Closing Comments: 10/2/2020

Grains were initially under pressure on Thursday night after USDA reported that August soybean crush for soyoil & soymeal & corn crush for fuel ethanol were below last year’s results Grains futures losses accelerated after midnight & global financial markets turned lower after Pres. Trump tweeted that he & wife Melania had tested positive for COVID-19. (By mid-morning, it was revealed that others in Trump’s inner circle also tested positive for COVID-19.)  Grain markets hit their lows shortly before the overnight session ended & equity markets bottomed early in their session as a lower-than-expected non-farm payroll report further added to the gloom.  The Labor Dept.’s Bureau of Labor Statistics monthly report showed 661,000 jobs added in September, about 200,000 fewer than expected. Despite the job rebound that started in May, the US economy still has lost 10,278,000 jobs in 2020 & has lost 3,722,000 jobs since Trump took office in 2017. Both grains & equity markets eventually turned higher by mid- to late morning on Friday as traders bet Pres. Trump’s illness would make it more likely that Senate Republicans would finally agree to another stimulus bill.  Corn & soybeans eventually weakened thru Friday’s noon hour, pressured by harvest sales & a continued dive in energy prices.  Weaker crude oil futures—down 8.9% for the week-- weighed on both corn & soyoil as the ongoing pandemic continued to reduce auto & air travel.  Grains traders took a mixed view of global weather trends as the week concluded as hot & dry weather in central Brazil & ongoing drought in the Black Sea production region were at least temporarily countered by the reality that central Argentina recorded welcomed rainfall this week & harvest activity in the US will be active thru at least mid-October.  Wheat reversed overnight losses to end higher on Friday as traders recycled talk that Russia may impose export quotas on wheat exports starting Jan. 1.  At Friday’s close, Dec. corn futures lost 3c, March corn futures declined 2.75c, Nov. beans were down 2.75c, Jan. beans eased 2.5c lower, Dec. soymeal jumped $4.00/ton, Dec. soyoil tumbled 72.c/lb. lower, & Dec. & March soft red winter wheat each rose 3c. For the week, continuation charts of corn rallied 14.5c to its best weekly close since Feb. 7, soybeans gained 18.25c & SRW wheat surged 29c higher as each rebounded to 2-week-high closes.  Despite the strong gains in futures, St. Louis cash corn prices were up only 2c, beans were up just 7c & cash wheat recovered 14c for the week as barge freight rose & basis slid.
There were no signs of progress over the weekend on the stalled stimulus talks.  After having refused to assent to the House-passed CARES act in May that sought to provide an additional $3.4 trillion in debt-financed fiscal stimulus, investors reasoned on Friday the Senate would now pony up extra cash.  Outside markets came off their lows on the bet that the Republican-led Senate would be forced to pass a stimulus package to win back voters who might believe Pres. Trump’s COVID response failed to keep his family & advisors safe, much less the nation.  On Thursday, the House passed a $2.2 trillion package. Trump’s Treasury Secretary Mnuchin countered with a $1.6 trillion proposal.  Senate Majority Leader McConnell said negotiators were still far apart. On Saturday, Trump pressed for a deal, tweeting that the country “wants and needs” fiscal stimulus & imploring “Get It Done.” Look for negotiations to continue as the week unfolds amid the reality that huge airline, travel industry & theme park layoffs are taking place. 
 
Recapping Thursday’s markets, corn futures rallied solidly higher as weekly export sales exceeded expectations & cumulative export commitments remained the highest since at least 1979 by Sept. 24. After initially rallying to double-digit gains in the wake of strong weekly export sales data, soybean prices stalled & settled little changed as harvest hedge pressure & skepticism that record-high sales would persist fueled low-range closes.  Wheat was also hit with profit-taking on Thursday, reversing 7c+ gains to 7c+ losses. When solid weekly export sales were insufficient to push prices above Wednesday’s 7-month highs, wheat traders hit the sell button.  At Thursday’s close, Dec. & March corn futures each jumped 3.75c higher, Nov. & Jan. beans were each unchanged, Dec. soymeal surged $5.30/ton higher, Dec. soyoil tumbled 72.c/lb. lower, Dec. soft red winter wheat lost 7.75c & March SRW wheat declined 7.25c. The fact that grain futures struggled on Thursday after initially reacting well to the weekly sales report suggests traders believe export purchases of US grains for 2020/21 are being front loaded early in the marketing year. 
 
Friday afternoon’s CFTC Disaggregated Combined Futures & Options Commitments of Traders report indicated that managed trading funds were modest net buyers of corn (+10,908 contracts), soybeans (+17,900) & soymeal (+7,751) in the weekly period ended Sept. 29. Fund managers were by contrast modest net sellers of soyoil (-7,604), SRW wheat (-2,119), hard red winter wheat (-438) & hard red spring wheat (-2,532).  Among the six major non-HRS wheat contracts, funds added 12,822 to be long by 783,440 positions & reduced their short positions by 13,576 contracts to own only 250,031 short positions.  The resulting 3.1334 long/short ratio was the highest since May 13, 2014.  Funds have been more bullish the major grains 26.88% of the time since the June 2006 start to the data series.  The more extreme the bullish position, the more important that a steady stream of positive news is needed to sustain rallies.  USDA will release its next Crop Production & WASDE usage updates on Friday, Oct. 9.  That report should boost old-crop corn, soybean & wheat usage to explain the lower than expected Sept. 1 grain stockpiles.  But the crop production & supply-demand revisions also create risk of a disappointment to those who expect corn & soybean yields & output will be lowered. 
 
