Midwest Marketing Solutions
USDA has accepted more than 3.4 million acres into the general signup for the Conservation Reserve Program. This was the first general signup enrollment in four years. Texas had the most acres accepted at 540,000. Over 126,000 acres were accepted into CRP in North Dakota. Minnesota has over 105,000 acres and South Dakota has 71,000 acres. The Farm Service Agency will begin notifying farmers and ranchers with acceptance offers no later than April 3.
Phase one implementation of the trade agreement between the U.S. and China is pressing forward. The most recent actions include growth for U.S. meat products. Both countries have agreed to allow U.S. poultry exports from unaffected regions in the case of a disease outbreak. With this U.S. poultry exports have the potential to exceed $1 billion per year, according to USDA. For the first time since 2003, U.S. beef producers will have access to the Chinese market for nearly all beef products. China has notified the U.S. of proposed maximum residue levels for three commonly used hormones in U.S. beef production. Also, U.S. pork producers will have expanded access for pork products shipped to China. China’s tariff exclusion process is in effect, and many importers are receiving tariff relief for U.S. food and agricultural products.
JBS USA profits
The world’s largest meat packer, JBS USA, is reporting quarterly net profits of $482.5 million. Net profits for JBS are up more than 330 percent from last year. JBS pork sales to China from the United States are up ten percent from last year. Beef sales to China have nearly doubled and poultry sales are up almost 25 percent.
MGEX has record March
MGEX announced its best March and the fifth best overall month in MGEX history with a total of 277,629 contracts. This new record shatters the previous record by 37%, previously set in 2017. March’s volume is also 6% higher than February 2020. Additionally, March was the fourth best month of all time for total electronic volume with 257,947 contracts. The Exchange is off to a hot start for 2020 – up 42% over the same period a year ago.
Corn closed the week $.15 1/2 lower. Last week, private exporters announced a sale of 113,000 mts of corn sold to Japan and 567,00 mts of corn sold to China.
In the weekly export inspections report; U.S. corn exports, for the week ended 3/26/20, of 50.0 million bushels were easily were a marketing year high in surpassing those of two weeks ago at 38.8 million bushels.
This is the first week of the 2019/20 marketing year in which exports met/exceeded the average weekly “needed” export pace in order to reach the USDA’s 1.725 billion bushel export projection, currently at an estimated 40.5 million bushels/week. Cumulative exports of 711 million bushels still down 39% from last year’s 1.168 billion.
In the USDA acreage and stocks report; USDA pegs March 1 corn stocks at 7.953 billion bushels, below trade estimates of 8.125 billion.
Feed usage was above trade expectations by 300 mb as producers feed lower quality corn to animals. Exports were poor and with falling ethanol margins, old crop stocks are likely to remain comfortably above 2 bb. 2020 corn plantings were estimated at 96.990 million vs trade estimates of 94.328 million.
If realized, this year’s corn acres would be the second largest ever, only behind 2012. Using that average figure and trendline yields of 176 bpa equals 3.233 bb of ending stocks. I think its unlikely this acreage figure would be realized as it assumes South Dakota corn acres at 6 million, the largest since 2013; Iowa corn acreage at 14.1 million, the largest in history; Nebraska acreage at 10.5 million, the largest in history with only key states of North Dakota showing acreage reductions of 300,000 and Kansas down 100,000 from last year.
U.S. ethanol production, for the week ended 3/27/20, plummeted to 840,000 barrels/day (247 million gallons/week) from 1.005 million barrels/day (295 mil gallons/week) the week prior, the lowest weekly production since September 2013, and was nearly 16% below last year’s same-week production of 999k bpd (294 mil gallons/week). The lack of demand for ethanol prompted a huge increase in U.S. ethanol stocks last week to 1.080 billion gallons (25.717 million barrels), an all-time record since EIA begin reporting weekly ethanol data in June 2010.
Strategy and outlook
The loss of ethanol production will hurt U.S. corn demand, possibly 200 mb to 300 mb. Ethanol use accounts for 43% of total demand for corn, which will no doubt increase old crop ending stocks. The increase in stocks will further pressure new crop corn values, making rallies selling opportunities.
Soybeans closed the week $.30 lower. Last week, private exporters announced sales of 285,000 mts of soybeans to Mexico.
In the weekly export inspections report; U.S. soybean exports were a new marketing year low at 15.2 million bushels and below last year’s same-week exports of 26.2 mb. This was the 4th consecutive week in which soybean exports fell solidly below the current roughly 26.7 million bushels/week “needed” pace in order to reach the USDA’s 1.825 billion bushel export projection. Cumulative exports of 1.161 billion bushels are down to an 8% year-over-year increase after being up 20%+ just 7 weeks ago.
In the USDA acreage and stocks report; soybean stocks were pegged at 2.253 billion bushels, a bit over trade estimates at 2.241 billion bushels. While this stocks figure is down 474 mb from a year ago, it is still the 2nd largest figure on record for March 1. Soybean seedings were lower than trade expectations of 84.865 million at 83.510 million. While the corn acreage figure was the 2nd largest corn planting acreage in history, the soybean figures is the 3rd largest soybean planting acreage in history. Using this acreage figure and trend line yields of 50.9 mb; ending stocks could easily slip to 250 mb to 300. This suggests soybeans will advance versus corn to buy a few acres this spring to provide more cushion in the balance sheets.
Strategy and outlook
The soybean may draw a few acres away from corn, especially if the month of April proves to be wet across the cornbelt.
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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