The market continues to be under pressure from expectations of large increase in global grain production as well as slower demand because of the coronavirus. Another wave of cases is starting to pop up with six U.S. states now seeing a record number of new daily cases.
The stock market got a shot in the arm last week from Federal Reserve Chairman Jerome Powell. Powell made a statement that not only helped the stock market recover but also brought stabilization to the commodities. He announced the Fed is going to start buying individual corporate bonds as well as start the Main Street Lending program. These programs will help prop up individual companies.
China continued to buy U.S. soybeans. The past week China has purchased upwards of 800,000 metric tons to 1 million metric tons of U.S. soybeans. And with the U.S. dollar under pressure and Brazil’s Real rallying, the U.S. soybeans are the cheapest in the world, excluding shipping costs.
But the friendliest news for the week came after Monday’s close. The U.S. Department of Agriculture's Crop Progress report turned out to be friendly to the grains, showing a lot less advancement than expected.
As of June 14, most of the U.S. has wrapped up corn planting progress with only a few states left reporting. North Dakota is only 94% planted, which equals about 192,000 acres left. It is highly likely North Dakota corn acreage will be dramatically lower than expected because of cold, wet conditions this spring. But the surprise came in the crop ratings. Corn’s crop condition dropped 4% when the trade was expecting to see the crop improve by 2%. That is a 6% swing and very supportive to the corn. States showing the largest crop condition rating drop were: Nebraska slipping 12%, Texas down 10%, Kansas down 6%, North Dakota down 5%, South Dakota down 5%, Wisconsin down 4%, and Iowa/Illinois/Indiana down 2%.
Soybean planting progress was estimated at 93% complete versus 88% average. North Dakota producers are reporting planting progress at 90% complete, which leaves 600,000 acres unplanted. The crop insurance final planting date for soybeans was June 10, so it is unlikely those acres will be planted to soybeans. And, like corn, soybean’s crop rating was expected to show a 2% increase, instead it was left unchanged at 72% good/excellent.
Winter wheat harvest progress was estimated at 15% completed, 2% lower than expected. Winter wheat’s crop condition rating was at 50% good/excellent, a decline of 1% and lower than expected. Spring wheat planting has wrapped up across the U.S. Although the spring wheat crop is still rated high, the crop dropped 1% to 81% good/excellent which was a bigger drop than expected.
Winter wheat has taken the hardest hit of late with Chicago trading at lows not seen since September 2019 and Kansas City is at March 2020 lows. Weather forecasts calling for hot dry conditions continue to put pressure on wheat as harvest progress is rapidly advancing. So far, reports have yields average to a little better than average, but protein is low.
The grains are trying to rally off of ideas of a high-pressure ridge. The problem with that is the ridge has really only set up over the western Corn Belt and Northern Plains. If hot and dry conditions start to move into the central and eastern Corn Belt, that would be a game changer. But for now, the hot dry conditions have affected some of the areas with the most saturated soils. Corn and soybeans would have the best chance at rallying. The funds are holding a near record short position in corn, and if the ridge moved east, it would result in the funds covering those short positions in a hurry. However forecasts will not confirm that development.
As of Wednesday, June 17, the two weather models (GFS and European) were not in agreement. The six-to-10-day forecast was calling for the entire Plains and Midwest to see normal to below normal temperatures while the heat returns to the coasts. Precipitation is expected to be below normal for North Dakota, South Dakota and Minnesota but above normal for the Midwest. The eight-to-14-day forecast shows the Northern Plains getting a little warmer and drier while Corn Belt is expected to cool down and get wet.
The grain markets are starting to position ahead of the June 30 Planted Acreage report. The report will be a market mover; the question is just which way will it move the market? It is a given that corn acreage will be lowered, but by how much? North Dakota, Minnesota and South Dakota all planted less corn acres due to a cold wet spring. It is likely those same states planted less spring wheat and soybeans as well. But will the cut in acreage be enough to make a dent in potential production? Maybe.
We expect corn acreage to be down 2 million to 3 million from March intentions. With the current yield estimate of 178.5 bushels, a 3 million cut in corn acres would equate to a 535 million bushels cut in production. If we assume weather forecasts are correct and the entire Midwest gets a good rain, yield potential could increase to 183 bushels. That 4.5 bushel increase in yield equals 423 million bushels. So, in other words, weather has the potential to help this market rally sharply or see the market remain flat. It all depends in the forecasts for the rest of June and first part of July.
Ethanol production estimates continue to improve. For the seventh straight week, production increased, and for the eighth straight week, stocks declined. Last week’s ethanol production was estimated at 841,000 barrels, up 0.5% (4,000 barrels) from the previous week but down 22% from last year. Stocks were estimated at 21.35 million, down 2% (456,000 barrels) from the previous week and 1% lower than last year.
The National Oilseed Processors Association reported May crush at 169.6 million bushels, lower than the trade expected but still a record for the month of May. Stocks were also lower than expected at 1.88 billion pounds (but the highest in four years for the month of May).
The soybean complex continues to see support from U.S. Trade Rep. Robert Lighthizer’s comments to Congress. He said he believes China will meet their phase one trade deal obligations for 2020. Rumors that China bought another four to six cargoes of U.S. soybeans the week of June 15 added to the support.
The cattle markets have started to struggle in June. Packers are getting slaughter runs back to normal, with most plants reporting capacity at about 95%. The trouble is, slaughter weights also have increased. That, tied with concerns the economy will not recover as fast as originally hoped, is putting pressure on cattle. Cash bids have dropped over the past two weeks and boxed beef prices have declined for 22 straight days before stabilizing. Position squaring ahead of the Friday, June 19, USDA Cattle on Feed report was also evident. Early estimates had the report showing on feed at 99%, placed at 100%, and marketed at 76%.
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