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Morning Market Review for May 7, 2021

scyther5/Thinkstock Markets-122316-scyther5-ThinkstockPhotos-2000
Grain prices march higher on global supply concerns. (Comments are updated by 7:30 a.m. Central Time.)

Weather remains in focus as markets look to 2021/22 supply and demand estimates

  • Corn up 5-8 cents
  • Soybeans up 11-17 cents, soyoil up $1.04/lb, soymeal up $3.50/ton
  • Wheat up 7-11 cents

*Prices as of 6:50 am CDT.

Corn

Corn prices hit a new eight-year high overnight as the outlook for Brazil’s crop dries up in the excessive heat and global livestock demand continues to rise. The two-week outlook for southern Brazil, where a large portion of the safrinha corn crop is grown, remains eerily dry which is likely to trim output forecasts for the crop even tighter.

China’s National Grain and Oils Information Center (CNGOIC) released new corn production estimates overnight, suggesting that the 2021 Chinese corn crop will likely reach 10.7 billion bushels of production, a 4.3% increase from last year’s haul. It marked the first estimate for 2021 Chinese corn production released by a Chinese organization this year.

Acreage cuts in recent years ordered by the Chinese government to preserve soil quality are likely to be reversed this year as dwindling grain and oilseed stocks and soaring prices encourage farmers to increase acreage. The Chinese government has already committed to increasing corn acreage in 2021 as a matter of food security.

Chinese soybean acreage will likely take a hit as corn acres rise. “The national policy is also shifting. Incentives on soybeans are not as (strong) as a couple years ago,” Meng Jinhui, a senior analyst with Shengda Futures, told Reuters. CNGOIC expects 2021 soybean production in China to fall to 676 million bushels, a 6.1% decrease from last year’s output.

Weather rallies contributed to the latest run-up in grain prices, but inflation data released last week saw a 2.6% year-over-year rise in the metric, a signal likely to be characteristic of economic activity in the post-pandemic U.S. economy. But that could lead to some interesting dynamics playing out in today’s Commitment of Traders report from the CFTC.

Commodities are largely viewed by outside investors as a safe haven against rising inflation rates. Fund-buying has played a significant role in current rallies and CFTC’s data today is likely to continue supporting that trend, especially as weather forecasts over the last week cast doubt on crop development conditions across the Midwest and Plains.

Weekly corn export loading volumes for the week ending April 29 came in at the second highest volume on record, not counting weeks that reported government shutdowns. U.S. corn exporters shipped 86.4 million bushels of yellow #2 into international channels during the April 23 -29 reporting week. It followed only the March 5 – 11 weekly loading volume of 86.6 million bushels as the record high.

China continues to lead the corn export charge, snapping up 27.5 million bushels of last week’s corn exports, or 32% of the weekly haul. But there could be room for some potential downside in China’s corn spree. Yesterday’s report saw 18.7 million bushels of cancellations. The lion’s share of those canceled purchases were ordered by an unknown buyer.

If that buyer was represented by Chinese grain purchasers, it casts doubt on China’s willingness to commit on the 512.4 million bushels of outstanding corn sales scheduled to be delivered to the world’s second largest economy before September 1, plus 125.0 million bushels on the books for unknown buyers. That accounts for over 24% of total corn commitments for the 2020/21 marketing year, so it’s worth keeping an eye on.

Soybeans

Soybeans continued higher this morning, though the complex is beginning to show signs of slowing in its price momentum relative to that of corn. Surging vegetable oil prices continue to support prices for the soy complex, though another round of African swine flu outbreaks in China’s hog herd could limit global livestock demand for soybeans and soymeal.

Soybean exports notched the second-lowest weekly volume of the 2020/21 marketing year in yesterday’s Export Sales report from USDA. And export sales for 2020/21 soybeans were nothing to write home about, either. But it should come as no surprise this time of year.

Chinese demand, which is the most significant international driver of U.S. soybean prices, has largely shifted to Brazil over the past month as its soybean crop finally arrives at export terminals. Chinese buyers have slowed buying paces in Brazil in recent weeks as soybean prices sky rocket to eight-year highs.

Some Brazilian farmers continue to go back on on previously agreed upon grain contracts which were priced a year ago when high prices were significantly lower than current ones, increasing the logistical intricacies and costs of Brazilian soybeans to China.

Amid China’s latest push to reduce corn and soymeal in livestock rations, markets should be cautious about Chinese buying paces both in the U.S. and Brazil. Chinese demand built the current rally in the grains and oilseeds market. It has the ability to take it away if the incentives align.

Wheat

Wheat prices were pulled higher by this morning’s corn rally and supported by strong global livestock demand, particularly from China. A weaker dollar also helped spur gains in the wheat complex overnight.

