Midday Comments: 8/13/2020

Grain prices reversed higher on Wednesday after USDA projected record-high corn & near-record soybean production on record-high yields, but also boosted both old- & new-crop demand for those commodities.  Corn futures were nearly 2c lower & soybeans were about a penny higher prior to the 11 am release of USDA’s monthly supply-demand revisions, but the WASDE data ending stocks forecasts were close enough to pre-report trade expectations that fresh selling was limited.  When a retest of last week’s lows found buying support, corn & beans reversed higher with soybeans the leader.  USDA’s crop forecasts were based on conditions on August 1.  We suspect Wednesday’s rebound is tied to skepticism about yield forecasts for areas that were hard hit by this week’s derecho.  Iowa’s ag secretary estimates that 10 mil.ac. of that state’s crop acreage—one-third of its plantings—were impacted by winds that hit 100+ mph in a few areas.  Coupled with dry weather that had earlier hurt Iowa crop potential, traders were quick to cover short positions on the idea that the highest yield of the year has now been reported.  Wheat failed to participate in Wednesday’s post-WASDE recovery after USDA forecast record-high world wheat production & boosted its global wheat ending stocks to a new record.  Wheat declined even though USDA raised its 2020/21 US wheat export forecast by 25 mb & marginally lowered US wheat ending stocks to a 6-year low. At Wednesday’s close, Sept. corn futures gained 3c, Dec. corn jumped 3.75c, Sept. beans surged up 10c, Nov. beans rallied 9.5c, Sept. soymeal ticked $0.10/ton higher, Sept. soyoil soared 0.94c/lb.,  & Sept. & Dec. soft red winter wheat each declined 3.75c.
 
Corn & soybeans added to Wednesday’s gains in Wednesday night trading as the short-covering rally continued.  Crop damage in Iowa became more evident, threatening the validity of USDA’s 202 bu/ac. corn yield & 58 bu/ac. soybean yield estimates for that state.  NWS 6-10 & 8-14 day forecasts for below-normal rainfall for the Delta, Midwest & Plains, above-normal in the northwestern Corn Belt & below-normal temps for much of the nation’s midsection as well as the potential for ocean storms to form that could hit the US east coast looked less than ideal for crop recovery in the 7-state area affected by this week’s derecho.  Wednesday afternoon’s Farm Service Agency report of 2020 prevented planting acreage also raised the prospect of further acreage cuts that could lower US crop output.  Managed trading funds had placed massive bearish bets going into the August WASDE report.  Inability to decline in the wake of that data was their signal to pare back those bets.  Thursday morning’s USDA Weekly Export Sales data was modestly supportive for corn (14.8 mb of old- & 21.8 mb of new-crop) & bullish for soybeans (20.9 mb of old- & 104.3 mb for new-crop) & grain sorghum (11.1 mb of old- & 20.8 mb of new-crop) as China continued to book US grains in the week ended Aug. 6.   At the 7:45 am pause in electronic trading, Sept. & Dec. corn futures were each 6.25c higher, Sept. beans were up 10.25c, Nov. beans were 10.5c higher, Sept. soymeal was up $3.70/ton, Sept. soyoil was 0.08c/lb. higher, & Sept. & Dec. SRW wheat were each 3/4c lower.
 
Grains extended their post-report rebound on Thursday morning.  Fueled by continued short-covering, Sept. corn futures exceeded weekly chart resistance of $3.23 to take aim at its next chart target near $3.30.  Nearby soybeans jumped above $9.00 & Nov. beans did the same by the noon hour as crop worries spurred renewed buying.  Even wheat joined the effort by late morning, challenging the $5 support level that it broke earlier in the week. At 12:46 pm, Sept. corn futures were up 12.5c, Dec. corn was 13c higher, Sept. beans were up 17.5c, Nov. beans were 18.25c higher, Sept. soymeal was up $8.80/ton, Sept. soyoil was 0.21c/lb. lower, Sept. SRW wheat was 6c higher, & Dec. SRW wheat was up 7c.   Grain futures mounted a furious 3-day rally following the June 30 Acreage & Quarterly Grain Stocks reports.  Time will tell whether this rebound can be sustained longer than that.
 
In export news, USDA announced on Thursday morning that 7.238 mb of 2020/21 US beans were sold to China, & that 7.422 mb of 2020/21 US soybeans, 1.181 mb of 2019/20 & 3.149 mb of 2020/21 US corn were sold to unknown destinations.  On Wednesday, the farm agency reported China had purchased 9.480 mb & unknown destinations had bought 4.409 mb of 2020/21 US soybeans.  The 2020/21 marketing season will begin Sept. 1 with one of the three best corn since 1995 & top-three soybean sales total in history this year owing to aggressive Chinese buying.  That said, this year’s total will look good in part because the previous two years have been so bad. 
 
