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Morning Market Review for July 14, 2020

Grains post modest gains on eroding crop conditions. (Comments are updated by 7:30 a.m. Central Time.)

Crop conditions edge lower on heat, but remain strong overall

  • Corn up 1 cent
  • Soybeans up 1-2 cents, soyoil up $0.16, soybean meal up $0.6
  • Wheat up 3-6 cents
  • *Prices as of 6:50 am CDT.

Editor’s Note: Our “Feedback from the Field” series is live! Click here to share your crop reports with other growers around the country via a short survey with freshly updated questions this week! We will update the interactive Google map with results throughout the day. Our most recent analysis goes live today – check it out later today at FarmFutures.com.  Thank you!

Corn: July corn futures inched up by $0.005/bushel to $3.2925 this morning on news that the U.S. corn crop had been downgraded slightly. New crop December futures edged $0.0025/bushel higher to $3.3675.

Cash corn prices started the week slightly higher at several processing facilities around the Corn Belt yesterday. An ethanol plant in Annawan, Illinois increased basis $0.04/bushel to $0.01 below September futures prices. Basis was largely unchanged elsewhere in the U.S. New cash sales cooled with lower futures prices.

Corn basis and change

Corn export volumes began to show signs of weakness yesterday after USDA’s weekly grains inspection for export report saw a 5.2-million-bushel volume decrease from the previous week to 35.5 million bushels for the week ending July 9. If realized on Thursday’s weekly export sales report, the 35.5 million figure would be the lowest corn export volume in four weeks.

In the past five years, corn export volumes have trended higher during May-July. Yesterday’s depressed corn export volume could indicate reduced demand as the Brazilian safrinha crop, which was 34.9% harvested as of last Friday, enters export channels.

Last Friday’s WASDE reports all signaled that ending stocks for 2020/21 are going to be high. Corn growers are expected to end up with nearly 18% of 2020 production remaining in storage by the time Harvest ’21 rolls around. But don’t ignore market signals and overpay for storage, Advance Trading’s Dave Lechtenberg advises. Strong basis levels will signal storage opportunities, allowing farmers to effectively hedge price volatility risk. For more, check out Lechtenberg’s latest Ag Marketing IQ column.

Yesterday’s latest Crop Progress report pointed to strong corn yields following a week of hot and humid weather conditions across much of the Corn Belt, even amid a slight quality downgrade. Corn conditions edged 2% lower on the week to 69% as of July 12. The 35-year average for good to excellent corn conditions for the reporting week rounds out to 65.6%, so all rating indicators suggest based on this week’s results we may see an above average corn crop this fall. The report results surprised the trade, which was expecting good to excellent ratings at 70%.

Weekly silking progress chased the five-year average, rising 19% from the previous week to 29%, only 3% behind the five-year average. In the first week of reporting for doughing progress, 3% of the nation’s crop had begun to dough, primarily in Southern states. That figure was perfectly aligned with the five-year average as of Sunday.

Soybeans: Timely weekend rains improved crop development but did not deter heat stress damage for the U.S. soybean crop as USDA quality downgrades sent August futures prices rising $0.02/bushel to $8.76. August soyoil futures followed $0.16/lb higher to $28.24 while August soymeal futures fought to recover yesterday’s losses, up $0.6/ton to $285.2.

Cash soybean offerings were largely unchanged across the Midwest yesterday. New farmer sales slowed as September futures closed $0.0925/bushel lower to $8.73. Cash soymeal bids were mostly steady yesterday with signs of slight firming at a location shipping meal via truck in Minnesota. Higher futures prices have pressured profit margins for soy crushers this month so yesterday’s declines in the future market was beneficial to processors.

Soybean Basis Change

Similar to corn, soybean conditions last week took a hit on hot and dry weather, falling 3%. But timely rains late in the week kept ratings at above-average conditions, with 68% of the nation’s crop in good to excellent condition. Analyst predictions had pegged the crop at 70% good to excellent, so futures prices are trading higher this morning on the unexpected lower ratings.

Blooming progress raced ahead of the five-year average of 40% for the week, coming in at 48% thanks to accelerating progress across the Midwest. About 11% of soybeans had set pods last week, 1% of the five-year average.

Soybeans weighed and/or inspected for export for the week ending July 9 totaled 17.6, dipping 2.8 million bushels below last week’s total. Soybean bushels en route to China made up most soybean volumes weighed at U.S. export facilities last week, with 6.0 million bushels destined for China. Year to date U.S. soybean export volumes are 47.2% higher than the same period a year ago but remain noticeably lower than Phase 1 targets.

Increased flooding in China could lead to a resurgence in African swine fever (ASF) in Chinese pig herds. As of yesterday, at least 33 rivers in central China topped record levels as torrential rainfall accumulated to the highest level since tracking began in 1961. Outbreaks of ASF in southern China increased after buried carcasses infected with ASF leeched the disease into groundwater sources following heavy rains.

Another round of ASF outbreaks in the Chinese swine herd would severely diminish domestic restocking efforts and Chinese soy demand from the U.S. and South America. Pork prices have surged in China as the Chinese herd shrank by 40% or 180 million pigs in 2019.

