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Morning Market Review for May 28, 2020

Rising tensions with China end soy rally. (Comments are updated by 7:30 a.m. Central Time.)

Corn inches higher on planting delays

  • Corn up 1 cent
  • Soybeans down 2-3 cents, soyoil down $0.27, soybean meal up $0.5
  • Wheat up 1-3 cents

*Prices as of 6:55 am CDT.

Editor’s Note: Good morning! Yesterday’s report incorrectly stated updated ethanol production numbers were due to be released by the U.S. Energy Information Administration yesterday. However, because of the holiday weekend, the report will be released today. A preview of the report as written yesterday has also been included in today’s report.

Corn: Corn prices inched slightly higher this morning on optimism over ethanol production and planting delays due to forecasted rain. July futures were up $0.0075/bushel to $3.2125 and September futures rose $0.0025/bushel to $3.255 in overnight trading.

Cash corn prices firmed across the Corn Belt yesterday as end users attempted to incentivize farmers to bring bushels to market despite low cash offerings. Basis improved on the Mississippi River as originators sought volumes for the U.S. Gulf export market. River strength was also underpinned by shipping delays on the Illinois River from last week’s heavy rains. Basis surged $0.15/bushel higher to trade $0.15 above July futures at a Chicago-area processor yesterday.

Corn basis and change

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.

The South African corn crop is forecasting higher yields after favorable weather conditions boosted production prospects. Government estimates peg the 2020/21 crop at 613.7 million bushels, up 38% from last year’s drought-stricken harvest of 443.9 million bushels. South Africa is the world’s fifth largest global exporter of corn. USDA is projecting their 2020 crop at 551.2 million bushels.

Soybeans: The soy complex backed off two-week highs this morning as optimism over Chinese demand thinned amid rising diplomatic tensions between the world’s two largest economies. July soybean futures shed $0.005/bushel to $3.5875. July soyoil prices followed $0.27/lb lower to $27.33. But July soymeal bucked the trend on strong feed demand, rising $0.5/ton to $ 282.5.

Cash soybean prices were mostly steady across the Midwest yesterday. The lone exception was a $0.03/bushel uptick to $0.03 below July futures prices on the Mississippi River at Davenport, Iowa as merchandisers tried to coax farmers into booking new sales to supply export demand. However, low futures prices continue to deter farmers from contracting new spot sales as most are current on planting expenses and are willing to wait for a seasonal rally.

Soybean Basis Change

Rising diplomatic tensions between the U.S. and China sent the world’s second largest economy on a Brazilian soybean buying spree this week. China bought at least 10 cargoes of soybeans from Brazil after the U.S. continues to dispute the handling of the COVID-19 pandemic with China as well as China’s recent legislation proposing national security laws in Hong Kong. As tensions continue to escalate between the world’s two largest economies, China will likely continue to turn to Brazil for soybean purchases.

China’s largest pork producers, Wens Foodstuffs Group Co Ltd, is setting their sights high on hog production over the next few years in the wake of the African swine fever that has been plaguing Chinese pig herds for nearly two years. Wens plans to triple its swine production by 2024 to 56 million hogs, which would be welcome news for U.S. soybean growers. Hog sales dropped 17% to 18.5 million pigs in 2019 as the company struggled to overcome the fallout from the deadly porcine virus. The COVID-19 pandemic sent sales further tumbling 62% early this year. China has struggled to contain African swine fever among its pig herds since the outbreak began in 2018.

Wheat:

Wheat contracts price changes

A weakening dollar sent the wheat complex higher this morning. Strength this morning was also underpinned by mixed weather forecasts in Europe. The ICE Dollar Index shed 0.14% in overnight trading.

Cash offerings for soft and hard red winter wheat were mostly unchanged across the Midwest and Southern Plains yesterday. Farmer sales were slow, as many farmers have already sold their crop out of storage bins to make room for the upcoming harvest.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail rose for 11.8% and higher levels of protein content, as shown below:

wheat protein content, basis range, change

An international tender issued by Jordan for 4.4 million bushels of wheat was believed to have been sourced by major trading houses CHS, Glencore, and Ameropa after the tender closed overnight. Further details on the shipment, including pricing and sourcing, are expected to emerge later today.

Prices may be low, but there are still ways to ensure positive cash flow for the year, Matthew Kruse of Commstock Investments writes. Between early planting, the Price Loss Coverage insurance program, hedging strategies, hail coverage, and government aid, Kruse expects the safety nets designed to uphold agriculture in times of turmoil to do just that. For more on how to stay profitable amid low commodity prices, check out his Ag Marketing IQ column.

Weather: Rain is forecasted across much of the Midwest for the remainder of the week, stretching along the Mississippi Valley corridor today. The waterlogged area is expected to receive well over 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 1,699,933 cases, up 18,515 cases from yesterday according to the Johns Hopkins Coronavirus Resource Center. The death toll surpassed the 100,000-mark yesterday, rising by 1,513 lives to 100,442 deaths as of press time.

Weekly unemployment data released today will likely show a decreasing amount of initial jobless claims. Deutsche Bank is forecasting 2.1 million new claims this week, which would be a decrease from the 2.4 million a week prior. However, unemployment is expected to remain at all-time highs as the pandemic continues to prevent economic growth from flourishing.

U.S. stocks wobbled on the sentiment this morning as Dow futures rose a mere 174 points or 0.68% to 25,708 points. Continued tensions between the U.S. and China over China’s enforcement of national security laws in Hong Kong made investors wary of gains in today’s trading session.

Energy stocks dropped on eroding U.S. and Chinese relations. Diesel prices led the way, down $0.0173/gallon to $0.9548 this morning. U.S. crude oil futures traded $0.11/barrel lower to $32.70.

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