Midwest Marketing Solutions
More disagreements with China and U.S.
Due to rising tensions between the two countries, China is reportedly suspending some purchases of U.S. farm products. The latest disagreement came after President Trump criticized China for assuming control of Hong Kong.
“We will take action to revoke Hong Kong’s preferential treatment as a separate customs and travel territory from China,” said Trump. “Our actions will be strong; our actions will be meaningful.”
Bloomberg News is reporting the Chinese government has ordered state-owned agricultural companies, COFCO and Sinograin, to suspend purchases of specific U.S. farm products. Soybeans and pork are being mentioned as one of those commodities that will be impacted. This clash is happening during the early stages of the phase one trade agreement between the U.S. and China.
MGEX reported that the total exchange volume for May 2020 was 134,909 contracts traded. Calendar year to date volume is up 21%. The Exchange saw a total of 122,375 electronic contracts traded this past month. Open interest at the end of May was 79,145 contracts, which is 15% higher compared to this time last year.
The Commodity Futures Trading Commission today announced the filing of a civil enforcement action in the Eastern District of Kentucky against defendant William S. Evans III (d/b/a Turning Point Investments) of Harrodsburg, Kentucky, charging him with fraud in connection with soliciting clients to trade S&P commodity futures contracts and options in a commodity pool while failing to register with the CFTC.
The Commission’s action also names Evans’ wife, Frances Evans, as a relief defendant in possession of funds from Evans’ alleged illegal activity. On May 29, 2020, U.S. District Court Judge Claria Horn Boom signed a statutory restraining order freezing the Evanses’ assets and prohibiting the destruction or concealment of their books and records. The CFTC complaint alleges that since at least September 2018, Evans accepted at least $10 million from clients of which he misappropriated at least $8.4 million. Evans allegedly paid some clients with non-existent profits in the manner of a Ponzi scheme while diverting other funds for his personal use. Although Evans promised participants that they would enjoy double-digit profits, the transactions he engaged in resulted in losses he failed to disclose. The complaint further alleges that Evans acted in a capacity requiring him to register with the CFTC as a commodity pool operator but failed to do so.
Corn closed the week $.07 higher. Last week, private exporters did not announce export sales.
In the weekly export inspections report; U.S. corn exports, for the week ended 5/28/20, were 44.4 million bushels and well above last year’s same-week exports of 745k tonnes (29.3 mil bu). Over the last five weeks, corn exports averaged 48.5 million bushels a week versus 36.8 million a week during the same period last year. A continued strong export program will be needed over the final three months of the marketing year, averaging roughly 41 million bushels/week, in order for the USDA’s 1.775 billion bushel export projection is to be reached vs last year’s 23.7 million/week average during June-August. Cumulative export inspections of 1.121 billion bushels are still down nearly 28% from last year’s 1.548 billion.
In the weekly crop progress and conditions report, U.S. corn crop conditions jumped 4% from last week to 74% good/excellent versus 71% expected and 70% last week. Key states of Iowa is 85% good/excellent, Minnesota 83%, Nebraska 82%, South Dakota 82%, North Dakota 73% while Illinois is 56%, Indiana is 68% and Missouri is 66%. U.S. corn planting is 93% complete vs 94% expected, 80% last week, 64% last year and 89% average. North Dakota is 75% complete. National emergence is 78%, slightly above average of 73%.
In the weekly EIA report; crude oil stocks declined by 2.1 million barrels versus expectations for an increase of 3.0 million barrels. Ethanol production averaged 765k bpd versus 724k the prior week and ethanol inventories were 22.5 versus 23.2 prior week. Ethanol use of corn was 77.4 million bushels last week, up from 73.3 million the previous week and down from 104.1 million in the same week last year.
Strategy and outlook
The COT report remains bullish with commercials holding a large net long position and the large speculative funds the largest net short position in history. Short covering remains the most bullish prospect for a rally with June and July weather possibly turning hot and dry, giving the market a reason to rally and funds to cover short positions. If this happens this month, sell multiple years of production.
Soybeans closed the week $.27 1/2 higher. Last week, private exporters announced sales of 132,000 mts of soybeans to China and 894,000 mts of soybeans to an unknown destination.
In the weekly export inspections report; U.S. soybean exports last week of 14.6 million bushels were little-changed from the previous week’s 12.6 million bushels. Since late February, not a single week has reached the current average “needed” export pace of 22.8 million bushels/week in order to achieve the USDA’s 1.675 billion bushel export projection. It is appearing increasingly likely the USDA will need to further lower their 2019/20 export projection at some point. Cumulative export inspections of 1.301 billion bushels are now up only 3.4% from last year’s 1.258 billion and continuing to slide.
In the weekly crop progress and conditions report; the first U.S. soybean crop conditions of the year came in at 70% good/excellent versus 68% expected. U.S. soybean planting moved to 75% complete versus 79% expected, 53% last week, 36% last year and 68% average. Key states reporting include Iowa at 81%, Minnesota at 84%, Nebraska at 82%, South Dakota at 83% while North Dakota is 66%, Illinois is 56%, Indiana is 69% and Missouri is 52%. National emergence is 52% versus 44% on average.
USDA reported U.S. soybean crush in April was 183.4 million bushels, in line with average market expectations of 182.5 million bushels, lower compared to 192.2 million in March but was a new record for April in surpassing 2018’s 171.6 million. It was also well above the 171.5 million last year. 2019/20 marketing year-to-date (Sept-Apr) crush of 1.448 billion bushels is up 2.6% from last year’s 1.412 billion, leaving May-Aug crush needing to total 677 million bushels in order for the USDA’s 2.125 billion bushel annual crush estimate to prove accurate vs last year’s 681 million bushels during the same period. USDA reported 245.0 million bushels of corn was used for ethanol production in April, down sharply from 410.3 million in March and 196 million bushels (44%) less than last year’s April usage of 441 million bushels as massive ethanol production pullbacks/shutdowns occurred amid the plunge in gasoline demand due to coronavirus stay-at-home orders. 2019/20 marketing year-to-date (Sept-Apr) corn for ethanol usage of 3.338 billion bushels was down 219 million bushels from last year’s 3.557 billion bushels.
Strategy and outlook
Soybeans have rallied off technical resistance as soybean sales improved over the last week. Part of the sales were for old crop marketing year and the majority for the new crop marketing year. A rally into resistance must be sold by producers.
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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