Marketing

Grain Outlook Corn sees trade limits in both directions with China rumors

The following marketing analysis is for dropped 453,000 barrels to 19 million barthe week ending May 28. rels or approximately 18.5 days of usage. CORN — The corn market was chaotic this week with very little fresh news and generally favorable weather for crop development. May 25 saw rumors fly about China canceling or rolling U.S. old crop corn purchases which sent prices down the 40-cent daily trading limit. By May 27, we saw July corn futures touch the 40-cent limit again; but this time on the upside! Traders had been expecting to see old crop corn cancellations to China, but instead saw China’s old crop corn purchases PHYLLIS NYSTROM CHS Hedging inC. St. Paul This is the lowest stocks figure since December 2016 and the lowest for this specific week since 2014. Gasoline demand increased to 9.5 million bpd from 9.22 million in the previous week as society opens back up. Ethanol demand ran to a 62-week high and 1 percent higher than 2019. Ethanol margins dropped 13 cents to 44 cents per gallon. Based on current numbers, there isn’t any reason for the corn for ethanol category to be lowered on this year’s balance sheet. increase by 4 million bushels. U.S. corn planting was as expected at 90 percent This market is not for the faint of heart as money pushes prices around at will on relatively light volumes. The trading range this week in the July contract was $6.02.75 to $6.72.75 per bushel and in the December contract, it was from $5.00.25 to $5.57.75 per bushel. complete vs. 80 percent average as of May 23. Corn emergence was 64 percent compared to 54 percent on average. The first corn condition report of the season is expected to be released on June 1. Bear in mind initial ratings do not have a good correlation to what the final yield will be. A Reuters article suggested U.S. corn acreage will be 94.1 million acres

The surprise in weekly exports was a lack of net this year compared to the 91.1 million acres the cancellations and sales at a seven-week high prompt- USDA is using. They put soybean acreage at 88 miled fund buyers into action and sent nearby futures lion vs. USDA at 87.6 million acres. limit up that erased the weekly losses to that point. Weekly export sales for old crop were 21.9 million bushels and well above pre-report ideas. Old crop commitments at 2.7 billion bushels are just shy of the U.S. Department of Agriculture target of 2.775 billion bushels with three months left in the marketing year. China has 370 million bushels of old crop purchases still to ship. The Brazilian Agriculture Ministry wants more farmers to plant corn. This comes after a drought this year has cut the safrinha corn crop. They are considering a government options contract to attract more acres to corn. The lowest published estimate for this year’s total corn crop in Brazil is 91.1 million metric tons. Safras & Mercado lowered their Brazilian corn estimate to 95.2 mmt. The USDA

New crop sales were below estimates, but were still dropped their estimate to 102 mmt on the May an impressive 224.1 million bushels. New crop com- report and many expect that number to decline on mitments stand at 575.9 million bushels vs. a meager the June report.133.3 million bushels last year by this date. As of the May 20 report, China had purchased 421.2million bushels for the 2021-22 crop year. This equates to 73 percent of the bushels we have on the books for new crop. I believe ideas that China won’t take all their old crop purchases are fading with recent action. One comment I heard this week was China was desperately short of feed grains. However, their appetite for new crop bushels may have been satisfied for the Here’s how volatile July corn has been in calendar 2021: Dec. 31 July corn closed at $4.80.25, then rallied to a high on May 7 of $7.35.25 (a 53 percent rally), before falling to a low of $6.02.75 on May 26 (an 18 percent decline). The 53 percent rally was the largest percentage gain for this period since at least 1973 and the largest percentage drop for the time frame since 1973. time being. The only fresh export sale announcement Outlook: Weather, rumors, and money are driving for the week was 6 million new crop bushels to price action. The burden may be on the bull if unknown. Chinese buying slows down and we don’t have a Weekly ethanol production fell 21,000 barrels per day to 1 million bpd, but was still the second-highest of the year. Production was only 4.4 percent below the same week in 2019 (pre-Covid). Ethanol stocks weather event to push us back to the highs. This doesn’t mean we won’t see better selling opportunities, but seasonally corn struggles in the last half of June when we head into the June 30 Acreage and

Cash Grain Markets

corn/change* soybeans/change*

St. Cloud $6.91 +.31 $15.14 -.45 Madison $6.93 +.25 $14.81 -.43 Redwood Falls $6.94 +.26 $15.28 -.46 Fergus Falls $6.94 +.21 $14.89 -.60 Morris $6.94 +.26 $15.05 -.24 Tracy

$6.84 +.18 $15.08 -.54 Average: $6.92 $14.99 Year Ago Average: $2.80 $7.87

Grain prices are effective cash close on June 2. *Cash grain price change represents a two-week period.

