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Morning Market Review for Aug. 12, 2020

Trade mostly quiet ahead of today’s reports. (Comments are updated by 7:30 a.m. Central Time.)

  • Corn down 1 cent
  • Soybeans down 1 cent, soyoil up $0.19, soybean meal down $0.1
  • Wheat down 1-4 cents

*Prices as of 6:50 am CDT.

Editor’s Note: Updated crop conditions yesterday may provide a preview to tomorrow’s WASDE report, which will feature updated yield estimates from a farmer survey conducted by NASS in late July. Want to get a preview as to how yield projection might shake out? Check out our Feedback from the Field interactive map to see how your crops stack up against other farms around the country.

Want to participate in our reader-sourced map? Click here to share your crop reports with other growers around the country via a short survey. Check out our latest weekly analysis of crop conditions and grower responses here. Thank you!

Happy WASDE Day! The August WASDE report is notorious for its bearish signals – early crop estimates that are expected to come in at above average levels will likely not exempt this year from August lows. But here a several other important factors to keep in mind when opening today’s report.

081220-20-21CornSoyProduction.png

  • Today’s report will have updated yield estimates from a NASS farmer survey conducted in late July. These estimates are far from being finalized and will not include any adjustments for damages to the derecho wind system that damaged crops across the Midwest on Monday.
  • Large yields are expected from USDA today. That will likely have a bearish impact on futures prices amid depressed commodity demand in the COVID-19 pandemic era.
  • Corn yields are forecasted at a record high. Yields in 2017 hold the current record at 176.6 bushels per acre (bpa). But even the lowest analyst estimate of 177.5 bpa for 2020 yields is still higher than the 2017 total.
  • That means 2020 corn production at a minimum will come in as the second-largest crop in history, behind 2016’s 15.1 billion bushels. But if today’s yield projection comes in on the higher end of market expectations, the 2020 crop could best the 2016 crop as the largest on record.
  • Soybean yields are expected to come in between 49.8 bpa – 53.0 bpa. Hopes for record yields are possible – the high was set in 2016 at 51.9 bpa. But at the very least, today’s yield estimates will likely come in no lower than the third all-time largest yield.
  • The 2018 soybean crop was the largest on record, totaling 4.428 billion bushels. The 2020 crop likely will not set a volume record, though it will likely land in the top four harvest sizes on record.
  • Farm Futures’ estimates are on the lower end of trade estimates. With a hefty amount of old crop grain remaining in storage, according to our annual August 2020 Survey, the results of today’s updated yield forecasts will likely add a significant volume of grain to stockpiles that continue to swell. Farm Futures conducted a farmer survey to project yields between July 14-27 via email questionnaire.

081220-19-20-21EndingStocks.png

  • Across all major commodities, ending stocks will likely rise in today’s WASDE report. Markets have priced in high domestic supplies as indicated by falling futures prices over the past several weeks across all agricultural commodities.
  • With large supplies expected, any surprises in today’s report will likely come from adjusted demand forecasts.
  • Old crop corn demand for ethanol could be downgraded in today’s report. Marketing year to date ethanol production remains 10% lower than 2019 output. The July 2020 WASDE estimated that 2019/20 ethanol output would come in 11% lower than the prior marketing year, but fuel demand remains suppressed by lower travel in the pandemic era.
  •  While soybean crush estimates remain strong for the foreseeable future, USDA may cut old crop soybean exports amid lagging international demand. U.S. exporters need to load out nearly 170 million bushels of soybeans in the last five weeks of the current marketing year to hit USDA’s 1.65-billion-bushel 2019/20 export estimate. But with shipments averaging an anemic 18.7 million bushels per week over the past eight weeks, it seems more likely USDA will cut 2019/20 export forecasts in today’s report.
  • Fortunately, a soybean buying spree from China over the past month will likely keep USDA from reducing 2020/21 soybean export projections.
  • A reduction in second quarter 2020 wheat usage for flour production following the demand surge at the pandemic’s onset could add to domestic wheat stocks. Luckily, export demand in the new marketing year has been strong, reducing the likelihood USDA will cut too many bushels

081220-World19-21EndingStocks.png

  • Rising production estimates across the globe amid dry weather conditions will be factored into today’s ending stocks.
  • Russian wheat yields are strong in the early days of harvest and production is increasing in Argentina and Australia. Wheat stocks will continue to set record highs – the only question is by how much?
  • China’s poultry and pig herds are on the rise as demand for animal protein surges. This has meant tighter stocks and an increase in state sales of wheat reserves. Major flooding in the country’s central region this summer could hamper wheat production as well. China notoriously keeps agricultural stock volumes and production estimates under wraps but watch today’s report for any adjustments to import and production levels for all grains.

