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Morning Market Review for May 27, 2020

Easing planting pace boosts grain prices this morning. (Comments are updated by 7:30 a.m. Central Time.)

Chinese demand lends strength to soybean prices

  • Corn up 1 cent
  • Soybeans up 2-3 cents, soyoil up $0.30, soybean meal up $0.1
  • Wheat up 0-4 cents

*Prices as of 6:55 am CDT.

Corn: Corn futures posted nominal gains this morning after Brazil’s 2019/20 second crop corn production was slashed 118.1 million bushels to 2.8 billion bushels. Slow planting progress also underpinned strength in the corn complex. July and September futures inched up $0.0075/bushel to $3.1975 and $3.2475, respectively, in trading this morning.

Cash corn prices were mostly steady yesterday with a few exceptions of firming across the Corn Belt. Basis rose a penny to $0.02/bushel under July futures as slow farmer sales amid a busy planting season limited supplies for export at the U.S. Gulf. Ethanol demand continued to rise following the holiday weekend, as evidenced by a $0.03/bushel rise in basis to $0.12 under July futures at a Linden, Indiana ethanol plant.

grainstable

The economy is slowly restarting after COVID-19 lockdown restrictions are gradually being lifted. Gasoline demand has rebounded over 34% since the pandemic’s early days. Ethanol production has posted three straight weeks of gains, rising by 2.7 million gallons of daily production and breathing new life into basis prices that collapsed with the industry in March. The U.S. Energy Information Administration will release new weekly production estimates today, though the data will not include demand from the recent holiday weekend.

There is room for cautious optimism in the ethanol sector. USDA is currently forecasting 5.2 billion bushels of corn to be used for ethanol production in 2020/21, a 5.1% increase from the current marketing year.

But blending rates have been slow to catch up with gasoline demand – three of the first four weeks of post-lockdown blending rates were the lowest since 2014, averaging 9.06% against the standard 10% blending target. The current administration’s policies towards ethanol will have to warm significantly this summer if farmers are to bank on nearly a third of their crop being a viable option for purchase in the ethanol market this fall.

USDA released its weekly Crop Progress report yesterday. As of Sunday, 88% of the nation’s corn crop had been planted, which was down slightly from analyst estimates of 90% after much of the Eastern U.S. spent the week recovering from heavy rains and even flooding in areas of Central Illinois. Last week’s delays sent the most recent progress report deviating back to the five-year average of 82%.

But the rains brought warm weather and with it, corn began popping out of the ground. About 64% of the planted crop had emerged as of May 24, 21% higher than the previous week and comfortably ahead of the five-year average of 58% for the same time period. In the first week of condition reporting, USDA-NASS found 70% of the crop to be rated good to excellent, with a mere 5% of the crop in poor to very poor condition.

Corn acreage will likely take a hit from initial 97 million acre estimates after another cold and wet spring in North Dakota prevented the Roughrider state from reaching its 3.2 million-acre goal. North Dakota only had 54% of its corn planted as of the 24th, a day before the first prevented plant date for most counties.

Early estimates peg prevented plant corn acres in the Peace Garden State at 1.5 million acres, which would drag the national corn acreage down to 95.5 million acres if planting continues through the rest of the Corn Belt without issues. Check out Farm Future’s weekly Crop Progress analysis for more details on yesterday’s report.

Soybeans: Strong Chinese demand and easing tensions between the world’s largest economies and slowing planting pace lent strength to the soy complex this morning. July soybean futures prices rose $0.0225/bushel to $8.4925 as July soyoil futures tacked on $0.30/lb to 27.57. July soymeal futures posted small gains in comparison to beans and oil, only up $0.1/ton to $284 in pre-market trade.

Spot basis bids for soybeans fell on the Illinois and Mississippi Rivers yesterday as export demand in the Gulf eased and river levels on the Illinois River remained elevated after last week’s flooding. Farmer sales remained slow despite a $0.145/bushel price rally in July soybean futures, indicating cash targets are still well below farmers’ breakeven prices.

Soybean Basis Change

About 65% of the nation’s soybean crop had been planted as of May 24, according to the most recent Crop Progress report. Wet weather in the Eastern Corn Belt led Sunday’s progress pace closer to the five-year average of 55% complete in the same time period. States along the Southern Mississippi Valley reported the largest deviations from the five-year average after a soggy spring lingered in those areas.

By Sunday, 35% of the soybean crop had emerged, up 17% from the previous week and ahead of the five-year average of 27%.

North Dakota also remains behind their five-year average for soybean planting. Soybean acreage is expected to increase in the Roughrider state by 18% this year to 6.6 million acres. With 29% of the crop planted as of May 24 compared to the five-year average of 60%, over 5.3 million acres will need to be planted by the June 10 prevented plant deadline in order for early season goals to be met.

