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Midwest Marketing Solutions

By Staff | May 22, 2020

Attorney generals call for federal investigation

Attorney generals from 11 states, along with agricultural organizations and Congressional members, are calling for a federal investigation into the beef market.

“There is great diversity between the price of finished cattle coming out of feedyards and going to packers and the boxed beef prices coming from those packing plants,” said North Dakota Attorney General Wayne Stenejhem. “With four companies controlling 80 percent of U.S. beef processing, the beef market lacks full and fair competition.”

Corn analysis

Corn closed the week $.00 1/4 lower. Last week, exporters did not announce any sales.

In the weekly export inspections report; U.S. corn exports, for the week ended 5/07/20, were 52.5 million bushels and well above last year’s same-week exports of 39.4 mil bu. Exports last year during the same period were very similar, averaging 46.2 million bushels/week, but then slowed to average only 25.9 million/week through the end of August. There are 528 million bushels of unshipped sales on the books as of 4/30/20, well above last year’s 407 million at the end of April, while new sales have run 87% stronger than last year over the last two months.

In the weekly crop progress and conditions report from last week; U.S. corn planting advanced to 67% complete versus 71% expected, 51% last week, 28% last year and 56% average.

Key states of Iowa is 91% planted versus 66% average; Illinois 68% versus 66% average, Indiana 51% versus 42%, Minnesota 89% versus 57% average, Nebraska 79% versus 60% average and Missouri 67% versus 78% average. Emergence stands at 24% versus 22% on average.

An estimated 64.4 million acres of corn have been planted so far versus 55.0 million which would have been planted if corn planting were moving in line with average levels.

In the monthly WASDE supply/demand report; corn stocks were clearly bearish, but not at the level that matched pre-report estimates. The USDA cut 2019/20 ethanol usage by only 100 million bushels (mb) to 4.950 billion bushels (bb), likely a stair step approach into the summer as the USDA tries to be conservative as the economy opens back up and consumers begin driving again.

Also, the USDA increased corn exports by 50 mb to 1.775 bb and increased feed usage by 25 mb to 5.700 bb.

A resurvey of farmers of South Dakota, Minnesota, Michigan and Wisconsin resulted in the USDA lowered the 2019 yield by 29 mb to 13.663 bb. NASS announced they will resurvey North Dakota farmers and report updated yield figures in the June 11 report. This resulted in very minor balance sheet change of an increase of 6 mb to 2.098 bb carryout for old crop corn.

The first look at the 2020/21 crop year showed USDA using 178.5 bpa and 96.99 million planted acres. They expect ethanol demand to rebound to 5.200 bb, feed usage to increase to 6.050 bb and exports to jump to 2.150 bb; resulting in a carryout of 3.318 bb and stocks/usage ratio of 22.4%. The improvements in usage are viewed as optimistic still results in burdensome supplies.

In the weekly EIA report; U.S. ethanol production, for the week ended 5/08/20, ticked slightly higher to 181 million gallons/week from 176 mil gal/week the week prior, but the 5 million gallon/week increase reflected a much smaller increase than the previous week’s 18 million gallon/week rebound. Moreover, this week’s ethanol production was still a massive 41% below last year’s same-week production of 1.051 million bpd (309 mil gal/week). U.S. ethanol stocks posted the third consecutive notable weekly decline, falling to 1.016 billion gallons from 1.076 billion gallons the previous week, with the 60 million gallon decline being the largest single-week stocks drop in 31 weeks and follows the previous two weeks’ declines of 30 million and 57 million gallons.

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 a year ago. The bearish supply scenario suggests to sell weather related rallies with a drought the best chance for a long term rally.

Soybeans analysis

Soybeans closed the week $.13 1/4 lower. Last week, private exporters announced sales of 730,000 mts of soybeans to China and 20,000 mts of bean oil to China.

In the weekly export inspections report; U.S. soybean exports last week of 18.2 mb were below last year’s same-week exports of 20.1 mb. Last year’s exports from this point forward averaged 30.0 mb/week. Cumulative export inspections of 1.623 bb are still up 5.1% from last year’s 1.201 billion, but falling.

In the weekly crop progress and conditions report; U.S. soybean planting moved to 38% complete versus 42% expected, 23% last week, 8% last year and 23% average.

Key states of Iowa stand at 71% versus 25% average, Illinois 43% versus 25% average, Indiana 37% versus 18% average, Minnesota 57% versus 30% average, Nebraska 54% versus 23% average and Missouri 14% versus 18% average.

Soybean emergence is only 7% versus 4% average.

An estimated 30.7 million acres of soybeans have been planted so far versus 18.2 million which would have been planted if planting were moving in line with average levels.

In the monthly supply/demand report; soybean balance sheets held a mildly bearish surprise with the USDA lowering 2019/20 export projections by 100 mb to 1.675 bb. Chinese demand for US soybeans remains a wildcard and without demand improving from China, the USDA is likely to lower export projections in future reports. A resurvey of farmers in South Dakota, Minnesota, Michigan and Wisconsin resulted in the USDA lowered the 2019 yield by a mere 1.7 mb to 3.557 bb. 2019/20 ending stocks increased by 100 mb to 580 mb, much larger than expectations.

The first look at the 2020 crop showed USDA using a yield of 49.8 bpa, a number that could certainly increase as the crop is being seeded at a record pace. Exports are forecast to rebound from this year’s dismal 1.675 bb to 2.050 bb as the USDA assumes the Chinese trade agreement will go into effect. This results in a projected carryout of 405 mb and a stocks to usage ratio of 9.4%. Certainly, adverse growing conditions could send prices higher, but without weather threats, yields are likely to increase leaving Chinese soybean demand a critical usage profile. The USDA only made minor revisions to the 2019/20 balance sheet as they lowered exports by 15 mb to 970 mb and raised food usage by 7 mb to 962 mb. The net result was an 8 mb increase in wheat stocks to 978 mb.

In the monthly NOPA Crush report for April, NOPA crush came in at 171.754 mb versus estimates of 170.5 mb. New record for the month of April. This was down from last month’s 181.4 mb but well above a year ago of 160.0 mb. Bean oil stocks came in at 2.111 versus estimates of 2.031 and last month’s 1.899 and last year’s 1.787.

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. Funds continue to buy the soybean market and 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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