Marketing

Grain Outlook Corn finally takes the plunge

The following marketing analysis is for the week ending May 14. CORN — Whoever predicted we would use the 40-cent daily trading limit in corn this week may have been using a crystal ball. How do you spell volatility? C-O-R-N. Money ran for the exit the day after the report with massive fund selling and many were left wondering why, why today?

One hypothesis was the halting of barge traffic on the Mississippi River at Memphis due to a structural crack in the bridge on I-40. If the stoppage is prolonged and we can’t ship commodities, does that help solve the tight supply situation? Within 48 PHYLLIS NYSTROM hours river traffic was back up CHS Hedging inC. and running with no restrictions. St. Paul Priority was being given to any traffic related to the Department of Defense, fuel for Nashville, passenger vessels, southbound traffic, and then northbound traffic.

Another idea was the World Agricultural Supply and Demand Estimates report wasn’t bullish and weakness was extended. Whatever pushed the button gathered herd mentality and prices blazed lower. However, China continues to buy U.S. new crop corn and Brazil’s safrinha corn crop continues to shrink with dry conditions. Some of this was offset amid ideas for increased U.S. corn acreage with good planting weather. Grower sales were nearly nonexistent on the slide with many hoping now for “when we get back there” to add to new crop sales. This week’s action drives home how much risk you have in a market that hit eight-plus year highs. I’m not saying we have seen the top, but it illustrates how quickly things can change.

The much anticipated May 12 WASDE report made a few changes to the 2020-21 balance sheet: Food, Seed and Industrical was down 5 million and exports raised 100 million to 2.775 billion bushels. Ending stocks were down 95 million at 1.257 billion bushels vs. estimates for 1.275 billion bushels. The first official 2021-22 balance sheet used the March 30 acreage number of 91.1 million planted acres, up 300,000 acres from last year. Using a yield of 179.5 bushels per acre (3 bu./acre above trendline), they pegged this fall’s crop at 14.95 billion bushels. Year-on-year ethanol usage at 5.2 billion bushels is up 225 million bushels.

Cash Grain Markets

corn/change* soybeans/change*

St. Cloud $6.60 -.37 $15.59 +.26 Madison $6.68 -.26 $15.29 -.11 Redwood Falls $6.68 -.33 $15.74 +.21 Fergus Falls $6.73 -.22 $15.49 +.37 Morris $6.68 -.34 $15.29 +.11 Tracy

$6.66 -.29 $15.62 +.01 Average: $6.67 $15.50 Year Ago Average: $2.74 $7.78

Grain prices are effective cash close on May 18. *Cash grain price change represents a two-week period.

Livestock Angles Grain prices temper optimism

The livestock markets have experienced a very choppy trade over the past few weeks as prices moved at times very erratically. Overall, the live cattle and the hog have moved higher over the past few weeks as the cash and product markets rallied. The exception was the feeder cattle market which reacted to the increasing corn market which put pressure on price in both the cash trade and the futures trade. Overall, the next few weeks in these markets could set the tone for the livestock markets as for the direction in price direction into the summer months.

Cattle — both futures and cash JOE TEALE — have rallied since the start of Broker the month of May. The cash trade Great Plains Commodity has been the catalyst of the Afton, Minn. advancement as packers became slightly more aggressive in accumulating inventories. This was primarily due to the increasing boxed beef prices paid by the end users.

One noticeable problem is as prices have gone up in the boxed beef trade, the volume has gone down. This may portend that at some point the boxed beef prices may top, which in turn could top the prices paid by the packer for cattle.

At this time, the number of cattle available appear to be more than adequate to meet the packer’s needs. Therefore, the possibility for a top in a further price advancement in the cattle market are getting less likely in the days ahead. If the demand for beef were

Financial Focus How the Federal Reserve works

Have you ever taken a close look at paper money? Each U.S. bill has the words “Federal Reserve Note” imprinted across the top.

But many individuals may not know why the bill is issued by the Federal Reserve and what role the Federal Reserve plays in the economy. Here’s an inside look.

The Federal Reserve, often referred to as “the Fed,” is the country’s central bank. It was founded by Congress in 1913 to provide the nation with a safer, more-flexible, and more-stable monetary and financial system. Prior to its creation, the U.S. economy was plagued by frequent episodes of panic, bank failures and limited credit. MARISSA JOHNSON Profinium

The Fed has four main roles in Wealth Management the U.S. economy (source: Advisor FederalReserve.gov, 2020).

