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Morning Market Review for Aug. 3, 2020

Soyoil demand supports soy gains. (Comments are updated by 7:30 a.m. Central Time.)

Wheat tumbles on rising global stockpiles

  • Corn up 1 cent
  • Soybeans up 3-5 cents, soyoil up $0.49, soybean meal down $1.1
  • Wheat down 5-7 cents
  • *Prices as of 6:40 am CDT.

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Corn: Optimism from export demand amid tightening supplies in China continued to underpin strength in the corn complex this morning, though gains were capped by high harvest forecasts. September corn futures rose $0.0075/bushel to $3.1675 in weekend trading while new crop December futures added $0.005/bushel to $3.275.

Cash corn prices on the Mississippi continued to fall despite a large export sale announced to Mexico Friday morning. Basis narrowed $0.04/bushel to $0.06 over September futures at a Union City, Indiana ethanol plant. Country movement of corn was about as active as futures gains on Friday – slight, if any.

Corn basis and change

Monthly corn consumption estimates for ethanol expected from USDA this afternoon will likely show a continuing rebound in ethanol output following the darkest days of reduced fuel demand amid the pandemic. Based on July WASDE projections, Farm Futures estimates the June 2020 total at 392.7 million bushels.

Corn for Ethanol

But our estimates are likely too high based on recent ethanol production data and other analyst estimates, suggesting USDA may cut ethanol production estimates from 2019/20 corn demand – again – in the August 2020 WASDE report released on August 12. Trade estimates place today’s total at 358.5 million bushels, with a range of 304.1 million – 372.0 million bushels.

If realized, that would be a 21% or 97.9 million bushel decrease from June 2019 corn consumption rates for ethanol. Despite a 78.4% increase in weekly production since pandemic lows in April, ethanol production in the 2019/20 marketing year to date remains over 10% lower than same period in 2018/19. Suppressed gasoline demand remains the key instigator for reduced ethanol output as summer 2020 gasoline demand has averaged over 18% lower than in 2019.

With that logic in mind, our Farm Futures’ estimates may be high for June 2020 production, but they do forecast corn consumption rates for ethanol 11% lower for the remainder of the marketing year, which is consistent with current USDA forecasts based on July WASDE data. Provided, of course, that more travel restrictions are not enforced due to rising coronavirus cases.

Sporadic and oftentimes light rainfall across the Central Plains and Central Mississippi River Valley alleviated some dry soil moisture conditions last week while warm temperatures moderated across most of the Midwestern growing region. But lack of rainfall continued to exacerbate drought conditions, particularly in key corn producing areas in Iowa, Indiana, Ohio, and Nebraska.

But will the dry conditions significantly impact yields? As of last week, 82% of the nation’s corn had reached the silking stage. After cooler temperatures late last week, we can expect to see most states report their crops to be nearing silking completion in today’s report.

Dry soil moisture levels have barely deterred condition ratings this summer suggesting trendline or higher corn yields for the 2020 growing season. As of last week, 72% of U.S. corn acreage was in good to excellent condition rising 3% from the previous week. Increasing signs of depleted moisture could result in a rating downgrade for corn in today’s report as conditions begin to turn wildly variable across the country.

“We are extremely dry,” a Pennsylvania grower reported in the Farm Futures’ Feedback from the Field series. “We got 4 inches of rain on Thursday,” an Indiana reader shared. “But the corn is fired nearly to the ear.”

CFTC’s weekly Commitment of Traders report released on Friday showed speculators cooling their interest in corn over the week of July 22-28. Money managers tacked on 14,565 short positions on the week to widen their net selling position to 143,280 contracts. Nearby September futures shed $0.03/bushel on the week, hitting one-month price lows as improving yield forecasts raised 2020/21 ending stocks estimates.

