This is actually better than the 66% decline that was seen at the end of March. One product that is seeing increased demand is pizza sales which were up 20% from a year ago.

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