081220-usdaWorldProduction.png

Corn: Corn futures prices traded marginally lower in anticipation of high yield estimates in today’s WASDE reports. “Everyone knows it will show large stockpiles, but nobody wants to get caught on the wrong side of the numbers so activity is muted," a Melbourne, Australia trader told Reuters overnight. September corn futures prices were unchanged at $3.115/bushel at last glance while new crop December futures traded $0.0025/bushel lower to $3.2325.

Cash corn prices were mostly higher yesterday at elevator, processing, ethanol plants, and river locations yesterday as slow farmer sales incentivized grain buyers to increase their prices to stimulate country movement of corn. Basis narrowed at rail terminals in the Eastern Corn Belt.

Corn basis and change

Will ethanol production data released this morning report another week of declining output? That could depend largely on trends in gasoline consumption in the pandemic era. Last week’s data set from the U.S. Energy Information Administration showed a 2.8% decrease in ethanol output from the previous week as weekly gasoline consumption fell nearly 8.1 million gallons/day to 361.9 million gallons/day, matching early June 2020 consumption levels.

But it’s possible that the ethanol industry may be reaching a steady level of production as fuel demand remains about 10% lower than a year ago on reduced demand amid the pandemic. Last week’s data saw a second week of gains in ethanol stocks after the industry recorded 12 of 13 weeks of falling ethanol inventories. It was no secret that ethanol plants were tightening excess capacity after ethanol’s collapse this spring, but after two weeks of rising ethanol stockpiles, it appears optimal production figures may now be online.

Soybeans: Optimism over ongoing trade negotiations with China helped overcome bumper yield projections expected from USDA later today to steady soybean prices in overnight trade. September soybean futures prices rose $0.005/bushel to $8.71 while new crop November futures were unchanged at $8.735. September soyoil futures were on track to post a $0.19/lb gain to $30.81 while September soymeal futures inched $0.1/ton lower to $284.

Cash soybean prices strengthened on the Mississippi River yesterday – a strong sign for improving export demand at the U.S. Gulf. Basis widened $0.03/bushel to $0.07 under November futures at a processing facility in Lafayette, Indiana yesterday as well. As farmers grow increasingly concerned about bearish production figures expected in today’s WASDE report, some were locking in prices on old crop bushels that have been sitting in storage for the past year, according to an Iowa merchandiser.

Soybean Basis Change

Private exporters reported a 4.8-million-bushel soybean export sale to China yesterday morning. It marked the fifth trading day in a row that China purchased 2020/21 U.S. soybeans.

Wheat:

Wheat contracts price changes

Wheat futures were the largest movers among the ag commodity complex this morning as concerns about increasing global production and record high stockpiles drive bearish price sentiments leading up to this morning’s reports. A strengthening dollar did no favors to the wheat complex either, with the ICE Dollar Index rising 0.02% to $93.620.

Spot basis bids for soft and hard red winter wheat were mostly flat across the Midwest and Southern Plains yesterday. New cash sales – particularly in the Southern Plaines – slowed as farmers await the price effects of today’s WASDE report.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail fell for wheat containing protein levels between 11.4% - 11.8% yesterday, as shown below:

wheat protein content, basis range, change

Lebanon’s economy minister Raoul Nehme assured fellow countrymen in an overnight tweet that between current reserves and incoming shipments, the Middle Eastern country has wheat supplies totaling 5.2 million bushels, or four months of supplies. Lebanon lost a considerable amount of wheat reserves last week when an ammonium nitrate stockpile exploded, destroying the country’s main wheat storage facility next door.

But the government may not be telling the whole truth. A U.N. report released yesterday found that Lebanon only has about six weeks of wheat reserves on hand – an amount that could lead to bread and flour shortages.

Weather: Temperatures in the 80’s and 90’s across much of the Midwest today could inflict more heat stress on crops developing in dry areas, according to NOAA's short-range forecast. Scattered showers are expected in the Central Plains and Upper Mississippi River Valley this evening, though total rainfall accumulation is not expected to be significant.

Financials: Coronavirus cases in the U.S. rose by 47,314 cases yesterday to 5,141,879 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased by 1,080 lives to 164,545 deaths as of press time.

What do Gen Z’ers on TikTok and farmers in the Midwest have in common? For sure, the viral #GotMilkChallenge sensation. But both parties will also be keeping an eye on ongoing trade negotiations between the U.S. and China this week. China is expected to pursue the U.S. potential access issues to Chinese-owned companies TikTok and WeChat in virtual trade talks this week while agricultural trade and exchange rates are forecasted to be the hottest issues among American negotiators.

U.S. stock futures are on the rise this morning after yesterday’s market corrections. Reports of vaccine advancements from pharmaceutical company Moderna helped stimulate market optimism ahead of the opening bell. Additionally, inflation data expected today will likely show stable rates of consumer prices, though food and fuel prices are expected to rise. S&P 500 futures were up 22.35 points or 0.67% this morning to $3,352.25.

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