It’s not too early to start thinking about 2020/21 marketing goals, Advance Trading’s Dave Lechtenberg writes. Start scenario planning for a variety of price options and allocating production across viable storage capacity now. There will be chances to capture basis opportunities, but an unmanaged storage plan could potentially be a liability to marketing plans, he advises in the most recent

Ag Marketing IQ column.

Wheat:

Wheat contracts price changes

A weakening dollar and improving U.S. crop ratings sent the wheat complex higher this morning. Strength this morning was also underpinned by mixed weather forecasts in Europe. The ICE Dollar Index shed 0.10% in overnight trading.

Cash offerings for soft and hard red winter wheat were mostly unchanged across the Midwest and Southern Plains yesterday. Rains this weekend helped boost crop conditions in the Southern Plains. As harvest nears and final yields are estimated, farmers may be more willing to book cash sales as long as milling and export demand supports spot prices.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail rose $0.01/bushel for wheat containing 11.0% protein yesterday on increased demand from flour millers, as shown below:

wheat protein content, basis range, change

Spring wheat planting progress neared a close in Idaho, South Dakota, and Washington in this week’s Crop Progress report. But planting delays in Minnesota (86%) and North Dakota (70%) dragged spring wheat planting progress down from the five-year average of 90% to 81% for the week. Minnesota and North Dakota typically have 94% and 88%, respectively, of their spring wheat crop planted by this time, based on the five-year average.

Rains in the Southern Plains last weekend boosted winter wheat’s good to excellent condition rating 2% points from last week to 54%. Poor to very poor conditions remained steady from last week at 16%. At this time a year ago, 61% of the U.S. winter wheat crop was rated good to excellent while a mere 9% of the crop was rated in poor to very poor condition.

Texas reported that 100% of its winter wheat crop had headed as the Lonestar state began harvesting late last week. About 95% of Oklahoma’s crop was headed as of Sunday, indicating they are not far behind Texas’ harvesting activities. Arkansas, California, and North Carolina also inched closer to beginning harvest last week with 95-96% of their winter wheat headed as of May 24.

Weather: Rain is forecasted across much of the Midwest for the remainder of the week, beginning in the Central Plains and stretching across the Eastern Corn Belt. Much of the area east of the Central Plains can expect up to an inch of precipitation today, according to  NOAA's 24-hour precipitation monitor.

Financials: Coronavirus cases in the U.S. as of this morning totaled 1,681,418 cases, up 18,650 cases from yesterday according to the Johns Hopkins Coronavirus Resource Center. The death toll flirted with the 100,000-mark, rising to by 706 lives to 98,929 deaths as of press time.

Memorial Day traditionally marks a slight bounce in December corn and November soybean prices, Farm Futures’ Bryce Knorr writes in Monday’s Ag Marketing IQ column. Soybean prices ended yesterday lower, as Knorr correctly predicted for the day after the Memorial Day holiday. But continue watching prices this week for seasonal rallies – corn prices have jumped higher 12 of the last 25 years while beans have been higher 14 of the last 25 years. And be ready to take advantage of any potential rallies.

As processing capacity tightens at the nation’s largest meat packing facilities amid COVID-19 outbreaks among staffers, many smaller meat plants are feeling the heat as farmers turn to them to soak up the excess livestock in the pipeline. One Iowa locker is booked out over a year. Turning to small packing facilities may boost local economies, but it may not provide the relief farmers are looking for – only 1% of American hogs are fabricated into bacon (among other important cuts) at smaller processing facilities. According to a University of Illinois webinar with Dr. Bradley Wolter, CEO of The Maschhoffs, there are at least 3 million hogs backlogged in the processing system as large meat packing plants continue to struggle to staff enough production capacity to keep up with farm-level livestock production.

Brazil also continues to struggle with the COVID-19 pandemic. Meat processing facilities have been reported to be swarming with cases – BRF reported one plant with at least 340 workers infected with the virus. The U.S. closed travel from Brazil on Sunday as the daily death rate surpasses the U.S.

Indeed, the Brazilian government’s handling of the COVID-19 pandemic has been met with fierce criticism. Soybean loading at the port in Paranagua, Brazil was temporarily halted after a crew member tested positive for the virus. U.S. soybean demand could benefit if the virus continues to spread through key Brazilian soybean shipping ports.

U.S. stock futures were poised to continue yesterday’s rally into today on bets that the White House and Congress will resume talks for a new round of relief packages for U.S. citizens. Strength was also underpinned on hopes European governments would follow suit. In-person trading resumed at the New York Stock Exchange yesterday amid concerns over virus transmission. But with the majority of trading taking place online, the concerns did not seem to have a negative impact on markets. Dow futures were up 1.40% in early morning trading to 25,351 points.

Energy futures lost ground this morning as Russia announced it would delay previously committed production cuts. Brent crude oil prices dropped $0.57/barrel on the news to $35.60. U.S. sweet crude traded $0.43/barrel lower to $33.92 and gasoline futures dropped $0.0239/gallon got $1.025.

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