The rally in the grains continues with all of the grains gapping higher to start the new month. New highs were established in Minneapolis wheat and old crop corn, while the winter wheat exchanges, soybeans, and new crop corn fell short of hitting their previous contract highs.
Looking back, April was a good month for the grains. For the month of April, Minneapolis wheat for July and September was up 22%, July corn was up 23%, and December corn was up 18%. Both July and November soybeans were up 7%, making April the 11th straight higher monthly close for soybeans. All of the grains are hovering around eight-year highs.
It seems like the grains are stuck in Groundhog Day, as every day the news remains the same, or maybe just a little more bullish. Commercial buying from end users who need the product along with adverse weather and production concerns are combining efforts to support the grains. Money flow was adding to the push earlier in the year but has taken a back seat as investors start to do their research on the new tax proposals being circulated.
Commercial firms and end users are the main drivers in the corn market. With Brazil’s second corn crop virtually declining daily, end users of corn are scrambling to acquire the bushels they need to bridge the gap until new crop supplies become available. This continues to push the July contract into new contract highs. It is also supporting the new crop contract in an attempt to buy acreage away from spring wheat and soybeans.
The acres corn must buy are in the fringe areas, and so the Northern Plains is seeing an acreage battle for more corn and canola. Canola has also traded to new contract highs daily as old crop stocks of canola are already exhausted. And to top it off, planting is not going well for canola due to the drought situation in North Dakota and Canada. It is likely canola acres will decline as it is getting increasingly difficult to establish a decent seed bed to plant canola. Stocks of canola are tight enough that Canada is starting to import rapeseed from other countries.
Soybeans have taken a bit of a backseat in all of this, but soybean oil has not. Bean oil has also been the market on fire in the soybean complex as it rallies to new contract highs daily. Strong demand and production concerns for the world vegetable oils continues to push bean oil, not to mention the extremely strong demand for biofuels.
All of the market concerns can all be linked back to one item, weather. And right now, the weather forecasts look supportive to grains. The short-term forecasts are calling for cool temps, which will slow down emergence. It might even slow down planting in the Northern Plains as nighttime temps are expected to be below freezing the first week of May. The high temps for the Northern Plains are expected to be below average for the next five days.
The six-to-10-day and eight-to-14-day forecasts are calling for temps to remain below to much below normal and for precip to be normal to above normal for the Corn Belt. The Northern Plains are expected to see below normal precip in the six-to-10 day but above normal in the eight-to-14 day.
Safras recently released new corn production estimates for Brazil and those numbers were friendly to the grain complex. Their new estimate cut the second corn crop by 10 million metric tons, putting the total corn crop for Brazil at 104.1 million metric tons. And it appears that the adverse weather affecting the potential size of the crop is not over as of yet. Weather forecasts for the safrinha corn region have hot and dry conditions dominating for the next 10 to 14 days.
As expected, the last week of April’s planting progress report did show a strong push due to improving weather conditions. The report was in line with expectations. Corn planting progress was estimated at 46% complete, up 29% from the previous week and 2% above expectations. The states that showed the best progress were Iowa (49% planted the last week of April), Minnesota (42% planted the last week of April), and Nebraska (36% planted the last week of April). North Dakota’s planting progress advanced 14% to 22% complete and South Dakota’s progress jumped 21% to 25% completed. But emergence remains slow at 8% as of the last week of April versus 9% average.
Soybean planting progress was not as aggressive. As of May 2, 24% of the nation’s soybeans were in the ground versus 11% average but compared to expectations of 25%. It looks like producers were concentrating on corn over soybeans. Could that lead to soybean acreage switching over to corn? Iowa was once the again the leader in planting, advancing planting by 37%. Illinois was second in activity with 23% planted, and Minnesota rounds out the top three in planting progress at 21%.
On the wheat side, traders were expecting wheat conditions to improve due to the recent rains. But instead, conditions slipped 1% to 48% good/excellent, 2% less than expected. Kansas’s crop remained unchanged for the second week in a row while Colorado and Texas improved slightly. Montana and Oklahoma saw big declines (7%). The winter wheat crop development is running behind as only 27% of the wheat is headed versus 34% average.
Producers in the Northern Plains made good progress on spring wheat. Planting progress was estimated at 49% complete as of May 2 with 21% of the crop being planted the previous week. Minnesota made the biggest progress as producers advanced from 53% to 72% complete versus 27% average. North Dakota producers were not as aggressive, getting only 20% planted last week, pushing to 42% planted versus 20% average.
All regions were able to get after it and get the crop in the ground. That progress was due to warmer and drier weather conditions. Topsoil moisture conditions dropped 3% as of May 2 to 63% surplus to adequate. Of the major grain producing states, only Colorado, Ohio, Oklahoma, and Texas saw improvements in topsoil moisture. All other states saw declines with Minnesota down 10%, North Dakota down 3%, and South Dakota down 5%. Subsoil moisture conditions were also lower with the nation dropping 1% to 56% surplus to adequate. Just like the topsoil moisture condition, all states saw decreases except Colorado, Ohio, Oklahoma, and Texas. South Dakota was the only other states to show improvement.
The strength and volatility in the grains is likely going to continue at least through the second week of May. Once USDA releases its May Crop Production estimate on May 12, which will be the first official look at the 2021 supply and demand estimates, the market will have a better idea of where supply and demand will fall. At this point, if you use the numbers from the Prospective Planting report and demand from the Ag Outlook Forum, you get some pretty tight stocks estimates for 2021-22. It will be really interesting to see how USDA handles this.
The increased volatility is starting to cause some concern in the marketplace. The CME Group continues to add to the frenzy. To start May, the changes were two-fold, margin requirements have been increased and the daily trading limit has also increased. The CME is also warning traders that since May is in delivery, there are no daily trading limits in place. That will likely result in an interesting final few days of trading for that contract.
The livestock sector continues to make most of us scratch our heads. It seems we are slipping back into the same hole with live cattle that we saw last year. Boxed beef prices continue to surge while cash bids decline, bringing a windfall to the packers. Part of the explanation for the declining cash bids is due to a backlog of cattle due to slower speeds in the slaughter chain because of fewer employees. If that is the case, one would expect more cattle being graded select instead of choice. For the first time in almost 20 years, cattle have traded to a discount to lean hogs. This is a sign that cattle are too cheap.
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