Midday Comments: 12/7/2020

Grains were on the defensive on Sunday night despite a bit lighter than expected weekend rainfall in Brazil.  Soybeans were the downside leader after the Trump Administration imposed new sanctions on 12 more Chinese officials, a move that could lead to increased trade tensions & more disruptions to US exports to our currently best 2020/21 corn, soybean, grain sorghum, cotton, pork & cattle hide & third-highest wheat export customer. China bought $4.975 bil. of US farm goods in October, bringing their 2020 total to $18.5 bil. China was the reason US bean exports were record-high in October, but their US imports will be far lighter in Nov.-Dec.  In fact, China will substantially fall short of its commitment to buy $36 bil. of US farm products in 2020 under the Phase One trade deal.  After negotiations that sharply curbed our exports from March 2018 thru early 2020 to China & other key customers, Trump’s deal making is proving as successful as his virus leadership. After purging Defense Dept. & National Security staff for the temerity of noting he lost his election bid by over 7 million votes, Trump is highly unlikely to strike successful deals in the waning days of his one-term presidency. But he could still do a lot of additional damage. Weekend events gave the Chinese another reason to walk away from Phase One.  US grain prices are reflecting some of that demand erosion risk on Monday.  Although there have been five days on which sales to unknown destinations have been announced in the past month, USDA has not reported **any** daily export sales to China since Nov. 6.  That remains troubling given rumors of that nation’s interest last week in corn, new-crop beans & wheat.  At the 7:45 am pause in Monday’s overnight trading, March corn futures were down 4c, July corn was 4.75c lower, Jan. beans were down 10.5c, March beans were down 10c, Jan. soymeal was $4.40/ton lower, Jan. soyoil was 0.42c/lb. lower, March soft red winter wheat was 9.75c lower & July SRW wheat was down 8.75c.
 
Grains bounced back once Monday’s regular trading session resumed at 8:30 am, & extended their rally following the 10 am release of USDA’s Weekly Grain Export Inspections report.  Although corn inspections for the week ended Dec. 3 were below trade expectations (28.899 mb vs. 29.5-43.3 mb guessed), strong upward revisions for the previous week (40.727 mb, +5.688 mb) cushioned the disappointment.  Mexico (12.392 mb) & China (10.682 mb) dominated the list of 6 nations that took at least 75,000 bu. of US corn last week.  Cumulative corn inspections now stand at 434.114 mb, 176.581 mb above last year’s 7-year-low early season pace, & the third-best export pace at week #14 since 2010/11. No grain sorghum was inspected for export last week.  We suspect USDA will report something for the week in a future report since weekly milo exports haven’t been “zero” since at least 2002. This week’s “skunk” report was partly offset by upward revision to Nov. 26 milo shipments (14.003 mb, +4.324 mb) which produced the highest weekly total since Oct. 8, 2015. Cumulative week #14 milo inspections stand at 57.155 mb, the highest since 2015/16.  USDA revealed better than expected soybean inspections for the week of Dec. 3 (84.412 mb vs. 55.1-80.89 mb trade forecasts), but also a huge upward revision for the week ended on Thanksgiving Day (89.062 mb, +14.234 mb). China (56.997 mb) & Egypt (9.412 mb) led the list of 10 nations that took at least 0.551 mb of US beans last week.  During the past 10 weeks, soybean inspections have average 89.6 mb per week.  The surge in shipments has brought cumulative bean inspections since Sept. 1 to a record 1,081.010 mb—121.758 mb above the previous week #14 record set in 2015/16.  Wheat inspections (19.503 mb) were above the weekly pace needed to reach USDA’s 2020/21 export projection of 975 mb for the second straight week.  Japan (3.328 mb), Mexico (3.044 mb), China (2.508 mb) & Thailand (2.009 mb) topped the list of 12 nations that shipped at least 0.427 mb of US wheat last week.  The previous week’s inspections were also upward adjusted (19.635 mb, +1.029 mb), bringing cumulative wheat inspections since June 1 to 494.824 mb.  That’s the best week #27 total since 2016/17’s 501.954 mb.  All but soy products had reversed to gains by the noon hour.  At 12:31 pm, March corn futures were up 4c, July corn was 3.75c higher, Jan. beans were up 1.25c, March beans were 3c higher, Jan. soymeal was down $0.40/ton, Jan. soyoil was 0.19c/lb. lower, March soft red winter wheat was up 3.75c & July SRW wheat was 3.5c higher.  Corn & soybeans prices remain choppy, trying to revert to a sideways trading range with support at two-week lows & resistance at the post-Thanksgiving highs. 
 