Soybeans: Strong domestic and global demand for soyoil for biodiesel fueled gains in the soy complex this morning. August soyoil futures, slated to expire in the coming weeks, gained $0.03/bushel to $9.005 this morning while new crop November futures added $0.05/bushel to $8.975. Uncertain demand prospects for soymeal led September soymeal futures prices $1.1/ton lower to $290.1.

September soyoil futures are on track to open $0.49 higher to $30.96 this morning, following its chief competitor in the global food oil sector, palm oil, higher after improving Malaysian palm oil exports boosted prices. Prospects for palm oil have been favorable as of late, especially as Indonesia plans to increase palm oil consumption for biodiesel blending. By July 2021, Indonesia will increase palm oil blending with biodiesel to 40% in a n effort to reduce energy imports.

Spot basis bids for soybeans were mostly flat across the Midwest on Friday. Basis strengthened a penny per bushel to trade even with August futures on the Mississippi River at the Savanna, Illinois terminal. As futures prices rebounded, farmers in need of cash booked new cash sales of old crop soybeans according to an Iowa merchandiser.

Soybean Basis Change

Cash offerings for soybean meal strengthened as export demand in the Gulf at New Orleans increased on Friday. But many large soymeal buyers have remained on the sidelines, waiting to see how rising coronavirus cases impact processing speeds at meat plants. If a resurgence of cases occurs at slaughterhouses, livestock production could be further constricted, offering potential price opportunities for soymeal buyers.

Monthly soybean crush estimates due out from USDA this afternoon are expected to continue to set records. Analyst estimates peg the June 2020 soy crush at 177.8 million bushels, an all-time high for June crush volumes if realized. The previous June high of 157.6 million bushels was set in 2018.

The estimate is projected to be about 1.7 million bushels smaller than May 2020 crush reports. But monthly declines between May and June crush volumes are not atypical. And rising soyoil consumption for biodiesel in May 2020 could carry over into June as fuel demand increased following pandemic lockdowns and summer travel. On Friday, the U.S. Energy Information Administration reported a 3-million-gallon monthly increase in biodiesel production from April to May to 147 million gallons.

Similar to corn, soybean conditions could take a hit on continued dry weather across the Midwest over the past week. Soybean condition ratings rose 3% to 72% good to excellent in last week’s Crop Progress report. Feedback from the Field respondents have often noted the soybean crop has withstood this summer’s variable growing conditions better than corn.

“We need rain,” a North Central Iowa farmer lamented. “In areas [soybean plants] look like late August with no to a few pods on the stems.”

Moderate temperatures will likely show an uptick in pace for soybean blooming in today’s Crop Progress report. As of last week, 76% of the crop had bloomed as the five-year average of 72% began to creep closer. The critical stage of pod setting was at 43% in last week’s report.

But if slowing blooming progress is any indication of heat stress, today’s report could see a slight decline in the pace for pod sets. “Beans look good but aborting pods because of heat and dry conditions,” a Western Iowa farmer observed.

Speculators showed signs of doubt in Chinese soybean export commitments in CFTC’s weekly Commitment of Traders report despite largely sideways price movement in the nearby August futures contract as well as a flurry of Chinese soybean export purchases. Managed money traders added 10,896 short positions to soybean futures for the week ending July 28, tightening their net buying position by 13,648 contracts to 62,161 contracts. But improving crop conditions outweighed Chinese demand as speculators ditched soybeans for the reporting week.

Money managers continued their bullish prospects on soybean meal for second consecutive week after trimming 8,243 short positions. The hedge funds narrowed their net short position on soymeal to 19,464 contracts for the week.

Wheat:

Wheat contracts price changes

Rising Russian wheat forecasts increased the outlook for global stocks this morning, sending prices in the U.S. wheat complex lower to start the week. Muted demand due to the pandemic also weighed on wheat prices. A rising dollar did few favors to wheat prices this morning, though dollar values continue to trade at two-year lows. The ICE Dollar Index added 0.47% to $93.760 to start the week.

