Midday Comments: 9/14/2020

Buoyed by Friday morning’s USDA Weekly Export Sales report that confirmed corn & soybeans have started the 2020/21 marketing year with the highest export commitments in history, corn & soybean futures extended their pre-report rallies on Friday after USDA’s monthly Crop Production report cut US corn & soybean output & lowered new-crop carryover projections for each.  At Friday’s close, Dec. corn futures gained 3.5c, March corn rallied 3.25c, Nov. beans surged 18.5c higher, Jan. beans jumped 17.75c, Oct. soymeal soared $7.20/ton, Oct. soyoil leapt 0.58c/lb. higher, Dec. soft red winter wheat tumbled 6.25c lower & March SRW wheat dropped 5c. For the week, continuation charts of corn ripped 17.75c higher to the highest weekly close since March 13, soybeans blasted 36c higher to the highest end-week close since June 1, 2018, & SRW wheat was down 6c to a 3-week low.  Friday’s price action strongly argues that traders expect lower yields & smaller ending stocks will be reported in October due to an early-September frost in the northern Corn Belt & ongoing dry weather in that region. Last week’s ability for corn & soybeans to push above spring & summer highs gave charts a sideways-higher bias.  Harvest results must hint that corn yields are closer to 175-176 bu. for Dec. corn futures to achieve chart targets that now exist at $3.960-4.05. Soybean yields needs to fall below 50.0 bu/ac. to justify chart targets of $10.60-11.60. 
 
Reviewing Friday’s first corn & bean supply forecasts that included survey plot observations, USDA reduced its 2020 corn production estimate by 378 mb to 14,900 mb due to 550,000 fewer harvested acres & a 3.338 bu/ac. yield loss to 178.496 bu/ac.  Although USDA left soybean harvest acreage unchanged, it lowered new-crop soybean production by 112 mb to 4,313 mb as yield was reduced by 1.349 bu/ac. to 51.949 bu/ac.  If realized, corn yield would still be record-high & soybean yield would equal the previous record set in 2016/17.  According to a Bloomberg News pre-report survey, trade consensus had expected even smaller output of corn at 14,891 mb on yield of 178.5 bu/ac. & bean production at 4,292 mb on yield of 51.7 bu/ac. USDA partly offset corn supply losses by reducing old-crop exports by 30 mb to more than offset a 5 mb rise in 2019/20 ethanol crush, & forecasting that 100 mb of higher 2020/21 corn exports would be more than offset by a 100 mb drop in feed use & a 100 mb reduction in new-crop ethanol crush.  Corn gains were limited by USDA’s projection that Aug. 31, 2021 corn carryover of 2,503 mb would still be the largest since 1987/88’s 4,259 mb & the resulting 17.1% ending stocks/usage ratio would still be the highest since 2005/06’s 17.5%. Soybean gains were amplified by USDA’s projection that old-crop bean crush was 10 mb higher & 2019/20 bean exports were 30 mb larger than seen in the August WASDE report.  Higher old-crop usage & lower new-crop output prompted USDA to slash its Aug. 31, 2021 soybean carryover projections by 150 mb to a 3-year-low 460 mb.   Wheat added to its pre-report losses as USDA left 2020/21 US wheat production & usage unchanged, but boosted wheat output in Australia by 2.5 mmt & Canada by 2 mmt.  Those increases more than offset a 1 mmt wheat production decline in Argentina & a 0.75 mmt  rise in expected world wheat consumption.  Wheat traders pushed prices lower as USDA increased 2020/21 global wheat stocks by 2.58 mmt to a record-high 319.4 mmt.  
 
Corn & wheat posted fractional gains & soybeans were 4-5c higher in Sunday night trading as weekend harvest hedge pressure was minimal, traders continued to digest Friday’s USDA supply-demand data & reacted to Friday afternoon’s CFTC Disaggregated Combined Futures & Options Commitments of Traders report. The CFTC data confirmed the recent rally was supported by speculative buying that led managed trading funds to own their largest net long position in corn (+33,494 contracts) since Aug. 13, 2019, their largest net long soybean position (+173,907 contracts) since May 1, 2018, their largest net long in soymeal (+32,119 contracts) since March 31, their largest net long in soyoil (+85,299 contracts) since Jan. 18, & their highest overall long/short ratio (2.1132:1) in the six major grains since March 13, 2018.  Funds have been big net buyers of corn, soybeans, hard red winter wheat & hard red spring wheat in each of the past four weeks & net buyers of soyoil in each of the past 8 weeks.  As weather has taken the top off US grain yields & China has continued to buy new-crop US grains, speculators have helped propel prices on prospects of lower output & increased demand.  In a tectonic shift of strategy, funds have shown a desire to buy pullbacks in grains.  With the brief exception from mid-May to mid-July 2019, funds have been generally willing to sell rallies since 2014.  At the 7:45 am pause in electronic trading, Dec. corn futures were up 1.5c, March corn 3/4c higher, Nov. beans were up 3.75c, Jan. beans were 4c higher, Oct. soymeal was down $0.30/ton, Oct. soyoil 0.52c/lb. higher, Dec. soft red winter wheat was up 1c & March SRW wheat 3/4c higher.
 
