Closing Comments: 5/08/2020

With rising crude oil futures again serving as a proxy for improving consumer demand, grains rallied on Thursday in concert with equity markets that were buoyed by investor optimism on news that the FDA had fast-tracked a COVID-19 vaccine trial & comments from Federal Reserve officials who indicated worst-case economic downdrafts from the virus could be avoided.  Thursday’s grain price recovery largely ignored continued news of reduced livestock feed demand & modest weekly grain export sales.  Wednesday afternoon’s USDA Weekly Hatchery report had indicated that the nation’s poultry producers reduced the number of broiler-type eggs placed into incubators by 5.03% & slashed the number of broiler chicks placed on feed by 11.8% compared to last year.  Chick placements slumped to their lowest level since late-October 2015 as producers adjusted for slower production speeds & worker absenteeism at their processing plants.  Thursday morning’s weekly export sales data for the week ended April 30 was a mixed bag. Although weekly export sales were well within the trade’s expectations & above the average pace needed to reach USDA’s April 9^th export projections, cumulative corn & bean sales are the slowest since 2012/13 & the wheat shipments pace is more likely than not to fall short of USDA’s forecast. With weather forecasts calling for frost for the Ohio River Valley wheat crop & potential freeze damage to emerged corn & soybeans across the upper Midwest on Friday night, Thursday’s mid-range settlements still looked comparatively muted.  At Thursday’s close, July corn futures gained 3.75c, Dec. corn rallied 2.75c, July beans surged 11.75c higher, Nov. beans jumped up 9c, July soymeal was unchanged, July soyoil rebounded 0.42c/lb., July soft red winter wheat rose 5c, & Dec. SRW wheat was 4.5c higher.
 
Grains continued their modest recovery on Thursday night, rallying along with global financial markets that sense a sustained rebound from the coronavirus recession.  Markets were prepared for the worst monthly US non-farm jobs report in history, & they got it at 7:30 am on Friday.  The US Labor Dept.’s Bureau of Labor Statistics indicated that US employers erased 20.5 million jobs in April—equivalent to the loss of every job created in the past decade!  The nation’s unemployment rates soared 10.3% higher during the month to 14.7%, far above the previous post-WW II record of 10.8% set in Nov-Dec. 1982 & “Great Recession” peak of 10.0% in Oct. 2009. Although such data was not reported at the time, economists estimate that 25% of the work force was jobless during the depths of the Great Depression.  A equity markets rallied on the news, grain markets worked higher as well.  Grains got an additional boost from comments by Chinese & US trade negotiators that indicated China is making appropriate progress & will meet its Phase One US purchase obligations.  China has been the dominant export customer of US pork & grain sorghum in recent months, & recent purchases of corn & wheat can also be seen as constructive.  On Wednesday, Pres. Trump had raised doubts about Chinese efforts & threatened renewed tariffs.  Today’s announcements lowered the temperature on the trade war boiler.  At the 7:45 am pause in electronic trading, July corn futures were up 2c, Dec. corn was 1.5c higher, July beans were up 7.25c, Nov. beans were 6.75c higher, July soymeal was up $1.90/ton, July soyoil was 0.34c/lb. higher, July SRW wheat was up 1.25c, & Dec. SRW wheat was 3/4c higher.
 
Grains attempted to follow equities higher as regular trading resumed, but stalled by late morning.  While equity markets are stoked by the unprecedented 19% (!)increase in M1 money supply accomplished by fiscal & monetary stimulus, the actual economy continues to labor from diminished demand brought on by response to COVID-19.  Hog futures were down $1.50-2.20/cwt & cattle futures modestly higher on Friday on reports that processors harvested 27,000 more cattle & 223,000 hogs this week compared to the previous week.  Weekly cattle kill was still down 32.19%, hog slaughter 24.18% lower & total same-week beef & pork production down 27.5% from last year as the packing industry struggles to reopen.  Hundreds of thousands of cattle & hogs remain backed up on farms even as beef & pork cutout prices have more than doubled. Chart action was a big part of Friday’s rally failure.  July corn, soybean & SRW wheat futures each exceeded last week’s highs, but could not sustain those gains into the noon hour.  Reports of weaker Russian wheat prices for July-August kept wheat prices under control, offsetting worries about weekend frost potential. With USDA’s WASDE data looming ahead, grains faded into the close.  July corn futures ended Friday 1.25c higher, Dec. corn was up 1.75c, July beans were 6.25c higher, Nov. beans were up 7.25c, July soymeal was $2.70/ton higher, July soyoil was up 0.28c/lb., July SRW wheat was 1/2c lower, & Dec. SRW wheat was 1/4c higher. For the week continuation charts of corn rose 7.5c, soybeans edged 1.5c higher & SRW wheat rallied 8c. 
 
In export news, USDA announced on Friday morning that 4.409 mb of 2019/20 US soybeans were sold to unknown destinations.  On Thursday, the farm agency reported that China had purchased 14.605 mb of 2019/20 & 12.401 mb of 2020/21 US corn. Trade talk says Chinese commercial end-users bought the corn using tariff-rate quotas that China is required to offer under its WTO obligations.  It’s revealing that China has made most of its “Phase One” US corn purchases with prices 3-year lows.  That’s certainly not the expectation that farmers had when the much-touted agreement was signed in January & prices were about 70c higher. Chinese customs data shows that January-April imports of US ag products are down significantly from the same period in 2017—the baseline for the Phase One deal. While both the US & China say that China will meet its commitments to dramatically increase its 2020 & 2021 purchases of agricultural, energy & other goods, there’s no proof of that yet. Also on Thursday, South Korean feed processors continued to actively buy non-US feed grain, procuring 8.110 mb of South American corn for August-October arrival. South American corn & soybean prospects have declined in the past month due to excessively dry weather. They will still have plenty to sell in coming months. 
 
