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Morning Market Review for May 29, 2020

Corn, wheat inch higher on weather concerns. (Comments are updated by 7:30 a.m. Central Time.)

Soybeans continue lower on tensions between the U.S. and China

  • Corn up 1 cent
  • Soybeans down 2-3 cents, soyoil up $0.08, soybean meal down $0.2
  • Chicago & Kansas City wheat up 1-3 cents; Minneapolis wheat down 1 cent

*Prices as of 6:55 am CDT.

Corn: Corn prices inched higher this morning as wet weather across the Corn Belt stalled the final round of planting in many states. July corn futures rose $0.0075/bushel to $3.2825. September corn futures were also up $0.0075/bushel to $3.325.

Cash corn prices rose across the Corn Belt yesterday, with notable increases at Midwestern ethanol plants as gasoline and ethanol demand rose to mark the beginning of summer travel season amid the COVID-19 pandemic. Basis was unchanged at processors and rail loading facilities but inched $0.01/bushel higher on the Mississippi River to $0.05 below July futures at the Savanna, Illinois terminal.

Corn basis and change

Ethanol production for the week ending May 22 jumped up 9.2% to 30.4 million gallons of daily production. The news was welcomed by farmers, as it resulted in 78.8 million bushels of corn being processed to create the fuel additive between May 16 – 22. Ethanol stocks dropped to 973.4 million gallons, the lowest level in 19 weeks, as blending demand readjusts to pandemic-era levels.

Gasoline demand creeped back up in yesterday’s Petroleum Inventory Status report from the U.S. Energy Information Administration, a week after dropping 8.2%. Demand rose by 19.4 million gallons/day from the previous week to 304.6 million gallons/day in anticipation of the holiday weekend.

But ethanol production remains nearly a third lower than its peak earlier in the year. Ethanol demand from refiners and blenders inched 1.3 million gallons/day higher in the week leading up to the Memorial Day weekend but is still 22.2% lower than pre-pandemic levels in March. Blending rates improved slightly this week to 9.98%, inching closer to the 10% target set by the Renewable Fuel Standard.

The incremental increases in ethanol production as pandemic restrictions are lifted paired with a 16.3% drop in ethanol stocks over the past six weeks suggests that even though the industry is coming back online, they may be taking more disciplined management approaches to operations and curbing overproduction.

University of Illinois agricultural economist Scott Irwin noted on a May 19 webinar that the ethanol industry was running at excess capacity prior to the pandemic. In the same presentation, Eric Mosbey, general manager at Lincolnland Agri-Energy LLC, echoed Irwin’s observation. Mosbey said his plant would be cutting unnecessary costs before a second wave of the virus threatens to close down the economy again.

USDA releases their weekly export report this morning. Analysts project that 2019/20 export sales for the week of May 8-14 will range between 19.7 million – 39.4 million bushels while 2020/21 export sales are pegged at 2.0 million – 11.8 million bushels. Inspections data released Tuesday suggest tomorrow’s export shipments number will come in at 43.0 million bushels, which if realized would be 6.7 million bushels lower than last week’s total.

U.S. corn exports in 2019/20 have picked up some momentum in recent weeks but remain 21.6% lower than the five-year average. USDA projects old crop exports, which are earmarked to use 13.0% of 2019 production, at 1.775 billion bushels. With current marketing year exports nearly a third behind last year’s, weekly export reports from now until August 31 will need to average 45.3 million bushels a week to match USDA’s demand forecasts.

Soybeans: Rising tensions between the U.S. and China spurred losses in the soy complex this morning. July soybean futures dropped $0.03/bushel to $8.44 while July soybean meal futures lost $0.2/ton to $284.1. July soyoil futures rose $0.08/lb to $27.14.

Cash bids for soybeans were mixed at processors across the Midwest yesterday. Basis firmed $0.03/bushel to $0.03 below July futures prices on the Mississippi River at Savanna, Illinois as originators jockeyed for bushels to ship to the U.S. Gulf pipeline amid low futures prices and slow farmer sales.

Soybean Basis Change

Old crop soybean export sales are pegged at 14.7 million – 33.1 million bushels in today’s weekly export report from USDA for the week ending May 21. New crop sales are estimated between 7.3 million – 18.4 million bushels. Soybeans inspected for export dipped slightly below last week’s figure to 12.2 million in USDA-AMS’ weekly grain for export inspections report, suggesting weaker numbers in tomorrow’s report.

