By Jon Scheve, Superior Feed Ingredients, LLC
Over the 5 trading sessions last week corn dropped 90 cents, while beans were nearly unchanged. The report last Wednesday was neutral for old crop corn and probably a little bearish for new crop. The report still had a bullish tone for both old and new crop beans. There were many speculators going long corn into the Wednesday USDA report hoping for a bullish surprise in the market. This may have led to long position liquidations on Thursday and Friday.
Wednesday’s report was the first look at the 2021 crop demand with supply estimates still based on the March 3 planting intentions. Now the upcoming production size will be debated until the June 30 report when the actual corn and bean planted acre estimates are published. Then July and August weather will determine final yields. Once supply is better known, the demand structure will adjust to accommodate what is grown.
Report highlights — Ending stocks/carryout
An increase to exports were the only change on the old crop portion of the report. This isn’t the tightest year on record, but it could get close if demand isn’t rationed further. Current new crop corn carryout estimates are the tightest for a May report in the last 7 years. However, the USDA is assuming that export demand next year will be more than 10% lower than it was this year.
The pull back at the end of the week could be because many in the trade wonder how many more acres will be added in the June report. If 2.5 million more corn acres are added AND yields are near the projection in this report the carryout can grow another 450 million bushels and that would not justify $6.25 new crop corn. While the planting pace is ahead of schedule, crop emergence is just normal.
Bean carryout has been extremely tight since early winter, and based on last Wednesday’s report, next year may not improve all that much. It’s clear more bean acres are needed by the June report. Plus, any yield reduction due to dry weather could send bean values even higher. However, bean planting pace is ahead of schedule right now and early planted beans tend to have bigger yields.
Report highlights — U.S. competition
The USDA decreased Brazil’s corn production nearly 300 million bushels from last month. Some in the trade are concerned Brazil’s current drought, the worst in 40 years, could reduce production another 500 million bushels. That could mean the U.S. would need to fill the void and that we would need those extra 2.5 million acres of corn and normal yields to offset the losses in Brazil. However, some market participants thought more of Argentina’s corn crop would be lost due to drought than ultimately happened. Thus, Brazil’s weather can still greatly affect U.S. values going forward.
The USDA lowered new crop bean export demand estimates by 10% compared to this year. Brazil grew a very large crop this year and could produce an even larger crop next year. However, this will require at a minimum average weather in the Southern Hemisphere next January to prevent higher prices and further bean demand rationing.
This is a major report of the year because it provides baselines for the market to use during the upcoming marketing year. Unfortunately for the USDA and market participants, it’s like trying to hit a moving target behind a hill. There are so many unpredictable factors, like weather impacting yields globally, disease, or political issues, that lead to both supply and demand changes which ultimately affect carryout and the prices for our product.
Moving forward Chinese exports are still very critical to the direction of these markets. Weather will now start impacting markets for the next 3 months in the U.S. Brazil’s second crop is hitting their critical growing phase right now and the weather is certainly on the dry side. This means volatility will be in the markets for quite some time. There is still a chance for higher prices down the road.
Please email firstname.lastname@example.org with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations. Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.