Midday Comments: 4/27/2020

Continued concerns about COVID-19 demand losses & renewed optimism about global production prospects kept pressure on grains on Friday as traders positioned for the last trading day for options on May futures.  Wheat led corn & beans lower as traders shrugged off potential damage to the Kansas wheat crop from recent freezing temperatures & confirmation from USDA that Mexico had bought both old- & new-crop corn & beans & China had purchased old-crop beans. With tractors running across much of the Midwest & 2-week forecasts calling for good fieldwork prospects in the western Corn Belt, traders priced in the expectation that US corn & soybean acreage would reach or exceed the plans that US farmers intended on March 1. A continued collapse to new lows in the value of the Brazilian real currency fueled renewed worries about the competitiveness of US grains.  The fact that Brazilian farmers are receiving record-high prices for corn when priced in reals stands in stark contrast to the 14-year lows US farmers were facing in April.  At Friday’s close, May corn futures declined 3.5c, Dec. corn lost 2c, May beans tumbled 7c, Nov. beans dropped 6.5c, May soymeal eased $1.00/ton lower, May soyoil were down 0.56c/lb., May soft red winter wheat collapsed 20.25c lower, & July SRW wheat crashed down 14.25c. In an historic weak that saw WTI May crude oil futures trade at minus $40.32 per barrel on Monday & expire at $10.01/barrel on Tuesday, the weekly continuation chart of corn lost 6.5c to post its lowest end-week close since Sept. 11, 2009, weekly soybeans ticked 1/4c lower to end with the lowest weekly close since May 24, 2019, soymeal edged down $0.50/ton for the week to settle with the lowest Friday close since Sept. 6, 2019, soyoil crashed $1.24/cwt. to its lowest weekly close since Oct. 13, 2006 & SRW wheat declined 6.75c to its lowest weekly close since March 13.
 
With a renewed crash ($4+/barrel) in crude oil futures viewed as a signal of depressed global commodity demand, corn led soybean & wheat futures lower on Sunday night.  Traders are pricing in expectations that USDA will report rapid planting progress in Monday afternoon’s Weekly Crop Progress report, especially in the western Corn Belt.  Much of Iowa, Nebraska, Minnesota, Wisconsin & the Dakotas  recorded 0.50” or less rainfall last week & it’s also thought that states east of Illinois also made good progress prior to the weekend rain event. The 5-year average for late April US corn planting progress is 20% finished & traders look for 20-22% completion rate this afternoon.  At the 7:45 am pause in electronic trading, May corn futures were down 6c, Dec. corn was 4.25c lower, May beans were down 3.75c, Nov. beans were unchanged, May soymeal was down $0.40/ton, May soyoil was 0.37c/lb. lower, May soft red winter wheat was down 4.5c, & July SRW wheat was 5.25c lower.
 
Although grain markets are begging US farmers to curb acreage, ongoing US government subsidies provide incentives to plant even though evidence of lasting damage to domestic energy & livestock feed usage & export demand continues to grow.  Two straight weeks of record-low ethanol output & record-high ethanol stockpiles are a sobering reminder of the hard times that sector faces.  The fact that April live cattle futures plunged $9.675/cwt. (-10.2%) last week even as wholesale beef prices surged $54.38/cwt. (+22.8%) showed just how badly the food processing chain is now broken by COVID-related labor problems.  Friday’s monthly USDA Cattle-on-Feed report indicated that US feedlots with 1000+ head capacity dramatically reduced their feeding operations & aggressively sold cattle during March as coronavirus fears multiplied.  USDA reported that April 1 cattle on feed inventory (11,297,000 head) was down 5.49%, March feeder cattle placements (1,557,000 head) plunged 22.69% to their lowest since at least 2001 for that month, & March marketings (2,010,000 head) soared 13.11% higher vs. last year to the most ever since at least 2001 for March.  On Wednesday, USDA weekly Hatchery report data confirmed that the US broiler industry placed 4.6% fewer broiler chicks on feed than last year-the least since last October.  Feed & ethanol demand are crashing simultaneously, & that’s represents nearly 80% of US corn crop usage!
 
