Corn market improving?
With drought in Brazil and flooding in Argentina threatening crops, the weather is getting nasty enough for hedge funds to take notice. Money managers more than doubled their wagers on a rally for agriculture prices, pushing their holdings to the biggest since July, after betting on declines just last month.
The investors are now the most bullish on soybeans since May 2014 and trimmed the bets on declines for corn for the fifth time in six weeks. The Bloomberg Agriculture Subindex of eight farm products is heading for its best April rally since 1996.
Dryness is such a problem for the corn harvest in Brazil, the third-largest exporter, that the government suspended import tariffs for six months, signaling it may have to import the grain. Excessive rains in Argentina, the third-largest soybean grower, prompted the nation’s two biggest exchanges and the agriculture ministry to cut outlooks for the crop.
Adding to the positive outlook for prices is China’s stabilizing economy and a weaker U.S. dollar that boosts the appeal of supplies from American farmers.
The USDA reported the U.S. experienced record pork production in 2015. At 24.5 billion pounds, pork production was 7 percent above the previous year.
Beef production totaled nearly 24 billion pounds, down 2 percent.
Lamb production was down 3 percent from 2014 at 156 million pounds.
Total red meat production in the U.S. was up 2 percent.
For the first quarter, Syngenta reports sales of $3.7 billion. That’s down 7 percent from last year is attributed to the strong U.S. dollar.
In North America, seed sales increased with strong performance in corn. Crop protection sales declined, but there is optimism with 16 new products scheduled for launch this year.
Fungicide sales increased.
In February, Syngenta agreed to be acquired by ChemChina for $43 billion. Company officials indicate the regulatory review process is moving forward and the deal should be complete by the end of this year.
Corn closed the week 17.25 cents higher.
Last week, private exporters reported sales of 100,640 metric tons of corn to Japan.
Weekly export sales of corn showed a total of 102.4 million bushels (2.6 million metric tons) with 85.1 mb (2.16 mmt) for the 2015-2016 marketing year.
This was well above the 14.5 mb (367,600 mt) needed to be on pace with USDA’s demand projection of 1.650 billion bushels.
The weekly crop progress report showed U.S. corn planting progress as of Sunday reached 30 percent complete, up from 13 percent a week earlier, and well ahead of the 16 percent average pace.
Iowa jumped to 40 percent complete from just 13 percent the previous week and is sharply ahead of the average of 9 percent.
Illinois jumped to 42 percent from 12 percent last week and well above 25 percent average. Minnesota is now 45 percent complete versus 13 percent last week and 11 percent average.
Missouri is already 81 percent planted versus 58 percent last week and 31 percent average. Corn can be rowed in many areas of Missouri.
U.S. producers should finish planting by the middle of the month and weather will then be 95 percent of the pricing influence.
After the May 10 supply/demand report, weather will be the only thing left for traders to trade on during the last half of the month.
If weather is warm with ample moisture, prices will retreat into the end of the month and the highs for the month should be in by May 10.
However, if weather becomes hot and dry, prices will have no choice but to trade higher. The month of May is too early to make annual highs if weather conditions are adverse as prices should peak during the June through August growing season.
Strategy and outlook: Producers should use weakness during May to re-own sales with options to manage price risk and summer volatility.
Soybeans closed the week 36 cents higher. Last week, private exporters reported 393,000 mt of beans to an unknown destination.
Weekly export sales of soybeans showed a total of 34.8 mb (946,400 mt) with 8.3 mb (226,000 mt) for the 2015-2016 marketing year.
This was above the 2.2 mb (61,100 mt) needed to be on pace with USDA’s demand projection of 1.7 bb.
The weekly crop progress report pegged U.S. soybean seeding at 3 percent done, in line with the average pace of 2 percent.
The month of May is when U.S. producers begin to aggressively seed the soybean crop. Weather will become the No. 1 pricing influence once 30 to 50 percent of the crop has been planted.
Prices will become sensitive to weather issues during the summer as planting progress reaches the 50 percent pace.
Prices should peak into the June through August growing season, as the market will fear dryness or heat, or both, as key yield time could cut production for the crop and lower our carryover stocks.
The only negative scenarios are the possibility increasing planted soybean acres this spring and of good growing conditions into the last half of the month.
If weather conditions are favorable, look for prices to retreat and funds to liquidate long positions if the technical trend turns lower.
The fundamentals determine price direction, so watch weather in the last half of the month.
Strategy and outlook: Producers should look to re-own sales with options to manage price risk and summer volatility during price weakness in May.
This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. 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. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.
Brian Hoops can be reached at (605) 660-1155.
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