Pre-Report Comments: 5/12/20

After rallying to retest Friday’s highs on Sunday night & holding modest gains into Monday’s pause in trading, corn futures struggled during Monday’s regular session as traders shrugged off strong weekly export inspections & weekend frost worries.  Declining crude oil futures weighed on market sentiment as trader readied their portfolios for expected bearish production & usage projections in Tuesday’s USDA monthly supply-demand data. That report will feature the first “official” forecast for new-crop production & usage as well as revisions to 2019/20 global output & usage.  Beans rallied overnight on worries about weekend frost damage, & mostly sustained those gains during Monday’s regular session as Chinese buyers were rumored to have purchased at least four cargoes of US beans for shipment starting in July & seeking up to 20 cargoes for July-November shipment.  Temps dipped well into the 20s across the northern Midwest over the weekend, but traders were mostly skeptical that significant damage occurred.  Wheat traders were especially willing to dismiss frost concerns as spring wheat was already running behind normal maturity with growing points thought to be well below soil surface.  Fractionally mixed overnight wheat prices gave way to modest winter wheat losses after USDA’s weekly export inspections for wheat fell far short of the pace needed to reach USDA’s old-crop exp0ort forecasts.  At Monday’s close, July corn futures edged 3/4c lower, Dec. corn declined 1c, July beans gained 4.5c, Nov. beans rose 3c, July soymeal eased down $0.50/ton, July soyoil slipped 0.05c/lb. lower, July soft red winter wheat tumbled 4.75c, & Dec. SRW wheat dropped 3.5c.
 
Corn & wheat continued to decline & soybeans worked higher on Monday night as traders continued to position for the 11 am release of the May WASDE report & reacted to Monday afternoon’s Weekly Crop Progress data that showed corn (67%, up 16% for the week) & soybean planting (38% done, up 15% for the week) remain 11% & 15%, respectively, above their 5-year averages.  Wheat prices declined even though the weekly report lowered winter wheat conditions by 2% to 53% good-excellent & indicated that spring wheat planting (42%, up 13%) & emergence (16%, up 10% for the week) remain well behind the 63% planted & 29% emerged average rates.  Expectations that global wheat output will continue to be plentiful in 2020/21 & that US exports will remain restrained prompted renewed pressure on wheat.  At the 7:45 am pause in electronic trading, July corn futures were down 1.5c, Dec. corn was 1.25c lower, July & Nov. beans were each up 1.75c, July soymeal was $0.90/ton higher, July soyoil had ticked 0.01c/lb. lower, July SRW wheat was down 5.25c, & Dec. SRW wheat was 4.5c lower. Grains extended their losses once the regular session resumed at 8:30 am as traders continued to pare grain ownership. 
 
Ahead of Tuesday’s data, a survey by the Wall Street Journal reports that trade consensus expects USDA to increase old-crop corn carryover stocks by 133 mb to 2,225 mb, boost 2019/20 bean carryover by 21 mb to 501 mb & lift May 31 wheat ending stocks by 2 mb to 972 mb.  Traders expect the crash in ethanol fuel demand & slide in feed demand to cause lower corn use, & slack exports to lower soybean & wheat demand.  Owing to sharply larger new-crop acreage & forecasts for trendline yields, analysts expect USDA to forecast 2020/21 corn output at a record 15,609 mb, up 1,917 mb from the current 2019/20 estimate.  With both US & global fuel & feed demand slashed by the coronavirus outbreak, trade consensus looks for new-crop corn ending stocks to balloon to 3,403 mb. If realized, Aug. 31, 2021 corn stockpiles would be the fifth-largest ever behind 1982/83 (3,523 mb), 1985/86 (4,040 mb), 1986/87 (4,882 mb) & 1987/88 (4,259 mb). The average trade guess expects 2020/21 soybean output to rebound to 4,120 mb--up 562 mb from last year’s weather-hit crop, but only the 4^th largest US bean crop.  New-crop soybean carryover is fall to 452 mb, but the size of exports to China create a great deal of demand uncertainty for soybeans.  Average analyst forecast sees new-crop wheat production at 1,859 mb, down 61 mb from 2019/20.  Tuesday’s data will incorporate the first field surveys for winter wheat yields, & probably won’t vary much from the March Prospective Planting survey for spring wheat acreage.  Average guess sees May 31, 2021 wheat ending stocks dropping to 821 mb, the lowest since 2014/15’s 752 mb. Largely due to interaction between larger corn & lower soybean & wheat planting projections from the March Planting Intentions report & the falloff in grain demand from the COVID-19 shutdowns, trade ending stocks expectations remain well above the 2,637 mb corn, 320 mb soybean & 777 mb wheat carryover forecasts that USDA issued at its Feb. 21 Agricultural Forum. 
 
Trade analysts look for USDA to lower corn production in Brazil by 1.8 mmt to 99.2 mmt & Argentina by 0.5 mmt to 49.5 mmt & cut 2019/20 soybean output by 1.6 mmt to 122.9 mmt in Brazil & by 0.9 mmt to 51.1 mmt in Argentina.  On Tuesday morning, Brazil’s crop supply agency, CONAB, trimmed its 2019/20 soybean production estimate by 1.8 mmt to 120.3 mmt due to dry weather in Rio Grande do Sul.  That was still higher than the 119.3 mmt record of 2017/18 & 115.0 mmt of 2018/19. CONAB boosted its 2019/20 corn production forecast on Tuesday by 0.4 mmt to 102.3 mmt, above the previous record of 100.04 mmt set in 2018/19. The agency noted that rainfall is needed this month for the higher estimate to be realized. 
 