Condition ratings for France’s wheat crop continue to slide after frost damage incurred in April and late-April dryness. For the week ending May 3, French farm office FranceAgriMer found 79% of France’s soft wheat crop to be in good to excellent condition, down 2% from the previous week.

Rains across Europe last week prevented the crop from being downgraded more. More showers are expected in the European Union this week. France is the EU’s largest wheat producer. The EU is the world’s second largest wheat exporter.

Are you trying to find the top of the current market rallies? So is Total Farm Marketing’s Naomi Blohm. Blohm expects price volatility to continue to grow, citing weather concerns, fund buying, and looming USDA reports as the next major opportunities for market movement.

“Continue to manage both the opportunities and risks ahead,” Blohm advises farmers in the latest Ag Marketing IQ column. “Remember the daily trading price limits for grains has expanded. Start thinking and planning how you will manage protecting unpriced new crop bushels.”

Weather

Mostly clear skies across the Midwest and Plains today will give way to more showers this weekend, according to NOAA’s short-range forecasts. Most significantly, the Northern Plains are likely to receive rain and snow by Sunday, providing some relief to persistent drought conditions in the Dakotas.

University of Nebraska released an updated Drought Monitor yesterday. Showers across the Heartland last week reduced dry conditions by 2.63% to 65.64%. Drought conditions in the Midwest eased nearly 4%, falling to 44.28% of Midwest crop ground in abnormally dry or worse condition.

050721DroughtMonitor.jpg

But how exactly will that input crop development in the coming weeks? A substantial chunk of the Corn Belt is experiencing abnormally dry to moderate drought conditions. In fact, nine of the top ten corn producing in states in the U.S. reported abnormal dryness to severe drought on 42% or more of acreage this week.

050721DroughtConditions.jpg

Those states made up 83% of 2020 corn production, or 11.8 billion bushels. It could be a setback for early planted corn seedlings, especially where soil temperatures were well below the 50-degree benchmark ideal for germination.

Similarly for soybeans, North and South Dakota accounted for 10% of 2020 soybean production, with more acres expected to be planted this year. But both states are experiencing severe to extreme droughts.

050721droughtConditionsSoybean.jpg

The top 10 soybean producing states in the U.S. are highlighted below with their respective dry/drought condition ratings from the Drought Monitor. These states harvested 3.2 billion bushels of 2020 soybeans, or 78.3% of last year’s crop.

These early weather conditions are hardly conducive to above-trendline yields for the 2021 crop, which buyers will be relying on as demand soars in the post-pandemic era. While it supports current price rallies in the corn and soybean markets for farmers, it raises real concerns for the greater food supply chain about grain and oilseed scarcity in the new marketing year to come.

For more weather discussion, Ben Potter and I take a deeper dive into how weather plays into – and does not play into – current price rallies. It’s all in the latest Midweek Markets podcast – give it a listen!

Financials

Coronavirus cases in the U.S. rose by 47,421 cases from yesterday to 32,605,487 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased by 783 lives to 580,063 deaths as of press time.

Do you have a love-hate relationship with life insurance? Farm Financial Strategies associate Mike Downey shares your pain. As Downey points out, life insurance can be a valuable estate planning tool in maintaining the sustainability of a family farming operation.

Operations with debt, looming estate tax payments, or the prospect of a long-term care facility justify the need for a life insurance policy. Downey provides examples of these situations and more in the latest More than Dirt column.