Cash wheat prices held steady across the Midwest and Southern Plains on Friday. Cash sales were scarce as Chicago and Kansas City futures posted fractional gains.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail were unchanged Friday, as shown below:

wheat protein content, basis range, change

Russian wheat prices dropped this morning after agricultural consultancy IKAR increased 2020 production estimates to by 55 million bushels to 2.9 million bushels after favorable harvest yield reports in the country’s central region. The 2020 wheat crop will be Russia’s second largest crop on record, coming in behind 2017’s bumper harvest of 3.1 billion bushels.

Meanwhile in Ukraine, local analyst APK-Inform forecasted a 40% drop in overall wheat harvest in 2020 on Saturday. While exact numbers were not released, it remains clear that the world’s sixth-largest exporter of wheat will likely have limited exportable supplies by the fall due to a warm and dry growing season that deteriorated crop conditions.

Winter wheat harvest has largely finished on the soft red winter wheat crop in the Midwest, according to a weekly harvest report by U.S. Wheat Associates. Early test weights point to a strong crop with the average test weight projected at 77.8 pounds/bushel, 1.6 lb/bu higher than 2019 yields. In last week’s Crop Progress report, USDA reported 81% of the winter wheat crop harvested.

Hard red winter wheat harvests are wrapping up in South Dakota over the next week. Early progress in Montana, Idaho, and Washington will likely continue in rapid fashion on favorable weekend forecasts for harvest conditions.  Test weights were steady at 61.3 lb/bu while protein inched up slightly to 11.9% with the inclusion of the South Dakota crop – strong signals of a favorable-quality crop for 2020.

Soft white wheat harvest is largely underway in the Pacific Northwest with a little over 20% of the crop harvested. Hard red spring harvest opened up the past week South Dakota and southern Minnesota. 

A hot and dry forecast across the Northern U.S over the next week will not only support rapid harvest progress, but it will also raise protein levels in the wheat plants remaining in unharvested fields.

“Soft White winter looks really good and will be above average,” a Farm Futures reader in Eastern Washington reported. “Falling numbers and protein levels could be impacted by late, cold, and wet spring and a dry summer. We haven’t had a drop in a month and over 100-degree temperatures.”

Spring wheat harvest was 1% complete in last week’s Crop Progress report. Conditions had improved to 70% good to excellent across the Northern U.S., up 2% from the week prior.

“The spring wheat is late but ok,” the Eastern Washington wheat grower shared. “Again, like the soft white winter, the soft white spring will be above average in the PNW yield wise, but quality is a big concern due to very unusual 2020 weather so far.”

Despite nearby Chicago soft red winter wheat futures prices dipping to a one-year low over the week ending July 28, reduced soft wheat yield forecasts from the European Union led speculators to add 2,041 long positions to their net buying position, ending the week long by 1,699 contracts.

A $0.045/bushel weekly drop in the nearby Kansas City hard red winter wheat contract sent money managers trimming 1,485 long positions from their net short position. Managed money widened their net selling position by 867 contracts on the week to 19,026 short contracts.

Weather: Scattered and light showers will move through the Eastern Corn Belt this afternoon, according to NOAA's short-range forecast. Chances for showers in the Eastern Dakotas is possible tonight, which would provide much needed relief to depleted soil moisture levels. Today’s high temperatures will top out in the 80’s across the Midwest – favorable heat levels for crops in the final stages of pollination.

Financials: Coronavirus cases in the U.S. rose to 4,667,957 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased to 154,860 deaths as of press time. New coronavirus cases in the U.S. set a record in July after rising by 1.9 million cases.

U.S. stock futures inched slightly higher this morning, with gains capped by stalled progress on a Congressional pandemic relief package as well as deteriorating diplomatic relations between the U.S. and China. Stock market volatility is expected to increase in coming weeks as summer vacation season sets in and trade volumes are reduced. S&P 500 futures are slated to open 15.25 points or 0.47% higher this morning to $3,278.75.

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