As they did in May 2019, traders assume weather will not hurt US crop production prospects, & that grain production will far exceed consumption in the coming year. Ahead of the May 12 USDA WASDE report—the first official estimates for the 2020/21 crop year—a Wall Street Journal survey of trade analysts on average expects USDA to forecast 2020 US corn production at a record 15,609 mb (up 1,917 mb from the current 2019 estimate), soybean output at 4,120 mb (up 562 mb from last year) & wheat production at 1,859 mb (down 61 mb from 2019).  Owing to expectations that USDA will cut 2019/20 grain demand due to the coronavirus outbreak, analysts also expect old-crop carryover supplies to increase by 133 mb to 2,225 mb on corn, to rise 21 mb to 501 mb on beans, & to edge 2 mb higher to 972 mb on wheat.  With demand still forecast to be impaired in the new-crop year by stiff export competition & uncertain feed & fuel demand, analysts see 2020/21 ending stocks to explode to 3,403 mb in corn, & ease only modestly in beans to 452 mb & to 821 mb in wheat.  If realized, corn stockpiles would be the fifth-largest ever behind 1982/83 (3,523 mb), 1985/86 (4,040 mb), 1986/87 (4,882 mb) & 1987/88 (4,259 mb).  If trade forecasts are actualized, soybean stocks would decline to the least since 2017/18’s 438 mb.  And 2020/21 wheat carryover would drop to its lowest level since 2014/15’s 752 mb.  Largely due to interaction between larger corn & lower soybean & wheat planting projections from the March Planting Intentions report & the falloff in grain demand from the COVID-19 shutdowns, trade ending stocks expectations remain well above the 2,637 mb corn, 320 mb soybean & 777 mb wheat carryover forecasts that USDA issued at its Feb. 21 Agricultural Forum. 
 
Trade analysts look for USDA to lower corn production in Brazil ty 1.8 mmt to 99.2 mmt & Argentina by 0.5 mmt to 49.5 mmt & cut 2019/20 soybean output by 1.6 mmt to 122.9 mmt in Brazil & by 0.9 mmt to 51.1 mmt in Argentina.  Global ending stocks for 2019/20 are expected to rise 4.3 mmt to 307.5 mmt on corn, decrease 0.4 mmt to 100.1 mt on beans & ease 0.3 mmt lower to 292.5 mmt on wheat.  Grain stockpiles for 2020/21 are then foreseen to expand to 324 mmt on corn, 104.0 mmt on beans & 292.8 mmt on wheat.  Prices have sagged to their current levels because traders remain convinced that US & world supplies will be plentiful at a time where global demand could erode.  It should be noted that prices bottomed with a couple days of the release of the May 2019 WASDE report as crop planting difficulties eventually were recognized. 
 
Recapping Thursday’s Weekly Export Sales for the week ended April 30, USDA reported old-crop corn sales at a 2-week-low 30.495 mb of old- & new-crop sales at a 2-week-low 3.838. Total sales of 34.333 mb were well within pre-report trade expectations that ranged 19.7-65.0 mb. Old-crop corn sales need to average 14.3 mb per week thru the end of August to meet USDA’s current export forecast. Cumulative corn sales now stand at 1,477.1 mb.  While that is the slowest sales total since 2012/3 at week #35 of the marketing year, sales have reached 85.6% of USDA’s 1,725 mb projection—slightly ahead of the 5- & 24-year percentages for this time of year.  Grain sorghum sales slid to a 11-week-low 2.531 mb, nearly all headed to China.  Cumulative milo commitments now total 141.9 mb—80.3 mb ahead of last year’s sales pace & 76.7% of USDA’s 185 mb export forecast.  Old-crop soybean sales eased to a 2-week-low 23.997 mb with 61.8% of those sales to China or unknown destinations. An additional 6.522 mb of 2020/21 beans were also sold.  Traders had forecast total weekly bean sales at 14.7-49.6 mb. Cumulative 2019/20 soybean sales now stand at 1,458.9 mb—also the least sales at week #35 since 2012/13.  Soymeal sales (131,400 mt of old- & 39.8 mt of 2020/21) were solidly within trade expectations of 100,000-325,000 mt) with old-crop sales above the 125,100 mt weekly sales average needed to reach USDA export projections.  Soyoil sales (18,900 mt of old- & 2,700 mt of new-crop) were also in the middle of trade forecasts that ranged 5,000-35,000 mt.  Cumulative soyoil have reached 93.3% of USDA’s 2019/20 forecast, well above the 73.8% 5-year sales average for early May.  Old-crop wheat sales (17.170 mb) were a 2-week low, & 4.971 mb of new-crop wheat were also sold.  Cumulative 2019/20 wheat commitments have reached 961.8 mb—97.6% of USDA’s 985 mb export forecast & touch above 5- & 24-year sales percentages for market week #48.  Last week sales moderate report was disappointing only in that buyers were not more active in accumulating needs as US farm prices remained very low last week. 
 
After steady basis levels for corn, soybean & wheat on Wednesday & Thursday, local corn, soybean & wheat basis levels weakened a penny on Friday.  For the week, the nearby cash corn price was 5c higher, soybeans were a penny lower & wheat was 2c 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.