Thursday’s USDA Weekly Export Sales data for corn (79.803 mb) & soymeal (536,700 mt) exceeded expectations, & for soybeans (95.210 mb) were near the top of guesses for the weekly period ended Sept. 24.  Pre-report trade surveys indicated 41.3-70.9 mb of corn, 58.8-110.2 mb of beans & 200,000-475,000 mt of soymeal sales were anticipated. Sales of wheat (18.651 mb) were well within expectations for 9.2-22.0 mb, while soyoil sales(6,900 mt) were at the low end of guesses that ranged to 28,000 mt.  Cumulative 2020/21 corn sales now stand at 969.3 mb, 167.0 mb above the previous week #4 record set in 2007/08 & best since at least 1979 for late September.  (USDA switched from a Oct. 1 marketing year to a Sept. 1 starting date in 1985/86, making comparisons to the 1974-84 sales era to the ex-Soviet Union more difficult.) With corn commitments at 41.7% of what USDA currently forecasts for 2020/21, the current week #4 sales percent is second only to 2012/13’s 56.2%.  Drought fears led to front-loaded buying & high prices sharply reduced total grain sales that year.  Cumulative soybean sales of 1,401.0 mb are the best ever at week #4 by 339.0 mb.  Similarly, current commitments are 65.9% of USDA’s 2,125 mb export forecast, also the highest ever for week #4. Based on history, we would argue that USDA should boost its 2020/21 bean export forecast on Oct 9.  USDA reported that only 1.527 mb of grain sorghum were sold in the week ended Sept. 24. That brought total milo 2020/21 commitments to 110.3 mb, 42.4% of USDA’s 260 mb export forecast.  Wheat sales were still solid at 18.603 mb, well above the 13.1 mb/week needed to reach USDA’s 975 mb export forecast.  Cumulative wheat sales for the 2020/21 wheat marketing year that began June 1 have reached 514.1 mb, 52.7% of USDA;s projection.  Since 1995/96, wheat sales have averaged 49.9% of final shipments by week #17.  China & unknown destinations were big factors in last week’s US sales volumes. China bought 5.901 mb of corn, 48.821 mb of beans, 0.250 mb of wheat, 0.126 mb milo, 55,700 running bales of upland & 3,900 rb of pima cotton, 6,500 mt of the 39,500 mt of total 2020 pork sales, 4,300 of the 24,700 mt total 2020 beef sales & 175,700 of the 284,500 total beef hides sold during the period. China did not buy any soymeal, & it also canceled 8,600 mt of prior 2019/20 soyoil sales.  Unknown destinations bought 27.609 mb of corn, 23.160 mb of soybeans, 2.205 mb of wheat & 1.402 mb of milo, & cancelled 800 mt old-crop soyoil.  
 
On Thursday afternoon, USDA reported that 174.674 mb of soybeans were crushed in August, 9.832 mb fewer than in July & 2.855 mb less than last year’s record high total for that month.  Final 2019/20 soybean crush was 2164.359 mb, 5.641 mb below the Sept. 11 WASDE report crush forecast of 2,170 mb. In its monthly Grains Crushing report, USDA reported that 411.080 mb of corn was processed for fuel ethanol in August, down 12.974 mb from July & 43.553 mb below the Aug. 2019 total. That brought final 2019/20 ethanol crush to 4846.449 mb, 8.551 mb below the Sept. WASDE forecast.
 
In export news, USDA announced on Friday morning that 9.700 mb of 2020/21 US soybeans were sold to China & an additional 9.259 mb of 2020/21 US soybeans were sold to unknown destinations.  On Thursday, the farm agency reported that 4.409 mb of 2020/21 US beans were sold to Egypt. USDA has made a daily export sales announcement in 26 of the most recent 28 business days since August 25. 
 
After corn basis sagged 3c & soybean basis declined 2c on Thursday, corn & bean basis levels each dropped another 4c on Friday.  With flour mills now the main buyers of local supplies, wheat basis was steady on both days. St. Louis barge freight costs jumped nearly 8c/bu. this week as harvest spurred higher demand for river transportation.  For the week, local cash prices for spot delivered corn rose 8c, soybeans rallied 13c & SRW wheat surged 29c higher.
 
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"Closing Comments" are written by David Marshall, First Choice Commodities LLC, Nashville, IL.  To learn more about his farm marketing advisory or commodity brokerage services, contact him at dmarshall@firstchoicecommodities.com or call (618) 327-4370 (voice/fax) or (618) 314-0918 (cell). This commentary is not intended for specific trading strategies. We strive to insure this information is reliable, but we cannot guarantee its accuracy or completeness.  Commodity trading involves risks. You should fully understand those risks before trading.