Midday Comments: 4/22/2020

Corn slid to new contract lows on Tuesday, following renewed weakness in crude oil, gasoline & heating oil futures.  Reaching double-digit losses, May corn finally found support when it hit $3.01. That equaled the 2015/16 market year low that was set on first notice day for the Sept. 2016 corn futures contract on Aug. 31, 2016. This week’s losses have anticipated that Wednesday’s EIA Petroleum Status data would likely show continued cuts in US crude oil, petroleum product & ethanol output, but still rising inventories of those commodities.  Soybeans also tumbled to fresh contract lows on Tuesday, but found buyers that created potential double-bottoms on price charts. Short-covering eventually propelled soybeans to top-range, modest gains.  Despite USDA’s report that winter wheat conditions declined & spring wheat planting lagged 11% behind the 5-year average last week, wheat futures declined to small losses on talk that some Northern Plains farmers may be switching corn acres to hard red spring wheat.  At Tuesday’s close, May & Dec. corn futures each declined 5c, May beans gained 4.25c, Nov. beans rose 2.25c, May soymeal jumped $3.50/ton, May soyoil tumbled 0.63c/lb., May soft red winter wheat lost 2c, & July SRW wheat declined 1.25c.
 
The past couple weeks continue to prove that COVID demand losses are taking no prisoners in agriculture.  While agri-business has developed just-in-time efficiencies that are enviable in “normal” circumstances, the coronavirus has created employee shortages, & led to the rapid spread of the disease in many livestock processing plants.  Tyson Foods became the third major US pork processor to indefinitely close a facility following employee absenteeism & a sickened work force.  With employees unable or unwilling to show up, grain, livestock, milk & perishable products supply chains are struggling to process farm goods into consumer goods.  That is creating shortages even as farm supply inventories are growing due to demand losses.  As farm prices fall, consumer prices are on the rise. It doesn’t get crazier than this!
 
Crude oil rebounded overnight, sparking gains in global equity markets & grain futures.  Corn & beans showed the most strength as traders hoped for recovery in biofuel demand, but wheat was slightly lower as long wheat spreads against short corn & soybean positions were liquidated.  Indications that China was using the price break to return to US markets & talking about replenishing depleted state-owned stockpiles also underpinned prices.  At the 7:45 am pause in electronic trading, May corn futures were up 6.25c Dec. corn was 5c higher, May beans were up 5.75c, Nov. beans were 4.25c higher, May soymeal was up $1.00/ton, May soyoil was 0.37c/lb. higher, May soft red winter wheat was down 1/2c, & July SRW wheat was 3/4c lower.
 
Corn extended its overnight gains, soybeans futures were mixed & wheat maintained small losses by midmorning on Wednesday as strength in crude oil & signs that ethanol output was stabilizing at record-low levels fueled buying. Wednesday’s EIA Weekly Petroleum Status report confirmed that both US crude oil & ethanol production declined slightly in the week ended April 17, & that inventories of crude oil, gasoline, diesel fuel, ethanol & commercially-owned total petroleum supplies continued to rise.  US crude oil output declined oil 100,000 barrels/day to 12.2 million barrels per day (MB/day), & net imports eased by 0.197 MD/day to 2.047 MB/day—the least since Dec. 27.  Refinery operated at only 67.6% of capacity last week, down 1.5% for the week & the second slowest rate on record.  Despite those production cutbacks, US commercially-owned crude oil stockpiles soared 15.022 MB to a near-record 518.640 MB, gasoline supplies jumped 1.117 MB to a record 263.334 MB, distillate stocks rose 7.876 MB to 136.880 MB & commercially-owned total petroleum inventories surged 25.534 MB to a near-record 1,367.104 MB.  Today’s EIA report confirms that petroleum stockpiles are rapidly approaching “tank top” levels that will require a combination of 3 MB/day increase in usage or cut in output. Ethanol output fell 2.058 mil.gal. last week to a record-low 165.522 mil.gal., but ethanol stockpiles still increased 9.240 mil.gal. to a record-high 1,162.938 mil.gal.  Traders breathed a sigh of relief on those numbers since production was larger & stocks were smaller than feared.  That said, demand must improve to return ethanol plants to profitability & allow them to boost corn usage.  Corn extended its pre-report rally following the data release, hitting double-digit gains by midmorning.  Prices began to pull back by late morning with wheat under the most pressure.  At 11:12 am, May corn futures were up 6.75c, Dec. 2020 corn was 4.5c higher, May beans were up 2.5c, Nov. beans were down 1.25c, May soymeal was $1.40/ton lower, May soyoil was up 0.31c/lb., & May & July SRW wheat were each down 3.75c.
 
In export news, USDA announced on Wednesday morning that 7.275 mb of 2019/20 US soybeans were sold to China.  The farm agency did not report any daily export sales on either Monday or Tuesday. Newswires report that China’s state-owned COFCO purchased up to 8 cargoes (about 18.2 mb) of US soybeans for origination between August & September from the US Gulf on Tuesday. That would be the first time since mid-December that China has bought Gulf-origin supplies because Brazilian beans have been cheaper.  China’s other major grain firm, Sinograin, also reportedly was inquiring about US soybean for Aug-Sept. delivery from both the US Gulf & Pacific Northwest.  Beijing is reportedly also discussing how to refill stockpiles of soybeans, corn, soyoil & cotton with a target to add 10 mmt of beans back into stockpiles.  China started depleting bean stockpiles as the US-China trade war started in March 2018 when soybean prices were far higher.  Now, they can refill those whittled down stocks with much cheaper prices.  Boy, President Trump sure showed THEM who was the boss!  Other importing countries used this week’s downdraft in prices to buy corn from Southern Hemisphere nations.  Taiwan feed mills bought 4.606 mb of corn from Brazil & South Africa for July-August shipment, & South Korean feed processors purchased 2.283 mb of South American corn for October delivery.  Ukraine’s economic ministry reported on Wednesday that grain exports since July 1 have reached a record 48.95 mmt—up 20% year-on-year.  That total includes 25.2 mmt of corn, 18.5 mmt of wheat & 4.5 mmt of barley. Argentine farmers have made excellent harvest progress during the past 3 weeks, but low water levels on the Parana River have forced exporters to load lower drafts at their major Rosario port & then top off ocean-going cargoes at the deep-water port of Bahia Blanca.  Heavy rains are expected next week that should slow the  Argentine harvest pace.
 
Locally, corn & soybean basis levels were steady & wheat basis eased 2c lower on Tuesday. Barge freight continues to be seasonally weak as demand at the Gulf & low fuel prices combine to keep costs low.
 
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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.