Recapping Friday’s price action, corn & soybean were again on the defensive on Friday as weather forecasts in South America continued to call for rainfall moving out of northern Argentina & southern Brazil into central Brazil into this week.  Storms dumped upwards of 3” of rainfall in a 12-hour period in parts of Rio Grande do Sul, Santa Catarina & Parana on Thursday, & forecasts see that system headed towards Mato Grosso & other central Brazilian states thru the weekend.  In addition to ideas that South American corn output was getting badly needed moisture, corn was also pressured by lack of confirmation of rumors that China had bought US corn during the week.  Corn & bean traders paid scant attention to Census Bureau export data that showed Sept-Oct. exports Wheat was again very weak today, still reeling from ideas that larger 2020 wheat output in Australia, Canada & Russia will cushion any 2021 losses that may be developing in the US or Black Sea production regions.  On Monday, Australia boosted its 2020/21 wheat crop estimate by 2.26 mmt to 31.17 mmt, only slightly below the 31.8 mmt record crop of 2016/17. On Thursday, Statistics Canada increased its 2020/21 Canadian wheat production estimate by 1.04 mmt to 35.2 mmt—a 7-year high.  When coupled with news from Monday that Russia’s ag ministry wants to increase its 2020/21 export quota by 2.5 mmt, the case for higher US old-crop wheat exports & carryover levels took multiple jabs this week.  At Friday’s close, March corn futures dropped 6c, July corn lost 5.5c, Jan. & March beans each declined 5.25c, Jan. soymeal was $4.50/ton lower, Jan. soyoil followed palm oil prices higher to rally 0.68c/lb., March soft red winter wheat tumbled 9c lower & July SRW wheat sagged 8c. For the week, continuation charts of corn declined 8.5c to a 3-week-low close, soybeans plunged 28.75c to a 2-week-low Friday close & SRW wheat plummeted 30c to its lowest weekly close since Sept. 25.
 
In its “official” US export-import trade report for October, the Census Bureau confirmed on Friday that grain exports were strong during October.  That made it a bright spot in an otherwise dismal report that indicated the US had a $63.1 billion trade deficit (imports of $245.14 bil., exports of $182.02 bil.) in October with the rest of the world.  Corn exports were pegged at 145.0 mb, down 4.7 mb from Sept. but 44.3 mb above last year & the second-highest Oct. total since at least 2009. Cumulative Sept-Oct. corn exports stand at 294.7 mb, only the sixth-largest since 2009 for the first two months of the marketing year.   Grain sorghum exports slipped to 9.7 mb in Oct., nearly half of Sept.’s 18.3 mb, but up 4.4 mb from last year’s pace & the largest Oct. exports since at least 2015.  Census corn were about 15.9 mb higher (1.9 mb/week) & milo exports were about 1 mb (.126 mb/week) above the grain inspections that USDA reported for Sept-Oct.  Census data reported Oct. soybean exports at 420.4 mb, up 134.5 mb from Sept., 202.0 mb above last year, & the largest exports for any month in history.  (The previous record was set in Oct. 2016 at 415.7 mb.) Cumulative 2020/21 bean exports thru Oct. 31 were 706.3 mb, 152.1 mb above the previous record for Sept-Oct. set in 2016.  Census soybean shipments for the first two months of the marketing year were about 48.4 mb above USDA soybean inspections, a whopping 5.8 mb per week! That’s means USDA failed to inspect/weigh/report the equivalent of nearly 3 panamax ocean cargoes every week. Soybean exports are running at a record pace, 152.2 mb above the previous 554.1 mb high set in 2016/17.  Census data indicates that 64.0 mb of USA wheat was exported in Oct., down 38.7 mb from Sept. & 15.0 mb below last year.  Cumulative June-Oct. 2020/21 wheat exports stood at 428.2 mb on Oct. 31, 6.2 mb (.290 mb/week) above USDA inspections for the period & the highest end-Oct. Census wheat total since 2013/14’s 603.7 mb.  
 