A recent Chinese buying spree for U.S. soybeans lent strength to price rallies this earlier this week as markets hoped it to be a sign of China’s commitment to its Phase 1 purchasing targets. But China may have a ways to go – Phase 1 levels promise 1.653 billion bushels of U.S. soybeans would be purchased annually by China if market conditions allowed. China has only purchased 121.1 million bushels of soybeans in the current calendar year. They will need to average 46.4 million bushels of U.S. soybean purchases a week for the rest of the calendar year – or at least maintain harvest-level purchasing volumes – if they want to meet Phase 1 purchases.

Ukraine could become a viable export competitor on the global market in the 2020/21 marketing year. Increased production forecasts peg the 2020/21 crop at 155.2 million bushels, up 13.8% from the previous year. Of that 155.2-million-bushel total, nearly 99.2 million bushels, or 63.9%, of that total are earmarked for exports. Ukraine made headlines yesterday by importing 734,800 bushels of Brazilian soybeans.

The global demand for Argentine soybeans may be facing a logistics hurdle in the near future. Water levels on the Parana River in Argentina continue to be at historic lows, preventing grains from being shipped to international destinations via the key South American grain artery. Brazil has picked up three cargoes of soybean exports in recent days that were originally sourced from Argentina.

Wheat:

Wheat contracts price changes

Prices in the wheat complex were mixed this morning after U.S. and European forecasts raised concerns about meeting production potential. A weaker dollar contributed support to rising prices as the ICE Dollar Index fell 0.58%.

Cash offerings for soft and hard red winter wheat were unchanged across the Midwest and Southern Plains yesterday. Low futures prices led slow farmer sales yesterday as many growers are unwilling to book new sales until they begin harvesting the winter wheat crop in coming weeks.

Protein premiums for hard red winter cash wheat delivered to or through Kansas City by rail were mixed for wheat with ordinary to 11.2% protein contents yesterday, as shown below:

wheat protein content, basis range, change

Weekly 2019/20 wheat export sales are projected to come in at 1.8 million – 11.0 million bushels in today’s weekly report from USDA. New crop export sales are estimated between 3.7 million – 11.0 million bushels. With only three weeks of reports left in the 2019/20 marketing year, it appears unlikely U.S. wheat volumes will hit the 970-million-bushel mark outlined by USDA in monthly WASDE reports.

But at 851.0 million bushels in cumulative wheat exports for the current marketing year, U.S. exports have a fighting shot at topping 900 million bushels of wheat over the next few weeks if exports average at least 16.3 million bushels per week. Given Monday’s grains for export inspection report wheat total of 16.8 million bushels, this figure is entirely possible.

Ukraine could limit wheat exports in the 2020/21 marketing year to a mere 661.3 million bushels, according to Ukraine’s UGA grain trader union. While a current year export quota of 742.1 million bushels has been overlooked, it is not clear whether or not the proposed limit for 2020/21 will be formally observed, though dry weather this spring could reduce wheat yields and increase the likeliness of a 661.3 million-bushel export limit by the Black Sea country.

Dry weather in Argentina has not deterred wheat planting progress. As of Thursday, 13.4% of the crop had been planted. Argentina is expected to produce 771.5 million bushels of wheat this year, with the majority of exports going to neighboring Brazil. Argentine soybeans were 97.2% harvested as of yesterday, while 47.2% of the corn crop was already out of the fields.

Weather: After a week of soggy weather across much of the Midwest, clear skies will begin to emerge going into the weekend. Rain will settle over the Eastern Corn Belt today, with at least an inch expected across Ohio and Pennsylvania, according to  NOAA's 24-hour precipitation monitor.

Financials: Coronavirus cases in the U.S. as of this morning totaled 1,721,926 cases, up 21,993 cases from yesterday according to the Johns Hopkins Coronavirus Resource Center. The death toll rose by 1,179 lives to 101,621 deaths as of press time.

Tensions between the U.S. and China sent stocks lower this morning. Dow futures were down 93 points or 0.37% to 25,364 points on the sentiment. New data on consumer spending in April is expected to be lackluster at best following a month of reduced activity due to quarantine measures. Energy prices traded lower amid the negative demand news, with U.S. sweet crude prices falling $0.97/barrel to $32.74.

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