Morning Ag Commodity Prices - 5/7/2021
Contract Units High Low Last Net Change % Change
MAY '21 CORN $ / BSH  7.6525 7.6325 7.6525 0.0575 0.76%
JUL '21 CORN $ / BSH  7.2875 7.1875 7.2675 0.08 1.11%
SEP '21 CORN $ / BSH  6.5475 6.455 6.535 0.08 1.24%
DEC '21 CORN $ / BSH  6.38 6.2725 6.37 0.115 1.84%
MAR '22 CORN $ / BSH  6.405 6.2975 6.3975 0.115 1.83%
MAY '22 CORN $ / BSH  6.3925 6.2875 6.38 0.1025 1.63%
JUL '22 CORN $ / BSH  6.3525 6.2525 6.3525 0.1 1.60%
MAY '21 SOYBEANS $ / BSH  16.145 16.1175 16.1325 0.0775 0.48%
JUL '21 SOYBEANS $ / BSH  15.88 15.6225 15.8075 0.1125 0.72%
AUG '21 SOYBEANS $ / BSH  15.3425 15.095 15.295 0.1375 0.91%
SEP '21 SOYBEANS $ / BSH  14.6275 14.4 14.6 0.165 1.14%
NOV '21 SOYBEANS $ / BSH  14.2925 14.065 14.255 0.165 1.17%
JAN '22 SOYBEANS $ / BSH  14.26 14.04 14.2275 0.1675 1.19%
MAR '22 SOYBEANS $ / BSH  13.935 13.7375 13.8975 0.15 1.09%
MAY '22 SOYBEANS $ / BSH  13.8125 13.6375 13.8075 0.1625 1.19%
JUL '22 SOYBEANS $ / BSH  13.775 13.61 13.7475 0.135 0.99%
MAY '21 SOYBEAN OIL  $ / LB 66.25 #N/A 66.25 0 0.00%
JUL '21 SOYBEAN OIL  $ / LB 65.65 64.16 65.54 1.19 1.85%
MAY '21 SOY MEAL $ / TON 431.2 431.2 431.2 3.5 0.82%
JUL '21 SOY MEAL $ / TON 431.2 426.3 430.1 2.8 0.66%
AUG '21 SOY MEAL $ / TON 425.5 421 425 3.4 0.81%
SEP '21 SOY MEAL $ / TON 419.4 414.9 419 3.6 0.87%
OCT '21 SOY MEAL $ / TON 412.4 408.2 411.9 3.9 0.96%
MAY '21 Chicago SRW $ / BSH  7.71 7.7 7.7 0.0575 0.75%
JUL '21 Chicago SRW $ / BSH  7.65 7.525 7.62 0.0875 1.16%
SEP '21 Chicago SRW $ / BSH  7.6575 7.535 7.6275 0.085 1.13%
DEC '21 Chicago SRW $ / BSH  7.685 7.5675 7.6575 0.0825 1.09%
MAR '22 Chicago SRW $ / BSH  7.71 7.6125 7.69 0.0775 1.02%
MAY '21 Kansas City HRW $ / BSH  0 #N/A 7.1775 0 0.00%
JUL '21 Kansas City HRW $ / BSH  7.3975 7.265 7.365 0.0975 1.34%
SEP '21 Kansas City HRW $ / BSH  7.4325 7.3075 7.4025 0.09 1.23%
DEC '21 Kansas City HRW $ / BSH  7.495 7.3725 7.4625 0.085 1.15%
MAR '22 Kansas City HRW $ / BSH  7.55 7.44 7.55 0.11 1.48%
MAY '21 MLPS Spring Wheat $ / BSH  7.995 #N/A 7.845 0 0.00%
JUL '21 MLPS Spring Wheat $ / BSH  8.0575 7.8825 8 0.095 1.20%
SEP '21 MLPS Spring Wheat $ / BSH  8.0925 7.93 8.045 0.095 1.19%
DEC '21 MLPS Spring Wheat $ / BSH  8.0975 7.955 8.0525 0.09 1.13%
MAR '22 MLPS Spring Wheat $ / BSH  8.095 7.96 8.08 0.1125 1.41%
JUN '21 ICE Dollar Index $ 90.955 90.725 90.835 -0.101 -0.11%
 JU '21 Light Crude $ / BBL  65.24 64.37 64.57 -0.14 -0.22%
 JU '21 Light Crude $ / BBL  65.2 64.35 64.54 -0.13 -0.20%
JUN '21 ULS Diesel $ /U GAL 2.0036 1.9768 1.9836 -0.0059 -0.30%
JUL '21 ULS Diesel $ /U GAL 2.0046 1.9778 1.9846 -0.0062 -0.31%
JUN '21 Gasoline $ /U GAL 2.1248 2.1055 2.1129 -0.0008 -0.04%
JUL '21 Gasoline $ /U GAL 2.1209 2.1021 2.1082 -0.0008 -0.04%
MAY '21 Feeder Cattle $ / CWT 0 #N/A 130.475 0 0.00%
AUG '21 Feeder Cattle $ / CWT 0 #N/A 143.4 0 0.00%
 JU '21 Live Cattle $ / CWT 0 #N/A 115.475 0 0.00%
 AU '21 Live Cattle $ / CWT 0 #N/A 118.475 0 0.00%
MAY '21 Live Hogs $ / CWT 0 #N/A 111.4 0 0.00%
JUN '21 Live Hogs $ / CWT 0 #N/A 114.475 0 0.00%
MAY '21 Class III Milk $ / CWT 18.87 18.8 18.87 -0.03 -0.16%
JUN '21 Class III Milk $ / CWT 19 18.95 19 -0.01 -0.05%
JUL '21 Class III Milk $ / CWT 19.25 19.21 19.25 0.01 0.05%
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