Let’s begin with a recap of yesterday’s USDA reports:
- Corn= 97.0, vs 94.253 avg, range= 92.5-96.4, 2019= 89.70
- Soybeans= 83.5, vs 84.699 avg, range= 82.7-87.0, 2019= 76.10
- All Wheat= 44.7, vs 44.859 avg, range= 43.5-46.0, 2019= 45.158
- Winter Wheat= 30.8, vs 30.847 avg, range= 30.1-31.7, 2019= 31.159
- Spring Wheat= 12.6, vs 12.615 avg, range= 12.0-13.4, 2019= 12.660
Quarterly Stocks as of March 1
- Corn= 7.953, vs 8.162 avg, range= 7.892-8.492, March 2019= 8.613
- Soybeans= 2.253, vs 2.237 avg, range= 2.075-2.701, March 2019= 2.727
- Wheat= 1.412, vs 1.437 avg, range= 1.385-1.572, March 2019= 1.593
Corn acreage data at face value is bearish. However, traders sense a clear leaning by producers to switch some intended corn acres to soybeans. This producer sentiment has not been driven by COVID-19, but rather by the Saudi/Russia crude oil price war, which triggered a massive problem for the U.S. ethanol industry and therefore, the U.S. farmer.
Ethanol cash corn basis bids have dropped as much as 50 cents since March 9 and this has been rather universal. This backdrop has spawned concern about the ability to generate a profit with 2020 corn acres. Producers don’t appear to be making large switches, but many producers are considering some level of switching, even those that have become comfortable with continuous corn acreage.
Soybean acreage data released Tuesday needs to be analyzed against the context of the USDA Ag Outlook projection near the end of February. Then, USDA used 85.0 mil acres and produced a 330 mil U.S. soybean carryout. There has also been building optimism towards Chinese and global soy demand, when projecting both the current marketing season and the 20/21 season. Some have elevated Chinese soybean 20/21 imports to 95.0 mmt (million metric tons). Thus, yesterday’s acreage number needs to increase by at least 1.5 mil acres in order to still have only a minimal cushion, in regard to ending stocks.
Six ideas to consider
Yesterday’s rather bland reaction to the USDA report may be telling us many things. In no particular order, here are my post-USDA report thoughts:
- Corn prices have already absorbed a lot of negative market sentiment. Even though “large corn acres” has been an expectation since August, yesterday’s USDA data is statistically bearish, not to mention the fears associated with reduced ethanol demand.
- Soybean traders are beginning to increase their optimism towards price potential. This means that we can expect large spec buying to build under the market and limit the scope and duration of any near-term weakness.
- Crude oil futures are stabilizing, probably driven by expectations that the Saudi/Russia price war will be short-lived. Global crude oil production rigs are rapidly declining; the intent appears to be that they will remain shuttered for an extended time. Crude oil by far has been a bigger negative to grain/soy markets than COVID-19. Thus, if crude can stabilize and create some price recovery, it will be very supportive to the grain trade.
- The U.S. and virtually all countries are printing money as fast as possible and seem committed to doing so for an extended period.
- If or when crude oil changes trend, and history strongly suggests that it will, then the massive stimulus measures taking place everywhere will be very inflationary.
- The current pressure on agriculture is very real. Yet, I see conditions that can improve and provide support to agriculture.
The market’s reactions to Tuesday’s USDA reports tells us that that we have exhausted enthusiasm to sponsor and commit to building short positions in the grain/soy complex. Amid all the backdrop of troubling fundamental news and trader sentiment, the 97.0 million corn acres figure could not sustain downside traction. This is a hopeful sign. It does not mean that we can chew lower in the days ahead, but it does strongly suggest that further weakness and probing below recent lows will not garner enthusiasm by large specs to aggressively increase their short position.
Soybean traders are anxious to embrace a bullish story-line, as evidenced by price action of the past several days. Expect large spec buying interest to build under the market and limit the significance of any near-term weakness.
China appears poised to expand Phase One buying activity in the weeks ahead, with agriculture a key component. China is rumored to be interested in both DDGs and ethanol. Beyond the actual significance of such a deal, psychologically, such news could provide a floor to corn prices very near current levels. Tuesday’s market action has taught us a lot, but at its core, it has told us that we are in the process of solidifying significant bottoms. We are near the point where we have exhausted selling pressures.
Keep your chin up, focus on all the optimism that should come with a new growing season. And, enjoy what appears to be a much better weather pattern for spring 2020 than last year!
Senior Risk Manager and Market Research Director
Silver Creek Commodities
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.