Economy watch — In addition to its other duties, the Fed has been given three mandates with the economy: maintaining maximum employment, maintaining stable price levels, and maintaining moderate, long-term interest rates.

It’s important to remember the Fed cannot directly control employment, inflation, or long-term interest rates. Rather, it uses a number of tools at its disposal to influence the availability and cost of money and credit. This, in turn, influences the willingness of consumers and businesses to spend money on goods and services.

For example, if the Fed maneuvers short-term interest rates lower, borrowing money becomes less expensive, and people may be motivated to spend. Consumer spending may stimulate economic growth, which may cause companies to produce more products, and potentially, increase employment. When short-term rates are low, the Fed closely monitors economic activity to watch for signs of rising prices.

On the other hand, if the Fed pushes short-term rates higher, borrowing money becomes more expensive, and people may be less motivated to spend. This may, in turn, slow economic growth and cause companies to decrease employment. When short-term rates are high, the Fed must watch for signs of a decline in overall price levels.

Supervise and regulate — The Fed establishes and

NYSTROM, from pg. 14

Exports at 2.45 billion bushels would be down 325 million bushels year-on-year. Ending stocks for 2021-22 came in at 1.507 billion bushels. This would be up 250 million bushels from this year and was higher than the trade estimate of 1.344 billion bushels.

Many expect the corn acreage number to increase, but it’s early to have an abundance of confidence in the corn yield this high. 2021-22 stocks-to-use ratio is 10.2 percent vs. 8.5 percent this year. The average farm price rose from $4.35 this year to $5.70 per bushel for 2021-22. At the end of the week, a wellrespected and established private consultant put the U.S. corn acreage this year at 96.8 million acres which would be the highest since 2012. Its production forecast is 16 billion bushels.

World ending stocks for 2020-21 were 283.53 million metric tons vs. 279.47 mmt estimated. For 202122, world ending stocks were pegged at 292.3 mmt compared to 283.06 mmt estimated. The USDA made a significant cut to Brazil’s corn crop to 102 mmt from 109 mmt and slightly under the 103 mmt estimate. Conab’s updated number is 106.4 mmt, down 3 mmt from their previous figure. However, this is still high when compared to private estimates suggesting something closer to the 90-95 mmt range. Argentina’s corn crop was 47 mmt, unchanged from last month. China’s corn imports for 2020-21 were increased 2 mmt to 26 mmt, which is also below the 28-30 mmt expectation from private analysts. For 2021-22, China’s corn imports are anticipated to also be 26 mmt. In South America for 2021-22, Brazil’s corn is expected at 118 mmt and Argentina at 51 mmt.

Weekly export sales were mixed with poor old crop sales and excellent new crop sales. Old crop sales showed the first week of net cancellations of 4.5 million bushels. Total commitments are 96 percent of the USDA’s updated export forecast of 2.775 billion bushels. China has an estimated 437 million bushels of old crop U.S. corn left to ship. New crop sales were an impressive 82 million bushels. Including this week’s new crop sales, total commitments are estimated at a record as of May 14 of approximately 400 million bushels. This equates to 16 percent of the USDA’s 2.45 billion bushel projection. China is estimated to have purchased 200.8 million bushels of new crop U.S. corn since May 7.

Weekly ethanol production was a 22-week high at 979,000 barrels per day. Ethanol stocks fell 1 million barrels to 19.4 million barrels. Net margins jumped 20 cents to 25 cents per gallon. U.S. gasoline demand at 8.8 million bpd is down 3.8 percent from 2019 (preCovid).

In international news, an influential Chinese agricultural data provider, Cofeed, has suspended operations without explanation. Since 2002 they have provided information used by foreign and domestic traders on China’s grains and oilseeds. Reuters reported doors at the company’s address were sealed by police on April 29. The leader of another firm was also recently jailed for reportedly revealing too much information on China’s corn needs. If companies are being prevented from releasing this type of information, does this mean China’s needs run deeper than they are forecasting publicly?

The Colonial Pipeline restarted this past week after a ransomware attack by the DarkSide. The pipeline feeds the southeast and the east coast. Some gas stations did run out of fuel. Reportedly, the company paid $4 million in cryptocurrency within hours of the attack, which is untraceable, but shut down operations as a precaution. Outlook: Now everyone knows what a wild market we have, and we haven’t even entered the “silly season” of weather. The action this week likely drove weak longs out of the market and bull markets need corrections from time to time. Direction for the balance of the month will be driven by weather forecasts in the United States and updates on Brazil’s safrinha corn crop. The upside may be more of a grind than a shooting star, but further downside may attract demand that we may not be prepared to meet. Caution and patience are words to the wise. You’ve seen how fast and far markets may move without a solid headline behind it. Manage your risk with various marketing tools available either through cash or alternatives.