In export news, USDA did not report any daily export sales on Monday.  On Friday, the farm agency announced that 7.166 mb of 2020/21 US corn were sold to Mexico.  Grain merchants report that South Korean feed mills booked 2.716 mb from the US Pacific Northwest for June arrival on Monday.  On Friday, South Korean feed processors bought 2.677 mb of optional-origin corn for May arrival & 185,000 mt of soymeal for July delivery, probably of South American origin. Algeria was reported to buy 1.378 mb of unknown origin corn for Jan shipment on Friday.  According to Brazilian analyst Safras e Mercado, Brazilian farmers have already sold 56.5% of their unharvested 2020/21 soybean crop, far above the average 34.5% sales rate for this time of year. Safras reported on Monday that Brazilian farmers have now seeded 89% of their soybean crop with Mato Grosso, Mato Grosso do Sul & Parana producers said to be done.  One should expect global soybean export business to tilt heavily towards South America by Feb.-March.   
 
Friday afternoon’s CFTC Disaggregated Combined Futures & Options Commitments of Traders report confirmed that managed trading funds were net sellers of all grains in week ending Dec. 1. Funds were major net sellers of corn (-16,966 contracts), soybeans (-9,127) & SRW wheat (-19,696), moderate net sellers of HRW wheat (-3,915) & HRS wheat (-1,099) & minor net sellers of soymeal (-749) & soyoil (-626) during the period.  Funds still heavily net long corn (+270,633 contracts), soybeans (+1994,683), soymeal (+70,386), soyoil (+104,715), HRW wheat (44,506) & HRS wheat (+4,755), but now have 15-wk-high net short position in SRW wheat (-4,397 contracts).  Despite four weeks of net selling in the grain complex, managed funds still owned 875,850 long positions & only 195,324 short positions in the 6 major non-HRSW commodities.  The resulting 4.4841:1 long/short ratio has been more bearish 82.66% of the time since June 2006 data series start.  Fund managers still have a very bullish bias to grains that will require South American production problems as well as continued Chinese demand to justify longer-term. 
 
Thursday’s USDA’s Weekly Export Sales data for the holiday week ended Nov. 27 were strong for corn (53.994 mb vs. 31.5-51.2 mb expected), for wheat (16.395 mb vs. 9.2-18.4 mb) & for grain sorghum (9.393 mb), but a bit disappointing for soybeans (14.951 mb vs. 14.7-42.3 mb), for soymeal (164,000 mt vs. 100,000-300,000 mt) & for soyoil (2,500 mb vs. 5,000-30,000 mt).  Corn sales were above expectations & almost twice the average needed to reach USDA’s 2020/21 export forecast, & corn shipments were the highest since Aug. 13.  Milo sales were about 4.5 times the average weekly sales needed.  While soybean weekly sales were still twice the average needed to reach USDA’s export projection, 2020/21 bean sales were the lowest since July 2, & total multi-year weekly sales were the least since April 16.  Year-to-date soybean export commitments remain record-setting, the best ever by 388.2 mb at marketing week #13.  While last week’s soymeal sales barely exceeded that average needed to reach current export forecasts, soyoil sales were far below the weekly pace required.  While corn, soybean & wheat sales are running well above the sales percentage seen in the previous 5- & 25-year averages, soy products are each slightly below sales versus the final shipments pace seen in the previous 5- & 25-year periods.  China remained an active buyer last week, booking 6.094 mb of corn, 17.523 mb of soybeans (including 14.551  switched from unknown), 0.110 mb of wheat, 10.889 mb of milo (including 4.173 switched from unknown) 131,200 running bales of  cotton, 8,800 mt of the total 35,500 mt of pork that was sold, 900 mt of the total 16,900 mt of beef that was sold & 150,500 of the total 267,400 cattle hides that were sold last week.  So far in 2020/21, China has bought 440.109 mb of corn, 1,090.141 mb of beans, 142.879 mb of milo, & 75.644 mb of wheat. Grains found added support from continued weakness in the US dollar, now at levels not seen since April 2018. At Thursday’s close, March & July corn futures were each 2.75c higher, Jan. beans surged 15.25c higher, March beans soared 15.5c, Jan. soymeal jumped $4.40/ton, Jan. soyoil gained 0.81c/lb., March soft red winter wheat lost 4c & July SRW wheat lost 2.5c.
 
Locally, grain basis levels were steady on Friday after corn basis was up 2c, soybean basis rose 1c & wheat basis was steady on Thursday. The combination of higher futures & stronger basis sent spot St. Louis river terminal corn prices to their highest closing level since July 17, 2019 on Thursday.  For the week, local cash corn was a penny lower, beans were down 14c & wheat was 26c lower.
 
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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.