Wednesday’s USDA Crop Production & supply-demand reports were not bullish, but neither were they as bearish as feared.  As expected by pre-report analyst surveys, USDA forecast that US corn production & corn & soybean yields would be record-high in 2020 & that stockpiles of corn, beans & wheat would continue to be burdensome. 
 
USDA forecast 2020/21 corn output at 15,278 mb on 181.834 bu/ac., surpassing the record 15,148 mb raised in 2016/17 & previous 176.585 mb corn yield achieved in 2017/18.  Record-high yields were forecast for Kentucky (181), Michigan (168), Minnesota (197), New York (167), South Carolina (136), South Dakota (167), Tennessee (178), Washington (240) & Wisconsin (181), but not for either Iowa (202), Illinois (207) or Nebraska (191)—the top three corn production states.  USDA boosted its 2019/20 corn export projection by 20 mb to 1,795 mb & lowered old-crop corn stocks by 20 mb to 2,228 mb.  Although new-crop feed/residual use & export were each increased by 75 mb, Aug. 31, 2021 corn ending stocks were still raised 108 mb from the July 10 forecast to 2,756 mb.  Traders had expected old-crop US corn stocks at 2,264 mb & new-crop carryover at 2,806 mb so the USDA revisions were seen as “less bad” than feared.  USDA lowered its 2020/21 price forecast by 25c to $3.10/bu.—the lowest average farm gate corn price since 2006/07’s $3.04/bu.  Largely owing to higher output in the US, USDA forecast that global feed grain production would be record-high & ending feed grain stocks would rebound to a 3-year-high 348.31 mmt in 2020/21, up 7.25 mmt from this year’s 6-year low. 
 
USDA projected 2020/21 US soybeans production at 4,425 mb on 53.3 bu/ac.  If realized, bean output would rival the record-high 4,428 mb produced in 2018/19 & yield would exceed the previous record 51.949 bu/ac. set in 2016/17.  This year’s yield were forecast to be record-high in Illinois (64), Indiana (61), Kentucky (54), Michigan (51), Mississippi (55), Missouri (53), Nebraska (62), Ohio (58), & South Dakota (50).  In its usage projections, USDA increased its 2019/20 crush forecast by 5 mb & lowered its Aug. 31, 2020 soybean carryover projection by 5 mt to 615 mb.  New-crop crush was increased by 20 mb, exports increased 75 mb & residual use lifted 5 mb higher, but 100 mb of additional usage was not above to offset the 290 mb of production that was added since the July 10 report.  Aug. 31, 2021 soybean carryover was boosted by 185 mb to 610 mb.  While a slight decline from this year & the lowest in three years, it would still be the third-largest ending soybean stockpile in history. USDA lowered its new-crop farm gate soybean price by 15c to $8.35.  If realized, that would be 20c below this year’s level & the lowest since 2006/07’s $6.43/bu. In its world supply-demand soybean forecast, USDA boosted global 2020/21 output by 7.88 mmt largely due to US results, increased old-crop demand by 3.51 mmt & new-crop usage by 4.35 mmt & increase new-crop carryover stocks by just 0.28 mmt.  USDA cited increased Chinese demand for fueling global soybean usage growth. 
 
In its wheat supply-demand estimates, USDA boosted new-crop wheat output by 14 mb due as increased spring wheat production more than offset a decline in winter wheat output.  USDA now foresees 2021 US wheat production at 1,838 mb on yield of 50.1 bu/ac.  Output of soft red winter wheat output was lowered by 3 mb & hard red winter wheat was decreased 5 mb, but durum output was raised by 2 mb & other spring wheat increased by 27.5 mb.  Illinois (68) & Missouri (63) SRW wheat yields were left unchanged, but Indiana (67, -3) & Ohio (71, -4) SRW wheat yields were lowered.  Old-crop wheat stocks were unchanged at 1,044 mb, but USDA reduced new-crop imports by 10 mb, decreased food use by 4 mb, increased exports by 25 mb & lowered May 31, 2021 wheat carryover projection by 17 mb to 925 mb.  While that would be the lowest US wheat carryover in six years, it still represents 44% of this year’s crop going unused.  USDA still increased its 2020/21 world wheat ending stocks by 1.95 mmt to a record-high 316.749 mmt—42.2% of usage.  The fact that China & India will continue to hold 61.0% of the global stockpile only moderates the reality that there will still be plenty of wheat in the coming year. 
 
Locally, corn basis was 3c higher, soybean basis was 1c lower & wheat basis was steady on Wednesday. Corn has continued its contra-seasonal rally since Friday as farmer deliveries have slowed & export demand has rebounded.
 
Would you like CBOT futures prices reported to your phone? Top Ag can send you nearby & harvest futures prices for corn, soybeans & wheat at 9:45 am, 11:15 am & 1:45 pm each day.  We provide the service for free, but you may have to pay for text messages--depending upon your phone plan. Call Scott or Jacob at Okawville at 243-5293 or Mike at Trenton at 224-7332 & we'll get you set up! 
 
"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.