Closing Comments: 2/11/2020

Grains suffered follow-thru losses during the first hour on Wednesday evening trading that capped a 31-hour selloff that pulled March corn futures 49.5c below, March beans 72.25c below & March soft red winter wheat 28.5c below Tuesday’s pre-report highs.  Bottom-pickers emerged as traders awaited the latest Brazilian crop forecasts.  Brazil’s crop agency, CONAB, upwardly revised its 2020/21 soybean production estimate by 0.125 mmt to 133.817 mmt, & boosted its 2020/21 corn output projection by 3.169 mmt to 105.482 mmt at 6 am.  Rather than view those forecasts as bearish, traders were relieved the soybean estimate was only 0.8 mmt higher & the corn projection was 3.5 mmt smaller than Tuesday’s USDA forecasts. Overnight grain buying accelerated session after the 7:30 am release of Thursday’s USDA Weekly Export Sales report.  That data reported weekly sales of corn sales were five-times, soybeans were 14-times & wheat 2.5-times higher than the weekly averages needed to reach USDA’s latest 2020/21 export forecasts.  Cumulative corn & soybean sales each remain more than 300 mb higher than ever before for early February & wheat & milo sales remain at 4- & 5-year-high rates, respectively.  Once the regular trading session resumed after the 7:45-8:30 am break, wheat, then beans & finally corn each peaked by 9:40 am. Corn & beans traded sideways thru the close, but wheat drifted back towards session lows.  At Thursday’s close, March corn futures rebounded 6.5c, July corn gained 7c, Dec. corn rose 4.5c, March beans recovered 13.5c, July beans jumped 15.5c, Nov. beans rallied 10.75c, March soymeal was $6.60/ton higher, March soyoil edged 0.06c/lb. lower, March SRW wheat lost 2c & July SRW wheat eased 1.25c lower.
 
Recapping Wednesday’s action, grains were pummeled sharply lower as a succession of short-term chart support levels were violated. While trading funds were said to be aggressive sellers, open interest declined less than 1% in corn, slightly more than 1% in SRW wheat, about 3% in HRW wheat & expanded about 3% in beans & soymeal. If funds were strong sellers, end-user buying was also likely taking place in beans that existed prior to the Jan. 12 rally & in corn just below the Jan. 12 highs.  There were also fundamental drivers behind Wednesday’s collapse.  South American weather forecasts called for a dry period in west-central Brazil that would allow several days of soybean harvest & Safrinha corn planting progress.  And mostly dry conditions in Argentina were tempered by relatively cool conditions that would limit crop stress. With weather seen benign, it was easy for traders to believe USDA’s unrevised crop projections for Brazil & Argentina might end up being conservative.  That would pad global grain export supplies from March forward.  Traders mostly shrugged off the best overall ethanol supply-demand data in weeks on Wednesday.  The EIA Weekly Petroleum Status report indicated ethanol output edged 0.11% higher to 275.478 mil.gal. in the week ended Feb. 5, but ethanol stockpiles declined 2.14% for the week to 999.432 mil.gal,  Output was still down 9.29% from last year & same-week & cumulative output since Sept. 1 are still running at 7-year lows.  While still the second-largest since May 8, ethanol stocks were down 2.31% from last year.  By mid-March, year-on-year results will look much more favorable as depth-of-pandemic comparisons arrive.  At Wednesday’s close, March corn plunged 21.75c, Dec. corn sagged 7.75c lower, March beans crashed 47.75c lower, Nov. beans sank 27.25c, March meal plummeted $16.50/ton, March soyoil drooped .83c/lb., March SRW wheat stumbled 14c lower & July SRW wheat declined 11.5c. 
 
In export news, USDA did not report any daily export sales on Thursday.  On Wednesday, the farm agency announced that 5.197 mb of 2020/21 US corn were cancelled by unknown destinations.  Egypt’s state grain buyer purchased 30,000 mt of soyoil on Thursday.  China & some other Pacific Rim nations begin Lunar New Year celebrations on Friday. That should slow Chinese grain import demand for at least the next week.
 
Thursday’s weekly export sales data reiterated the incredible pace of US grain exports. 
 
While week corn sales of 57.033 mb were a 3-week low, they were 5-times the 11.4 mb needed weekly to reach USDA’s upwardly revised 2,600 mb export forecast.   Cumulative corn sales as of Feb. 4 stood at 2,265.8 mb, 343.0 mb above previous record for early February set in 1980.  An additional 0.480 mb of 2021/22 corn was also sold last week. 
 
Weekly old-crop soybean sales were 29.568 mb & an additional 6.559 mb on new-crop beans were sold.  Even though combined-year bean sales were the lowest in five weeks, old-crop sales were 14-times the weekly 2.2 mb average needed to reach USDA’s but upwardly revised 2,250 mb forecast.  Cumulative 2020/21 beans now stand at 2,184.9 mb, 310.8 mb above previous record pace for early February set in 2016/17.  USDA currently expects this year’s final exports will exceed the previous high by only 86 mb.  Soymeal sales reached 263,400 mt last week, but soyoil suffered a 400 mt net cancellation, the worst performance in 21 weeks.  Weekly meal sales need to average 160,700 mt & soyoil sales 19,500 mt to reach USDA’s unrevised export forecasts.  Soybean crush margins have deteriorated & soybean prices have stalled over the past month as soy product exports have wavered. 
 
Last week’s grain sorghum sales eased to 4.331 mb, but that was still double the 2.1 mb average needed to reach this year’s upwardly revised 295 mb export forecast.  Milo sales are at the best pace since 2015/16.  Last week’s wheat sales features 21.719 mb of old- & 1.631 mb of new-crop.
 
Weekly wheat sales need to average 8.6 mb to reach USDA’s unrevised 985 mb projection.  Cumulative wheat sales at market week 36 have reached 845.3 mt, the fastest sales rate since 2016/17.  
 
China was again a major export buyer last week.  It added 0.614 mb corn, bringing year-to-date commitments to 697.629 mb, only 36.7% of which has been shipped.  China added 18.996 mb old-crop beans last week, including 7.275 mb switched from unknown destinations & 10.876 mb which was late reported as sold & shipped.  China has now booked  1317.258 mb of 2020/21 US beans. It also purchased 2.425 mb of new-crop US beans last week.  The Chinese bought 0.085 mb US wheat last week, bringing the total to 99.811 mb for 2020/21.  China also purchased 4.331 mb of old-crop milo, bringing total 2020/21 commitments to 199.337 mb.  China also procured  56,900 running bales (20.0% of total weekly sales) of cotton, 9,700 mt (26.3% of total sales) of pork, 1,800 mt (10.3% of total sales) of beef & 188,500 (50.6% of the total) of weekly beef hide export sales.
 
If China is to come anywhere close to its commitments to buy $46.5 billion of US ag products in 2021, it must remain an active & consistent buyer into summer & fall.  Chinese corn futures reached back above $11/bu. & beans above $23/bu. in recent days, making US grains look cheap.  We suspect China will stockpile a significant portion of the US corn & wheat it imports this year, but those efforts are needed to replenish depleted supplies. 
 
After having fallen 4c on corn & rallied 1c on beans on Wednesday, local corn basis was 2c higher & soybean & wheat basis levels were steady on Thursday. The Illinois River is having logistical problems with ice, making St. Louis southbound grain the dominant source for the Gulf right now. 
 
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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.