Weather, China and soybean crush key market factors

By Doug Tenney, Leist Mercantile

U.S. soybean crush continues to be exceptionally strong, marking two new monthly records in 2020. It is evidenced from two fronts. First is the chain of increases as published in the monthly Supply and Demand Reports (WASDE) in two of the past three monthly reports. In April, soybean crush for the 2019-20 crop year increased 20 million bushels to 2.125 billion bushels. Again, in June, crush increased 15 million bushels to 2.140 billion bushels. Second, in May U.S. crushers, according to NOPA (National Oilseed Processors Association) processed 169.5 million bushels of soybeans as it crushed (pun intended) the previous May record set in May 2018 at 163.5 million bushels of soybeans. The May number would be the fifth highest for any month on record. May closely followed March 2020, when the monthly NOPA crush number set an all-time record for any month, at 181 million bushels of soybeans crushed.

With July 4th coming up, we should soon have a much better indication of corn and soybean production this year. This date is often a critical mark in the sand for both production as well as commodity prices. The predicted cool, dry weather in the Midwest and frequent rains in June and July could easily push the U.S. corn yield above the June WASDE number of 178.5 bushels per acre. This yield is above the trend-line yield.

If corn yields reach new records this year, it could mark the first U.S. corn production year above 16 billion bushels. If U.S. producers this year plant the earlier projected 97 million acres and see harvested acres at the typical 91% level of planted acres, a 182 bushel U.S. yield would push production to 16 billion bushels. For at least two months, numerous analysts have suggested 2020-21 ending stocks could reach 4 billion bushels or higher. The 16 billion number could push December corn below $3 to $2.60.

Sagging corn demand and higher 2020 yields are combining for the 4 billion ending stocks corn number being projected for the 2020-21 marketing year. USDA currently has new crop corn ending stocks at 3.3 billion bushels. They are taking a different road to ending stocks as they are changing the numbers much more slowly in a month-by-month timetable compared to private analysts who are projecting now where it will be on August 31. In the months ahead, corn for ethanol could be slashed an additional 200-300 million bushels. When combining ethanol cuts seen each month within the April to June WASDE reports, the total is 525 million bushels.

Managed commodity funds have been short corn for months. They have continued to add to their short positions for much of 2020 and often on new contract lows. Mid-June their short positions reach 297,000 contracts or just shy of 1.5 billion bushels. In addition, the second week of June was yet another week in which the funds were increasing their short corn positions with an increase of 15,000 contracts that week. In sharp contrast, mid-June producers are holding huge amounts of unsold 2019 corn, hoping to sell on weather price rallies. From December 31, 2019 to April 30, July CBOT corn prices collapsed 92 cents. The Coronavirus started eviscerating ethanol demand mid-March and in six short weeks, July CBOT corn fell 59 cents. From mid-March to the end of April, corn basis collapsed, falling 30 to 50 cents across Ohio. Recent weeks have seen some corn basis improvement.

Weather, China buying, and demand will be key for grains price direction this summer.

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