Demand concerns arise
The week of June 17th trade seemed more demand focused than in prior weeks when production worries had taken nearly all of the headlines. There is very little doubt that more production surprises are ahead as the crops are still in the very early stages of production. That being said, the old adage a bull market needs fed was applied this week. Traders feel the delayed planting worries have been factored into the market at this point, and they are content with positions until the next headlines arrive, but they are still likely to buy on breaks.
Estimates for another 2 to 5 million acre reduction in corn acres is expected by trade, in addition to the 3 million reported in the June release. The total reduction is estimated around 5 to 8 million acres. If realized, this would be drastically higher than the previous record of 3.25 million acre reduction seen in 1995. The USDA will attempt to give further clarification on the matter in the release of their acreage report at the end of this month. They stated they will be extending their acreage data collection this year due to the late planting season. Even so, this release will be debated for months.
Monday, June 24th, the USDA is expected to give us the first soybean condition rating of the year. This report is also likely the point at which corn and soybean traders focus their attention on the condition rating of the crop versus the planting pace. Although it is well known that these reports are highly contested and not a good indicator of final yield, it will bring fresh fodder for analysts and traders to work with.
For the third consecutive week, export corn sales have been disappointing. It was reported the week ending May 23rd, while July corn futures were trading around $3.60, old crop exports sales were reported at 35.7 million bushels. At the same time, the prior 7-week average was 23.3 million bushels per week. After a run in prices a few weeks later, sales came in at a negative figure and the 3-week average is only 2.6 million bushels.
Rallying U.S. markets have made South American supplies that much more attractive in the export market. Over this period export sales have dropped a very large 89 percent. This reduced demand has offset a portion of the production concerns in recent sessions.
Surprisingly, soybean sales have been less effected over the same timeframe. Last week’s announcement of President Trump and President Xi meeting immediately dropped Brazil’s soybean basis offerings by 15-20 cents. Despite the drop, U.S. sales were still reported above expectations in the past few reports.
Reuters reported some U.S. ethanol makers are looking to possibly buy corn from Brazil to guarantee they will have corn as the crop prices have been rising. Chief Executive Geoff Cooper stated, “he hadn’t heard of U.S. ethanol makers buying corn from Brazil yet but there’s been chatter of people looking into it with the growing spread between U.S. and Brazil corn prices.”
Prices in the U.S. have increased more than 25 percent since May, while Brazil’s prices have moved at a slower rate and they’re harvesting the largest corn crop ever for the country. Price isn’t the only driving factor, barge transportation is also causing difficulties due to waterways being flooded.
Fund traders have held a large short soybean position for several months. Continuous wet weather forecasts and USDA announcement of production adjustments coming in the July report led to a portion on these short contracts getting covered. It was estimated at the beginning of June the funds were short roughly 120,000 contracts. As of June 20th it is estimated that they have covered 85,000 and are now short roughly 35,000. With record large ending stocks forecasted, many question if they will establish a net long position.
For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at email@example.com. The opinions and views expressed in this commentary are solely those of Mick Hoover. Data used in writing this commentary obtained from various sources believed to be accurate. This commentary is intended for informational purposes only and is not intended for developing specific commodity trading strategies. Any and all risk involved with commodity trading should be determined before establishing a futures position. Please visit our Risk Disclosure Page for more information on commodity trading.
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