Grain Stocks reports. In five of the last seven years, June stocks were higher than what the trade expected. The June acreage report was above trade estimates in four of the last five years.

The caveat to the lower seasonal price action in June is if Chinese buying is on-going and we have periods of questionable weather. Don’t lose sight of political activity between the United States and China. There were varying views on how the first virtual meeting between officials went this week. U.S. Trade Representative Tai called the relationship “very, very challenging.” Chinese officials called the meeting “candid, pragmatic and constructive.” It doesn’t look like it will be smooth sailing.

The National Oceanic and Atmospheric Administration Drought Monitor on May 27 indicated 43 percent of the Midwest was abnormally dry or worse vs. 38 percent in the previous week. This crop is a long way from being in the bin. We can’t afford any crop problems this year, but this doesn’t mean you shouldn’t stay with your marketing plan. If nothing else, this week’s big swings drove home how quickly this market can whipsaw and move to hurt the most people possible.

For the week, July corn was down just 2.75 cents at $6.56.75 per bushel. For the month, July corn dropped 16.5 cents per bushel. December corn fell a penny this week to close at $5.45.5 per bushel. For the month, December corn was 18.25 cents lower.

SOYBEANS — Soybeans were able to break their string of seven consecutive lower sessions late in the week when corn locked limit up. Soybeans had fallen to their lowest price in five weeks and the lowest for the month of May before attracting buyers back to the market. Meal prices dropped to their lowest level of 2021.

Soybean planting as of May 23 wasn’t as far along as the trade anticipated at 75 percent complete vs. 80 percent estimated, but was still much above the 54 percent average and the quickest pace since 2012.

See NYSTROM, pg. 17

Low export news drops soybean price

MIELKE, from pg. 14

exports and could lead to an increase in demand. Cheese intended for export however continues to face delays due to congestion at ports and delays reportedly vary week to week. n

Cash butter wasn’t helped by the Cold Storage data and fell to $1.785 on May 26, but finished May 28 at $1.81. This is still down 6 cents on the week, up 5.75 cents on the month, and 15 cents above a year ago. There were 20 sales reported on the week, 56 for the month of May, down from 101 in April.

Food service butter demand shot up to pre-pandemic levels with the reopening of restaurants and public events earlier in the spring, says Dairy Market News, but once pipelines were closer to being refilled, demand waned. There were some positive notes this week in food service demand from butter producers in the central region. Cream was widely available ahead of the holiday weekend. Some plants were running normal schedules, while others were down for Memorial Day. Cream is available. Early in the week, contacts continued to report paying the extra costs for cream from the west, but by midweek some plants found loads in the region at multiples in the low 1.20s. Butter demand is better than some contacts expected for this time of the year, says Dairy Market News, but market tones are uncertain.

Western cream is in steady supply and is expected to briefly bump up as some dairy manufacturing paused over the long weekend. Ice cream continues to absorb much of the cream supply, but there’s still plenty for butter makers. Bulk butter inventories are stable, with some southwestern butter makers working to grow inventories for later this year. Retail orders are lower but steady. Food service sales are picking up but some contacts report hesitation from buyers. Demand is not crystal clear, and it is difficult to accurately forecast needs.

Grade A nonfat dry milk climbed to $1.3025 per pound on May 25, but slid back to a $1.2925 per pound close on May 28. This is a half-cent lower on the week, 2.75 cents lower on the month, but 26.25 cents above that week a year ago. Sales totaled 23 for the week, 76 on the month, up from 58 in April.

CME dry whey saw its biggest single day drop since April 23 on May 27, down 3 cents, and closed the next day at 62.25 cents per pound. This is down 2.25 cents on the week, down 3.75 cents from May 3, but 31.75 cents above a year ago. There were three sales on the week, 12 for the month, down from 17 in April.

n

There was talk of growing whey inventories in the United States this week and weaker Chinese and domestic demand, according to StoneX, plus port congestion and shipping constraints causing delays may have contributed to the weakness.

