The talk of the markets last week was the events taking place in the crude oil contract. Since the fall of 2018, agriculture has experienced a lot of never-before-seen events, and that continued this past week.

On April 20, the front month May crude oil contract went negative for the first time in history. Now first off, most of the time, markets can only go to zero, not negative. But due to special circumstances, the CME Group allowed the May crude oil to trade negative. The reason for allowing crude to go to negative was the lack of storage. U.S. crude oil storage facilities are reporting capacity at 79%, which means most are almost completely full. To add to that, reports have 110 full oil tankers floating off the California coast.

May crude expired last April 21, so the last two trading sessions had a rush of activity for the last few traders to exit the contract. The only players usually in contracts that are in delivery are those that can take delivery of the product or access to physical commodity so there can be an exchange for physical if need be. But this time no one had storage capacity to take delivery of crude, so letting the market go into negative territory made it possible for more traders to have their contracts offset in the futures market. Virtually anyone who had capacity to store crude oil was paid to take the crude (and can then sell it in the June for a nice profit).

The biggest concern for allowing the May crude oil contract to go negative is, will the same development occur for the June contract and can this happen to the grains? It might happen to June crude oil, especially if production does not significantly slow down or demand does not increase. For the grains, it is unlikely to occur as storage is much more easily found for grains as compared to oil.

Activity in Washington, D.C., also played a role in market direction last week. On April 17, the Trump administration released details of a $19 billion U.S. farmer relief package. The package includes $16 billion of direct payments to farmers. Of that, $9.6 billion is for livestock ($5.1 billion for cattle producers), $3.9 billion for crop producers, $2.1 billion for fruits and vegetables, and $500 million for niche growers. Producers will receive a single payment determined using two calculations: 1) For price losses that occurred Jan. 1 through April 15, producers will be compensated for 85% of their price loss during that period; and 2) The second part of the payment will be expected losses from April 15 through the next two quarters and will cover 30% of the expected losses. The hope is to have the funds out to producers by late May or early June.

Weather will play a key role in market direction as well. The focus has shifted from South American weather to the U.S. as our growing season gets underway. Pockets of the U.S. Midwest are expected to see planting progress, but a late-week rain system is expected to halt progress. This has traders concerned as it is getting dry in the Southern Plains and excessively wet in the Northern Plains, Corn Belt and Delta. This rain system could help make up the minds of some producers to switch acreage to later season crops.

Wheat pushed higher to start the week, but faded it gains the rest of the week. Strength was due to weather concerns not only in the U.S., but also from concerns of reduced production in the European Union and Russia because of a dry two-week forecast. In addition, there are reports Russia plans to honor its decision to halt exports for six weeks once it hit its announced quota, which is expected to be reached by mid-May. This should help bring some wheat demand to the U.S.

Technical buying was the main driver in corn this past week. The May contract traded to its long-term low of $3.01 on Tuesday, April 21. That level, $3.01, is the low that corn hit and reversed off of in 2016 ($3.01), 2009 ($3.00), and 2008 ($2.90). Ethanol production, or the lack of it, continues to be a concern. Reports have 77 ethanol plants across the U.S. idle, and production has dropped 46% from last year. On the bright side, ethanol production does seem to have stabilized as this past week’s reduction was small.

It has been a little disappointing that corn exports have not seen an increase. Sure, we have seen a few minor sales, but the U.S. should be dominating the export market, as cheap as U.S. corn is. South Korea continues to push most of its demand to South America and South Africa, mainly because of concerns on the quality of the U.S. crop.

Soybeans saw an increase in demand as China was in and bought close to 500,000 metric tons of U.S. soybeans last week. Hopefully, this is the start of things to come as harvest is nearing completion in Brazil and that should tighten its supply. Soybean exports have struggled because of the strength in the U.S. dollar and weakness in the Brazilian real. The dollar is at recent highs while the real is at all-time lows, making it a better deal to buy South American beans.

Traders are also a little concerned about soybean acreage. If the rains continue in the Corn Belt and Delta region, it is likely soybean acreage will increase at the expensive of corn acres. At any rate, it is likely some acres of corn have already drifted into other crops.

According to last Monday’s U.S. Department of Agriculture Crop Progress report, as of April 19, winter wheat conditions dropped 5% to 57% good/excellent, 30% fair, and 13% poor/very poor. Weekly changes to the top states were: Colorado: +2%; Kansas: -4%; Montana: +10%; Oklahoma: -10%; South Dakota: -12%; and Texas: -8%. Winter wheat heading was estimated at 14% versus 6% last week and 15% average. Spring wheat planting progress was estimated at 7% (11% expected) versus 5% last week and 18% average.

North Dakota’s corn harvest progress was at 86% complete versus 83% last week. U.S. planting progress was estimated at 7% complete versus 3% last week and 9% average (expectations were at 8%).

Soybean planting progress is 2% complete versus 1% last year and 1% average, right in line with trade estimates of 1% to 3% planted.

On the export front, after 46 weeks, wheat shipments were at 82% of USDA’s expectations versus 80% last year while sales were at 95% of expectations versus 97% average. Corn’s export shipments were at 48% of USDA’s expectations versus 63% last year while sales were at 81% of expectations versus 83% average. Soybean shipments were at 68% of USDA’s expectations versus 65% last year while sales were at 79% of expectations versus 94% average.

All of the grains are sitting near or just above their recent lows and are nowhere near sellable levels. Be patient as the market will likely give you better selling levels in the second half of the year.

If producers are forced to sell grain, consider re-ownership. We are in the time of the year of greatest uncertainty for production, and none of the grains have any risk premium worked in. That in itself should be enough for the grains to rally slightly.

Cattle struggled last week with most of the pressure coming from slaughter plant concerns. As of April 23, 13 slaughter plants were closed and many more were operating at reduced chain speeds. A disappointing cash trade added to the pressure. A cash trade did develop midweek with 860 head of the 4,671 offered on the FCE Online Auction selling. The breakdown in sales were: one- to nine-day delivery had 449 head sell at $100 and for one- to 17-day delivery 441 head sold at $93.

On the flip side, boxed beef prices continue to rally sharply higher, creating an even wider spread between what the producer was being paid to what the packer was receiving. Boxed beef prices were supportive from concerns of supply shortages because of plant closures. Position squaring ahead of Friday’s Cattle on Feed report was also evident as the report was expected to be friendly (sharply lower placements).

“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”