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Weekly Market Review

By Staff | Jun 8, 2020

On Tuesday, May 20th, the USDA announced the details of their farm aid package. The Coronavirus Food Assistance Program (CFAP), will provide $16 billion in direct payments for U.S. crop and livestock farmers impacted by the COVID-19 pandemic. The payment for crop and livestock producers will be based on 2019 production and inventory as of January 15th, 2020. Producer sign-up runs from May 26th, August 28th. In addition to the direct payments to producers, the USDA will purchase $3 billion in fresh produce, dairy, and meat for Americans in need.

The weekly ethanol report once again showed an increase in demand and production for U.S. ethanol. For the week ending May 15th, ethanol stocks dropped 564,000 barrels to 23.6 million. The total U.S. ethanol reserves are now near last year’s total for the same week. Production increased to 663,000 barrels per day, 23.5% higher than the low set weeks ago. While this is all positive news for the industry, production is still nearly 39% below the levels recorded at the end of February.

Corn usage for ethanol is estimated at 4.950 billion bushels for the current crop year. To date, usage is estimated at 3.529 billion bushels, 7% less than last year at this time, but above the pace needed to reach the yearly estimate. The USDA is expecting increased production to continue. Corn demand for ethanol next year stands at 5.2 billion bushels, 250 million above the current prediction for this year.

Currency exchange rates have played a large role in the export markets much of the year. The strong U.S. dollar versus the weak Brazilian Real has been a huge benefit to the Brazilian export program. The most notable has been soybean exports. Many buyers, particularly China, have sourced large volumes of soybeans from Brazil as the exchange rates have made them the most economical. Record high soybean values were also a benefit of the currency exchange rates leading to record sales by Brazilian producers. Estimates for producers in Brazil have sold 85% of old crop supplies versus 55% last year at this time. New crop producer sales estimates are 31% versus 8% last year.

Heavy soybean sales out of Brazil the past several months are said to have dropped Brazilian stocks 7 MMT below last year. Giving hope for good domestic export demand for the remainder of the marketing year. U.S. exports have rebounded in recent weeks, but not enough to keep the USDA from cutting their old estimate last week.

Calculations are now showing that the weak Brazilian Real could undercut demand for other U.S. products as well. U.S. ethanol margins have faced significant hardships this year to say the least. Several different factors have applied pressure to the industry. Sources are now stating that Brazilian ethanol is price competitively with U.S. supplies in the export market. There are rumors circulating of two vessels of Brazilian ethanol being imported into the U.S. but that has not been confirmed.

The trade will be paying close attention to forecasts for South America in the near-term; crops there are stressed due to extended dry conditions. Here in the Midwest near-term forecasts are calling for a warmer, wetter pattern. Several areas in the Eastern Corn Belt have seen flooding, and planting progress has been delayed with more rain in the forecast.

The N.O.A.A. released their three-month weather outlooks recently, showing near ideal growing conditions for the Midwest. That being normal temperatures and above-normal precipitation for the bulk of the Corn Belt for June, July, and August. Their update was less favorable for the Western part of the U.S., showing potential for a hot and dry summer.

For more information, you may contact Mick Hoover at (515)-200-5115, or e-mail at mhoover@maxyieldgrain.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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Weekly Market Review

By Staff | Jun 8, 2020

Markets continue to rebound for the most part as the U.S. economy begins the long process of reopening after being shut down for more than two months. Financial markets led the way this week with the DOW trading over 25,000 for the first time since early March. Unemployment numbers continue to slow down as businesses are able to open back up with states slowly lifting more and more restrictions every day. Crude Oil has slowly traded higher in recent weeks after falling to negative values last month.

The funds have built up a substantial short position in the corn market, holding a net short position of 240,000 contracts this week. Ethanol production on the week increased 9.2 percent compared to the previous week. It is estimated that nearly 74 million bushels were used in production for the week. Production is still well below average, down 31.5 percent compared to this time last year. Consumer demand for ethanol continues to grow, but it will take an extended amount of time for the market to correct itself after being shut down for the last two months. Planting progress continues to be well above the 5 year average for both corn and soybeans, with corn being reported at 88 percent this week and soybean planting at 64 percent for the week.

Soybeans found some strength to start the week with China buying 60,000 tons for delivery in 2019/2020 crop year and 198,000 tons for delivery in the following crop year. Export sales have picked up in recent weeks with prices being well below average for this time of the year, but sales are still behind the pace needed to meet the USDA’s projection for the year.

With time starting to run out on the current crop year traders are concerned that the crop carryout could be larger than currently expected. The funds had a net long position entering the week and were hesitant to add to that with concerns about growing tensions between the U.S. and China. The Chinese government approved a resolution to impose national security laws on Hong Kong. This came after the U.S. warned that such actions would result in retaliatory measures. President Trump stated that he hopes that the Phase one trade deal stays in place, but it is no longer at the forefront, with the main concern surrounding the actions taking place in Hong Kong.

Private analysts continue to reduce the crop sizes in South America. The firm, Agroconsult, made latest cuts by reducing Brazil’s second corn crop; the safrinha crop, to 71.7 (million metric tons) mmt, 3 mmt lower. The reduction has been attributed to poor yields from the on-going drought in high production areas. They estimate actual plantings at 5% higher than a year ago, while yields are forecasted over 10% below last year.

Extended forecast show favorable growing conditions for a majority of the grain belt heading into the early part of June. Models are showing warmer, dryer weather impacting the Midwest after much of the same area received significant precipitation over the last couple weeks. South American forecast are neutral to the markets with Southern Brazil expecting rains this week as the safrina crop is just beginning harvest.

For more information, you may contact Regan Coyle at (515)-200-5123, or e-mail at rcoyle@maxyieldgrain.com. The opinions and views expressed in this commentary are solely those of Regan Coyle. 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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