Global ending stocks for 2019/20 are expected to rise 4.3 mmt to 307.5 mmt on corn, decrease 0.4 mmt to 100.1 mt on beans & ease 0.3 mmt lower to 292.5 mmt on wheat.  Grain stockpiles for 2020/21 are then foreseen to expand to 324 mmt on corn, 104.0 mmt on beans & 292.8 mmt on wheat.  Prices have sagged to their current levels because traders remain convinced that US & world supplies will be plentiful at a time where global demand could erode.  It should be noted that prices bottomed with a couple days of the release of the May 2019 WASDE report as crop planting difficulties eventually were recognized. 
 
Reaction to Tuesday’s reports will be heavily influenced by managed trading funds.  Friday’s CFTC Commitments of Traders data showed that managed trading funds are positioned for a bearish WASDE report, & those positions are thus susceptible to a bullish surprise.  In the weekly period ended May 5, funds added 29,177 short positions to be 190,152 contracts net short in corn—their most heavily net short bet since May 14, 2019.  Funds also added 3,736 short positions to be 11,700 contracts net short in soymeal, & added 3,296 short positions to be a record-high 23,893 contracts net short in hard red spring wheat.  Trading funds reduced their net long position in SRW wheat by 12,135 contracts to 3,840 contracts net long, but boosted their long position in soybeans by 4,516 contracts to 8,908 contracts net long, their net long position in HRW wheat by 2,360 contracts to 7,834 contracts net long, & reduced by 5,152 contracts their net short position in soyoil to 6,754 contracts net short.  In the six major non-HRS wheat grain contracts, funds reduced their long positions by 10,549 to 388,145 contracts & increased their short positions by 22,471 to 576,169 contracts.  The resulting long/short ratio of 0.6737:1 was lower only 6.47% of the time since the Disaggregated Combined Futures & Options Commitments of Traders data series began in June 2006.  Curiously, funds were similarly positioned in May 2019, & forced to cover their shorts after the WASDE report as weather failed to cooperate, & US acreage & yields were reduced.
 
In export news, USDA announced on Tuesday morning that 4.997 mb of 2019/20 US soybeans were sold to China.  The farm agency did not report any daily export sales on Monday.  Trade relations between China & Australia have taken a turn for the worse as China retaliates for Australian calls for an independent investigation of the coronavirus outbreak in Wuhan.  China has suspended beef imports from four of Australia’s largest meat processors just days after China imposed an 80% tariff on Australian barley shipments.  China is able to get its way on trade because its trading partners are unwilling to take a united stand against unfair practices.  Because of its immense “potential” that others want to tap, China divides to conquer.
 
Monday’s USDA Weekly Grain Export Inspections report was again solid for corn, but rather disappointing for soybeans & wheat.  Also of note were aggressive upward revisions to previous week grain shipments. The farm agency reported that 52.544 mb of corn were weighed or inspected for export in the weekly period ended May 7, down 1.0% from the previous week’s upwardly adjusted 53.096 mb (+5.176 mb), but 13.143 mb above last year’s same-week shipments & the second-largest weekly total since April 25, 2019.  Average weekly corn inspections need to average 40.1 mb thru the end of August to reach USDA’s current 1,725 mb 2019/20 export forecast.   Mexico (14.987 mb) & Japan (13.240 mb) were the main destinations, but 15 nations took at least 0.571 mb of US corn last week.  With 36 weeks now completed in the 2019/20 marketing year, cumulative corn inspections have reached 984.680 mb—the least since 2012/13.  Grain sorghum inspections eased to 3.013 mb last week, down 61.4% from the previous week upwardly revised 7.809 mb (+2.279 mb) & lowest total in 5 weeks.  China (2.854 mb), Japan (0.130 mb) & Mexico (0.029 mb) took last week’s milo shipments.  Cumulative sorghum inspections have reached 107.242 mb—up 55.949 mb from last year, but still the second-least for early May since 2012/13.  USDA pegged last week’s soybean inspections at 18.243 mb. That was up 30.3% from the previous week’s upwardly revised 13.999 mb (+2.311 mb), but 1.851 mb below same-week inspections in 2019.  Average weekly soybean inspections need to average 28.4 mb thru the end of August to reach USDA’s current 1,775 mb 2019/20 export forecast.  That looks optimistic.  Weekly inspections haven’t been that high since Feb. 13, & year-on-year weekly soybean inspections have trailed last year in twelve of the most recent 14 weeks.  China (2.813 mb), Netherlands (2513 mb), Egypt (2.080 mb) & Mexico (2.002 mb) topped the list of 9 nations that shipped at least 0.405 mb of US beans last week.  With 36 weeks now completed in its 2019/20 marketing year, cumulative bean inspections total 1,262.577 mb—up 61.456 mb from last year, but the second-lowest inspections by early May since 2012/13.   Wheat inspections slumped to just 12.504 mb last week.  That was down 42.1% from the previous week’s upwardly revised 21.612 mb (+1.929 mb), & the lowest weekly total since Jan. 23.  Japan (2.409 mb) led the list of 8 nations that took at least 0.966 mb last week. Wheat inspections need to average 34.5 mb thru the end of May to reach USDA’s 985 mb old-crop export forecast.  That’s unlikely.  Cumulative wheat inspections with 49 weeks now passed have reached only 861.150 mb.  The strong US dollar & good weather in competing export nations continues to provide stiff export competition for US grain exports.
 
Locally, corn & soybean basis levels were a penny higher, but wheat basis sagged 5c lower on Monday.  
 
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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.