Headlines to watch for: U.S. weather and acreage, Brazil’s safrinha crop, Chinese interest in U.S. corn, inflation fears. July corn may struggle to regain the $7.00 per bushel level we were beginning to get used to. December corn will likely need a weather issue to extend rallies above $6.00 per bushel.

For the week, July corn traded a $6.41.75 to $7.32.5 range. For the week it plunged 88.5 cents to close at $6.43.75 per bushel. December corn’s weekly range was $5.41.25 to $6.31.25 per bushel. For the week, December corn collapsed 93.75 cents to settle at $5.42.75 per bushel. SOYBEANS — Soybeans raced to a fresh eightand-a-half-year high on report day with funds seeing no reason to trim their length with a mostly neutral WASDE report and strong demand amid tight supply. Adding underlying support were record prices in palm oil and new contract highs in soyoil and meal. At least that’s the way it looked until the latter half of the week. Technical fund selling surfaced the day after the report to slam prices back to support levels. Price changes for the week in soybeans seemed mild in light of tremendous losses in corn and wheat.

The May WASDE report was mostly neutral for soybeans except for a bearish 2021-22 world ending stocks figure. There were no changes on the 2020-21 U.S. soybean balance sheet. Ending stocks were 120 million bushels vs. 117 million expected. On the 2021-22 balance sheet, acreage was 87.6 million acres, up 4.5 million from last year. They used a yield of 50.8 bu./acre compared to 50.2 bu./acre last year. Crush was 2.225 billion bushels and exports at 2.075 billion bushels. The export number is down 205 million bushels compared to this year. If the USDA had used the February Forum Outlook number for exports of 2.2 billion bushels ending stocks would have been an unrealistic 15 million bushels! Ending stocks are expected to increase moderately year-on-year to 140 million bushels. This is the smallest initial May ending stocks forecast ever.

The stocks-to-use ratio is expected to rise from 2.6 percent this year to 3.2 percent next year. The average farm price is forecast to jump from $11.25 to $13.85 per bushel year-on-year. A prominent private consultant is anticipating U.S. soybean acres this year at 88.5 million which would be the highest since 2018. Its production forecast is 4.47 billion bushels.

On the world stage, 2020-21 ending stocks of 86.5 mmt were spot on the average guess. Brazil’s soybean production this year was unchanged at 136 mmt on this report. Argentina’s production was lowered .5 mmt to 47 mmt. For 2021-22, ending stocks at 91.1 mmt was above the 88.1 mmt estimate. Brazil’s 2021-22 bean crop is initially estimated at 144 mmt and 52 mmt for Argentina.

Weekly export sales were the fourth lowest of the marketing year at 3.5 million bushels, bringing total commitments to 2.255 billion bushels. The USDA’s export target is 2.28 billion bushels. China is estimated to have 721,000 metric tons of U.S. old crop soybeans left to ship. New crop sales were a measly 3.8 million bushels to bring total commitments to 254.4 million bushels or 12 percent of the 2021-22 USDA export forecast of 2.075 billion bushels. China is estimated to have bought 3.1 mmt of U.S. new crop soybeans.

Inflation fears may be adding fuel to the fire. The April Consumer Price Index was up 4.2 percent from a year ago. Outlook: The latest from the National Oceanic and Atmospheric Administration is the La Nina event has ended and there’s a 66 percent chance of neutral conditions for the Midwest this summer, i.e. favorable growing conditions in the Midwest. However, current forecasts show rain stays south of I-80, leaving the Dakotas and increasingly Minnesota, Wisconsin and Michigan needing timely rains into the growing season. Domestic demand for soybeans continues to find solid support from products and crush margins, but we’re not seeing big pushes that were common earlier. Export demand has slowed with South America the cheapest option for sourcing bushels. Prices may be finding a new range to trade until we are more confident on acreage lost to corn, then we focus on weather. The general situation hasn’t changed in soybeans, we still have tight carryouts year-on-year with no room for any problems.

For the week, July soybeans traded a range from the new contract high at $16.67.5 to a low of $15.73.25 per bushel. It settled the week down just 3.5 cents at $15.86.25 per bushel. November soybeans traded from a new contract high at $14.61 to $13.65 per bushel. For the week, November soybeans lost 32.75 cents to close at $14.00.75 per bushel. v