Global equity markets were higher on Sunday night after the Bank of Japan issued yet another stimulus package, their latest attempt in a decades-long effort to boost Japanese economic output.  Other central banks, including the US Federal Reserve, are also meeting this week.  By enabling debt-fueled spending by governments, central banks have proven they can inflate Wall Street paper assets via aggressive intervention to suppress interest rates & expand money supply. But they have been far less effective at boosting the Main Street economic growth around the world.  With bond markets rate of return suppressed near or below zero by central bank debt buying, investors continue to pile into “hot” stocks like Amazon & Netflix even though those relatively mature companies trade at more than 100 times earnings.  Investors continue to value the “cult” stock of Tesla—a company that has NEVER made an annual profit & shows only 2 quarters of profits during the past 15 years—as more than TWICE as valuable than the Big Three US auto companies of GM, Ford & Fiat Chrysler COMBINED!  As money gravitates towards equities, money continues to flow out of the commodities that drive the rural economy.  Investors are pricing in Depression for rural America even as they forecast renewed Glory Days for the biggest corporations.  For now, there is a enormous disconnect between Main Street (20%+ unemployment) & Wall Street equities (trading at price-to-earnings ratios that have been higher only 6% of the time). 
 
Corn extended its losses, wheat maintained its overnight setback, but beans turned slightly higher by late Monday morning.  This morning’s USDA Weekly Grain Export Inspections data for the week ended April 23 was an improvement from prior weeks, but shipments for corn (42.446 mb) barely reached the average needed (42.0 mb) to reach USDA’s export forecast, & soybeans (20.420 mb) & wheat (18.421 mb) shipments fell far short the of 27.5 mb & 28.7 mb average paces, respectively, needed to reach USDA’s 2019/20 export forecasts.  Grain sorghum exports (8.939 mb) were again robust with China (8.128 mb) the dominant destination.  Japan (16.640 mb), South Korea (10.165 mb) & Mexico (8.351 mb) took most of last week’s corn, while Egypt (4.739 mb), Mexico (3.531 mb), Indonesia (2.792 mb), Japan (2.745 mb), China (2.679 mb) & Morocco (1.047 mb) were the only nations taking at least 1 mb of US beans last week.  Mexico (3.067 mb), Thailand (2.968 mb) & South Korea (2.400 mb) topped the list of 12 nations that shipped at least 0.402 mb of US wheat last week.  Cumulative corn inspections now stand at just 877.7 mb—down 486.6 mb from last year & the least exports at week #34 since 2012/13.  Soybean inspections have reached 1,230.1 mb--up 71.3 mb from last year, but the second-worst shipments since 2011/12 at week #34. Wheat inspections now total 826.8 mb—up 40.1 mb from last year’s rate & the highest for market week #47 in three years.  Wheat inspections have been below last year for seven of the most recent 10 weeks, suggesting exports are unlikely to exceed USDA’s 985 mb export projection. With May crude oil still down $4.35/barrel during the noon hour, May corn futures were down 10c, Dec. 2020 corn was 7.25c lower, May beans were down 2.25c, Nov. beans were 1/4c lower, May soymeal was down $2.00/ton, May soyoil was 0.19c/lb. lower, May soft red winter wheat was down 7.75c, & July SRW wheat was 7.5c lower at 12:28 pm.
 
In export news, USDA did not report any daily export sales on Monday. On Friday, the farm agency announced that 14.55 mb of 2019/20 & 8.653 mb of 2020/21 US corn as well as 1.433 mb of 2019/20 & 3.160 mb of 2020/21 US soybeans were sold to Mexico. USDA als0 reported on Friday that 4.997 mb of 2019/20 US beans were sold to China.  Saudi Arabia’s state-owned grain buyer, SAGO, reportedly purchased 24.067 mb of wheat from a variety of sources over the weekend for July-August shipment. An additional 2.205 mb of Ukraine wheat was bought for September arrival.  The EU began charging $5.72/mt (14.5c/bu.) duties on US corn imports on Monday in response to falling US corn prices.  The EU can raise duties on US corn if our price declines below their minimum price for 10 consecutive days.  Chinese customs officials reported on Monday that 2.1 mmt of Brazilian & 1.71 mmt of US beans were imported in March.  That compares to 2.79 mmt of Brazilian & 1.51 mmt of US beans that were imported during March 2019. 
 
Locally, corn basis was a penny higher, & soybean & wheat basis levels were steady on Friday.  For the week, nearby cash prices of corn declined 3c, soybeans gained 1c & wheat dropped 7c.
 
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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.