The USDA’s latest Crop Progress report shows 90 percent of the U.S. corn crop is planted as of the week ending May 23. This is up from 80 percent the previous week, 3 percent ahead of a year ago, and 10 percent ahead of the five-year average. Sixty-four percent is emerged, 3 percent ahead of a year ago, and 10 percent ahead of the five-year average.

Soybean plantings are at 75 percent, up from 61 percent the week before, 12 percent ahead of a year ago, and 21 percent ahead of the five-year average. Fortyone percent are emerged, 8 percent ahead of a year ago and 16 percent ahead of the five-year average.

Cotton is 49 percent planted, 3 percent behind 2020 and 3 percent below the five-year average. n

Corn and soybean meal prices have fallen which is good news for dairy farmers buying feed. Fuess said corn was at levels not seen in a month and soybean meal was at a level not seen since December.

StoneX stated in its May 26 “Early Morning Update,” “If the past two to three months have taught us anything, it is that this year the cost of production (in terms of the effect high corn prices have had on producers) has not yet impacted pro-

See MIELKE, pg. 18

NYSTROM, from pg. 16

Soybean emergence was 41 percent compared to 25 percent on average.

News in the soybean market was very thin this week and fund selling along with money movers was running the show. At mid-week, the November contract posted a doji star formation, opening and closing at the same price, which usually signifies a change in direction or consolidation. This time it acted as a friendly signal and November soybeans held above their 40 and 50-day moving average support lines.

Statements out of China in the first half of the week kept buyers sidelined. China’s state planner said they would have “zero tolerance for excessive speculation” and hoarding of commodities. These statements were followed by the China Banking and Insurance Regulatory Commission asking lenders to halt the selling of investment products linked to commodity futures to retail traders and to unwind their existing books of those products. Banks must provide monthly updates to regulators to show their progress on exiting positions. Unidentified sources also reported that at least two major futures brokerages were advised by China’s exchanges to cap positions and trading volumes in highly volatile contracts. This type of activity makes buyers nervous.

Weekly export sales were uneventful with 2.1 million bushels for old crop and 9.1 million bushels for new crop. Old crop total commitments reached 2.26 billion bushels compared to the USDA’s outlook for 2.28 billion bushels. It’s no surprise old crop sales are minimal since Brazil’s soybeans are roughly $1 per bushel cheaper than U.S. origin. China has 25.8 million bushels of unshipped old crop U.S. bushels on the books. New crop commitments at 267.1 million bushels have left last year’s sales of 85.7 million bushels by this date in the dust. China accounts for 113.9 million bushels or 42.6 percent of the new crop total commitments.

As Argentina continues to struggle with low river levels hindering loading, they were able to cut short a port worker strike. Workers had planned a 48-hour strike to protest the availability of vaccinations against Covid-19. The strike was cut short when the government agreed to put the workers on the “essential” worker list that was previously limited to health care workers, teachers, and police.

The Buenos Aires Grain Exchange has Argentina’s soybean harvest at 91 percent complete as of May 27 and 97 percent on average and corn harvest at 31 percent complete vs. 47 percent on average. The BAGE increased their soybean estimate .5 mmt to 43.5 mmt.

Brazil planned to avoid a port worker strike at their Santos port by vaccinating workers also.

Growing cases on Covid-19 saw Malaysia limit work force capacity at palm oil plantations to 60 percent. This has lent support to the world vegetable oil market.

Outlook: Tight ending stocks and a quick start to this year’s soybean crop played a tug of war to move prices sideways this week. For the week, July soybeans traded a range of $14.89.25 to $15.55.75, closing 4.25 cents higher at $15.30.5 per bushel. For the month, July soybeans were down 3.75 cents per bushel. The November contract traded a weekly range of $13.25.75 to $13.92.5, settling 12.25 cents higher for the week at $13.72.75 per bushel. For the month, November soybeans were 33 cents higher. While old crop exports have slowed down, it was expected with cheaper supplies available from South America.

Weather will take the lead for the time being as we watch drought conditions around the United States. How many acres have been captured by soybeans is uncertain and will add to volatility. Soyoil action has also had an impact on soybean direction, so glance in that direction for input, too.

Nystrom’s notes: Contract changes for the week as of the close on May 28 (July contracts): Chicago wheat fell 10.75 cents to $6.63.5, Kansas City declined 10.75 cents to $6.13.25, while Minneapolis surged 27 cents higher to $7.27.5 per bushel. v