Corn tries to find a bottom but isn't out of the woods yet
It was encouraging that May’s contract low of $3.01 held, but corn hasn't made a comeback yet.
Grain traders continue to keep an eye on the developments in the coronavirus pandemic as well as world weather conditions. As we flip the calendar from April to May, traders will continue to watch weather and U.S. planting progress for direction. The U.S. will officially start to re-open in May. Most are hoping for a strong return of the economy but in reality, most will be watching for a flare up which could delay any major recovery.
The Federal Reserve wrapped up their regularly scheduled meeting April 29. As expected, the Fed made no changes. But the comments Chairman Jerome Powell made after the meeting is what hit home. The Fed is looking for a slow recovery and said that more stimulus money will be needed to prop up the economy. Powell went on to say that Congress should pass any stimulus package necessary as now is not the time to be concerned with the national debt. Interesting comments from an economist.
U.S. weather is starting to become a little more important to the markets as the U.S. growing season gets under way. The recent U.S. Drought Monitor map is showing areas of increasing drought for parts of western Kansas, eastern Colorado, and the southern tip of Texas (the main areas for winter wheat). Western North Dakota is just in the beginning stage of drought.
The six-to-10-day forecast, which is for May 5-9, is not looking good for crop development. Temperatures are expected to be much below normal for the Northern Plains, the entire Corn Belt and eastern Seaboard states. Above normal temperatures are expected for the winter wheat region and west. Precipitation is expected to be normal except for Michigan (below), and Texas, Oklahoma, and Tennessee (above).
Wheat, which was the favorite commodity when the virus outbreak first hit (as consumers hoarded bread and pasta) has turned into the forgotten market. Minneapolis wheat contracts are sitting at contract lows while Chicago and Kansas City remain in the middle of their recent trading range. Weather is supportive for wheat as the US Southern Plains remains dry. In addition, there has been a lot of freeze damage reported in Kansas and with adverse conditions immediately after the freeze, the wheat never had a chance to heal. Kansas State is reporting 50% of Kansas’s wheat crop was hurt in some way from the freezing temps.
Spring wheat planting progress is also running behind, with only 14% planted versus expectations of 18%. North Dakota only has 5% of its wheat in the ground versus 18% average. All of the major states except for Idaho and Washington are seeing significant delays in planting progress. And with the current forecast, more planting delays are likely.
According to the April 27 Crop Progress report, winter wheat conditions dropped 3% to 54% good/excellent, 31% fair, and 15% poor/very (4% more than expected)). Weekly changes to the top states were: Colorado: -5%, Kansas: -6%, Montana: -1%, Oklahoma: -3%, South Dakota: +3%, and Texas: -1%. The report continues to point out production issues, but with the lack of demand, the market does not seem to care.
Corn continues to see fallout from the sharp decline in the energy sector. The slaughter plant closures and slowdown in slaughter runs are not helping corn either. So far, there are no planting concerns in the U.S. The northern tier states are struggling with planting, but that is being more than offset by the rapid progress in Iowa and Minnesota. Argentina experienced heavy rains, which delayed their harvest activity. This might allow the U.S. to get some export business, but so far that has not been the case as South Korea and Taiwan have been steady buyers of South American corn. China has agreed to increase the low tariff quotas for corn by 1.5 million metric tons, which may help our exports.
Corn planting progress was much better than expected and impressive in some states. As of last April 26, 27% of the nation’s corn was in the ground, an increase of 20% from the previous week and 3% to 5% more than expected by the trade. Iowa was able to get 37% of their corn acres planted last week while Minnesota producers planted 39% of their crop. Illinois advanced planting by 29% and Nebraska put in 18% of their corn.
Corn looks like it is trying to find a bottom. It was encouraging that May’s contract low of $3.01 held, but corn is not out of the woods yet. If the economy can stage a decent restart and the U.S. does not see a heavy second wave of cases, we could see a slow methodical return to a new normal, which would help increase energy demand. It is highly likely there will be dramatic changes in how the U.S. conducts business going forward, but fuel demand should see a quicker recovery than some other markets.
Ethanol production was estimated at 537,000 barrels per day, down 4.6% (26,000 barrels) from the previous week and 47.6% below last year. Stocks were estimated at 26.34 million, a drop of 4.9% (1.35 million barrels) from the previous week but 16% above last year.
The soybean market is trading in the middle to lower end of its recent trading range. Planting progress has been average as most of the attention is on corn planting. Soybeans’ problem is that U.S. is not the first choice when it comes to soybean exports. Brazil, with the record low real, has been attracting most of the exports. But that might be starting to change as China was in last week and bought U.S. soybeans on three different occasions. Brazil is nearing harvest completion and that might also signal the end of their dominance in the export market as well.
The grain markets have supportive news to help give them a boost; it is just that traders are concerned about the state of the economy. No one wants to stand in front of the train in fear that what happened to the May crude oil contract will happen in the grains. At the levels that the markets are at it, makes it hard to make sales. If you are in a spot and are forced to sell, consider re-owning the sales with bull call spreads. If you are worried about more market erosion, considering buying puts, which will put a floor in but keep upside potential open.
Cattle volatility continues, not in the futures market, but in the boxed beef market. Boxed beef prices are at record levels while live cattle futures are at decade lows. That does not add up. Slaughter plant closures are starting to show up as reduced meat hitting the retail level and causing meat shortages in some regions. Late last week, President Donald Trump signed an executive order forcing packing plants to remain open.
Cattle did get a shot in the arm from the April 24 Cattle on Feed report. The report showed a lower number of cattle in feedlots than expected, as well as a record low number of calves placed into feedlots. The report shows a short-term shortage of slaughter-ready cattle but an increase in supplies are likely later.
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