Prior to the flooding and new ASF outbreaks, China was slated to drive international soy demand on strengthening pork production. An increase in domestic poultry production is also driving increased Chinese soybean demand. This could have positive ramifications for U.S. soybean exports, according to the U.S. Soybean Export Council (USSEC). In a July WASDE update yesterday, USSEC representatives examined upside potential for 2020 production and forecasted tighter new crop carryout on increased demand, despite high global supplies.

Wheat:

Wheat contracts price changes

Wheat futures inched up on deteriorating spring wheat conditions and reduced yield projections in the Black Sea region. Lower international wheat movement provided a cap for gains. The ICE Dollar Index fell 0.04% overnight to $96.365.

Cash soft and hard red winter wheat bids were largely unchanged across the Midwest and Southern Plains yesterday. Falling futures prices did little to discourage new cash sales as harvest pressure continues to weigh on wheat storage.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail dipped lower for mid-levels of protein content, as shown below:

wheat protein content, basis range, change

USDA released updated wheat production estimates for the 2020/21 marketing year yesterday. Total new crop wheat production is projected at 1.8 billion bushels, dropping 54 million bushels from March 31 Prospective Plantings estimates.

Lower spring wheat acreage accounted for the largest portion of the yield downgrade, with USDA dropping spring wheat production 62 million bushels to 502 million bushels for 2020. USDA’s June 30 Acreage report pegged 2020 total planted wheat acreage at 44.3 million acres – the lowest in history.

U.S. 2020-21 Wheat Production

But despite reduced production, ending U.S. wheat stocks for the 2020/21 marketing year will remain high. After USDA revised 2019/20 carryout levels 61 million bushels higher to 1.04 billion bushels, new crop carryout is expected at 943 million bushels. That means 52% of 2020/21 production will be left in grain bins going into next year’s harvest season, providing little support for U.S. grain prices.

Harvest progress continues to chip away at the 2020 winter wheat crop. About 68% of the U.S. winter wheat crop has been harvested as of Sunday, up from 56% a week ago. Harvest progress remains 2% ahead of the five-year average as most Southern Plains and Midwestern states approach completion. Illinois and South Dakota were the notable stragglers in this week’s report, falling 2% and 11%, respectively, behind the five-year average.

Spring wheat conditions dipped 2% lower last week to 68% good to excellent. Heading progress soared 17% higher than last week to 80% but remained 5% lower than the five-year average.

After dipping slightly lower last week, wheat bushels weighed and/or inspected for export jumped up by two thirds from last week to 22.9 million bushels. China was the top destination for U.S. wheat last week, with 7.5 million bushels of the 22.9 million total inspected for export destined for the world’s second largest economy. Pending Thursday’s weekly export sales report from USDA, yesterday’s wheat volume to China could be the largest weekly volume since late October 2013.

Weather: The Northern and Central Plains will get a break from scorching temperatures today as rain moves across the area into the Upper Mississippi River Valley by this evening, according to NOAA's short-range forecast. About 1-2 inches of precipitation are expected from the Oklahoma panhandle to Northern Wisconsin in the next 24 hours. A rain system over the Central Plains tomorrow will shift into the Eastern Corn Belt by Thursday.

Financials: Coronavirus cases in the U.S. rose by 59,605 to 3,364,547 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased by 410 lives to 135,615 deaths as of press time.

Farm Futures’ Mike Wilson and Jacqui Fatka provide readers a three-part survival guide to navigating towards profitable waters amid the COVID-19 pandemic. In the first installment, First Dakota National Bank agribusiness president Nate Franzén emphasizes minimizing losses and focusing on what you can control. “There are some years in agriculture where you take a home run, but those years are really few and far apart,” he says. “The best practice is to always look for those singles. In a year like this, even singles are hard to find. What we really need to do is just try hard not to strike out.”

University of Illinois agricultural economist Gary Schnitkey recommends using Price Loss Coverage as well as negotiating lower land rents to maintain positive cash flows in the second installment. Utilizing relief funds as designated by USDA is also an option for staying afloat. Navigate aid options via the alphabet soup of new relief programs including CFAP, MFP, and PPP – among others – in Farm Futures’ pandemic survival guide.

Your operation needs inherent flexibility to be able to pivot to changing market conditions, Water Street Solutions’ Darren Frye writes. Knowing your farm’s current financial and operation situation thoroughly, planning for multiple market scenarios, and cultivating an agile mindset can place your farm in prime position to adapt to turbulent market conditions. For more insights on how to pivot your operation (not your couch, Friends fans) when changes present themselves, check out Frye’s latest Finance First column.

The largest U.S. bank earnings results will be released this week and U.S. stock futures ticked up this morning in anticipation. Stock futures lost momentum yesterday after California nixed reopening plans on increase coronavirus cases around the state. While bank earnings may provide a temporary boost to stock futures, analysts expect increasing COVID-19 cases to continue to weigh on potential rallies. S&P 500 futures inched 13.55 points or 0.44% higher to $3,162.00 this morning.

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