Midwest Marketing Solutions
Trade deal threatened
During a virtual town hall event from the Lincoln Memorial, President Donald Trump threatened to terminate the trade deal with China. There’s been speculation China may struggle to fulfill its commitment due to the economic damages associated with COVID-19. If China falls short of the promised $200 billion in purchases, Trump said the U.S. would shut down the phase one trade agreement.
Commodity safety new program enrollment
Farmers enrolled 253 million acres in the commodity safety net programs for 2019. From that total, 70 percent of the acres are in the Price Loss Coverage program. For corn, there was a dramatic shift from ARC-County coverage in the 2014 farm bill to PLC in this sign-up. Seventy-six percent of base acres for corn are in PLC. Approximately 60 percent of the wheat acres are also in PLC. Eighty percent of the 2019 soybean base acres were enrolled in ARC-County. Since farmers can’t change their election until 2022, those enrollment levels will be seen for the 2020-2021 marketing year as well.
Corn closed the week $.01 3/4 higher. Last week, private exporters announced sales of 115,800 mts of corn to an unknown destination; 686,000 mts of corn to China and 109,135 mts of corn to Mexico.
In the weekly export inspections report; U.S. corn exports, for the week ended 4/30/20, were solid at 47.9 million bushels and were a 4-week high. Cumulative export inspections of 927 million bushels continue to trim the year-over-year deficit, but it is still a solid 34% relative to last year’s 1.403 billion bushels for late April. Given the solid pace of sales and shipment activity of late, it is likely the USDA will leave their export projection unchanged in the May 12 WASDE report.
In the weekly crop progress and conditions report; U.S. corn planting advanced to 51% complete versus 48% expected, 27% last week, 21% last year and 39% average. Key states of Iowa moved to 78% done vs 46% on average, Minnesota 76%, Nebraska 61%, Missouri 44%, Illinois 56% and Indiana 33%. Corn emergence is 8% versus 10% on average. Cool Midwest temps will slow emergence into the middle of May. An estimated 49.7 million acres of corn have been planted so far vs 39.2 million which would have been planted if corn planting were moving at a normal pace. Roughly 47.3 million acres of corn remains to be planted based on the USDA’s March 31 Prospective Plantings report estimate.
In the weekly EIA report; U.S. ethanol production, for the week ended 5/01/20, rebounded to 598k bpd (176 million gallons/week) from 537k bpd (158 mil gal/week) the week prior, reflecting the highest production in four weeks. This was still a massive 42.5% below last year’s same-week production of 1.036 million bpd (305 mil gal/week). Over the last four weeks, ethanol production ran, on average, 45% below last year. This week’s production implied roughly 59 million bushels of corn was used by the ethanol industry, 44 million bushels less than the same week last year, bringing the 2019/20 marketing year-to-date estimated decline in corn for ethanol production to around 225 million bushels. U.S. ethanol stocks fell last week to 1.076 billion gallons (25.612 mil barrels) from 1.106 billion gallons (26.337 mil barrels) the week prior, the 2nd consecutive week of respectable stocks declines, with stocks now sitting at the lowest level in six weeks. However, ethanol stocks are still 14% (132 million gallons) above year ago stocks at this time of 944 million gallons. Thanks to Randy Middelstadt
Strategy and outlook
Rapid planting pace and likely the second largest planted acreage in history leaves a bearish supply scenario at a time when ethanol demand is half of year ago. The economy is slowing opening back up but it will likely be late summer before energy consumption returns to more normal patterns. The bearish supplies suggest to sell weather related rallies with a drought the best chance for a long term rally.
Soybeans closed the week $.01 1/2 higher. Last week, private exporters announced sales of 378,000 mts of soybeans to China and 120,000 mts of soybeans to an unknown destination.
In the weekly export inspections report; U.S. soybean exports last week were just 11.7 million bushels and were notably below the roughly 27.1 million bushels/week estimated soybean exports will need to average in order to reach the USDA’s 1.775 billion bushel export projection. Last week’s exports were the 2nd lowest of the 35 weeks so far of the 2019/20 marketing year. Cumulative exports of 1.242 billion bushels are still up 5.2% from last year’s 1.181 billion at this time.
In the weekly crop progress and conditions report; U.S. soybean planting moved to 23% complete versus 21% expected, 8% last week, 5% last year and 11% average. This is the fastest soybean seeding pace in history. Key states show Iowa 46% done vs. 9% on average, Minnesota 35%, Nebraska 32%, Illinois 31% and Indiana 22%. For soybeans, an estimated 18.5 million acres of soybeans have been planted so far vs 8.3 million which would have been planted if planting were moving in line with average levels. Roughly 65.0 million acres of soybeans remain to be planted based on the USDA’s March 31 Prospective Plantings report estimate.
In the monthly Census Crush Report; USDA reported U.S. soybean crush in March was 192.2 million bushels, slightly above the average trade estimate of 191.5 million (191.0-192.5 million range of ideas), a solid 7.1% above last year’s March crush of 179.4 million and easily reflecting a new all-time monthly record in exceeding January’s 188.8 million bushels. February crush was 175.3 million bushels, 7.7% above last year. USDA reported 411.8 million bushels of corn was used for ethanol production in March vs 432.7 million in February and was 6.8% (30.2 million bushels) below last year’s March usage of 442.0 million bushels as the last week of March featured the start of the massive downturn in ethanol production as a result of the impacts of the stay-at-home orders nationwide. Through March, 2019/20 marketing year-to-date corn for ethanol usage of 3.095 billion bushels was down 22 million bushels from last year’s 3.116 billion.
Strategy and outlook
Producers are actively seeding this year’s soybean crop at a near record pace. The fast planting pace and increased soybean acres leaves a potentially bearish supply situation without the aid of strong export demand. The COT report remains bearish to the soybean market with funds holding a large net long position.
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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