Corn traded on both sides of unchanged once Monday’s regular trading session resumed at 8:30 am on Monday, but soybeans & wheat maintained 4-5c gains early in the session until Monday’s 10 am release of USDA’s Weekly Grain Export Inspections report capped some enthusiasm.  Corn inspections (34.601 mb) for the week ended Sept. 10 were slightly below the previous week’s upwardly adjusted 34.955 mb (+4.175 mb) & more than double last year’s 16.658 mb.  Soybean inspections (47.600 mb) were also marginally lower than the prior week’s upwardly revised 51.297 mb (+36.697 mb), & nearly double last year’s 24.563 mb same week shipments.  Grain sorghum inspections (2.853 mb) rebounded from the previous week’s abysmal 6,000 bu. total, & also exceeded last year (1.805 mb).  Wheat inspections (23.414 mb) were down from the prior week’s slightly revised 25.695 (+0.131 mb), but exceeded last year (19.032 mb) as well.  Pre-report trade guesses had ranged 19.7-35.4 mb on corn, 29.4-55.1 mb on beans & 16.5-25.7 mb for wheat.  China was last week’s dominant soybean (30.578 mb) & milo (2.713 mb) export destination as well as the second-largest corn (8.299 mb) & fifth-largest wheat (2.436 mb) shipper.  By 12:45 pm, Dec. corn futures were up 1/4c, March corn was 1/4c lower, Nov. beans were up 4c, Jan. beans were 4.75c higher, Oct. soymeal was down $2.50/ton, Oct. soyoil was 0.69c/lb. higher, & Dec. & March SRW wheat were each up 2.25c. Sept. grain futures expired at 12:05 pm with Sept. corn futures last quoted 7.5c lower, Sept. beans last indicated 13.75c higher & Sept. SRW wheat last indicated 14.75c higher.  Settlements of those contracts likely won’t be that extreme.
 
Continuing a recent pattern that suggests export customers are locking in grain needs now to avoid potentially higher prices later in the season, USDA reported on Monday morning that 4.173 mb of 2020/21 US corn was sold to Japan, 11.684 mb of 2020/21 US beans were sold to unknown destinations, & 19.290 mb of 2020/21 US corn & 4.740 mb of 2020/21 US beans were sold to China.  On Friday, the farm agency reported 2020/21 US beans sales to China (9.627 mb) & unknown destinations (8.157 mb).  Except on Sept. 2, USDA has reported daily export sales on every business day since August 25.  Friday’s holiday-delayed USDA Weekly Export Sales data for the week ended Sept. 3 were above trade expectations for soybeans (80.193 mb vs. 40.4-69.8 mb), near the top of trade guesses for wheat (17.799 mb vs. 12.9-20.2 mb), solidly within expectations for soymeal (359,600 mt vs. 200,000-500,000 mt), but at the low end of trade consensus for corn (43.636 mb vs. 27.6-86.6 mb) & soyoil (1,000 mt vs. 0-24,000 mt).  With the first week of the 2020/21 corn, grain sorghum & soybean marketing years now concluded, export sales of those grains are rocking!  Week # 1 corn sales stood at 742.0 mt, 66.5 mb above the previous record first week commitments of 675.5 mb set in 1995/96 & 31.9% of USDA’s upwardly revised 2,325 mb export projection for 2020/21.  This year’s week #1 soybean sales commitments of 1,098.1 mb were an astounding 216.3 mb above the previous first-week record of 881.8 mb set in 2014/15. Soybean sales have already reached 51.7% of USDA’s unrevised 2,125 mb 2020/21 export forecast.  Week #1 milo export sales commitments stand at 96.4 mb. 37.1% of USDA’s unrevised 260 mb new-crop export projection.  And cumulative wheat sales with the 2020/21 wheat marketing year now 14 weeks old total 475.8 mb, 48.8% of USDA’s unrevised 975 mb forecast.  Since 1995/96, sales at this time of year have averaged only 23.3% of final exports on corn, 24.7% on beans & 42.9% on wheat.  China is the obvious difference.  Their significant absence from US markets since the March 2018 start of the US-initiated trade wars left last year’s US corn exports the worst since 2012/13 & soybean exports the worst since 2013/14.  As of Sept. 3, combined corn sales to China (349.606 mb) & “unknown destinations” (83.747 mb) accounted for 58.4% of total new-crop corn export commitments, while bean sales to China (583.296 mb) & unknown (322.941 mb) represented 82.5% of all new-crop bean commitments sales.  Strong Gulf basis levels suggest that loadings are underway & expected to continue into harvest.  The recent grain rally suggests speculators believe that soybean export demand will be larger than currently forecast & that supply losses will drive final 2020/21 soybean ending stocks below 350 mb.  USDA currently projects that 2020/21 Brazilian soybean output will rise to a record 133 mmt (+2 mmt from the Aug. 12 report & +7 mmt from 2019/20 results) & that Argentine bean production (49.7 mmt in 2019/20) will increase to 53.5 mmt in 2020/21.  Rising hog production in China led USDA to boost its soybean demand forecast by 8.2 mmt to 116.4 mmt in 20020/21 for that nation & lead global bean stockpiles to decline by 1.77 mmt in 2020/21 to a 5-year-low 93.59 mmt.  Part of the recent bean rally builds risk premium into soybean prices to reflect that weather must cooperate for South America to reach USDA’s lofty production expectations. 
 
Locally, corn basis was up 4c, soybean basis was 3c higher & wheat basis was steady on Friday.  Basis levels remain historically firm for this time of year in part because the Illinois River remains shut down for repairs at a time that Gulf export demand is strong.  Friday’s St. Louis spot bid for corn was the highest since March 13 & nearby cash bean prices were the best since May 29, 2018.
 
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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.