Marketing

Grain Outlook USDA data is overshadowed by weather issues

The following marketing acres, and Wisconsin down analysis is for the week ending 100,000 acres. July 2. June 1 stocks were 4.112

CORN — What a ride this billion bushels with 42.4 perweek! Corn started the week cent on-farm and 57.6 perwith a bang on a drier fore- cent off-farm. This is the lowcast and extended those gains est percentage on-farm since after bullish U.S. Department 1990 and the highest perof Agriculture reports on June centage off-farm for this 30. Any market moving news PHYLLIS NYSTROM report since 1990. Stocks early in the week was over- CHS Hedging inC. were down 18 percent from shadowed when the USDA St. Paul last year, but near the 4.144 showed U.S. growers planted billion bushel trade outlook. fewer corn acres than the These reports drove corn to trade was anticipating and held small- lock up the 40-cent daily trading limit. er inventories than expected as of June The following session, corn ran higher 1. This year we needed an increase in early, but barely managed to close acres and nearly ideal growing condi- higher in the September and December tions to address the tight corn situa- contracts. States holding the most corn tion. Thus far, we haven’t had either as of June 1: Iowa with 820 million, which leads to ideas we won’t solve Illinois with 411.5 million, Nebraska supply issues in one year. with 503.9 million, and Minnesota with

As of June 27, U.S. corn conditions 477.6 million bushels. were 64 percent good/excellent vs. 73 The United States isn’t the only one percent last year. On the weekly with weather issues. More attention is drought monitor as of July 1, 55 per- being drawn toward the drought in cent of the area from Kansas through Mexico. The lack of water and high the Dakotas was in moderate drought temperatures in key corn-producing or worse; 48 percent of the Midwest areas will be monitored as they enter was at least abnormally dry, but down their rainy season. Mexico gets 50 to 80 from 54 percent in the previous week. percent of the annual rainfall between

Planted corn acres in the United July and September. They expect to States came in at 92.629 million acres produce 28 million metric tons of corn vs. 93.787 million estimated. This is up 1.81 million acres from last year’s 90.8 See NYSTROM, pg. 17 million planted acres, a 2 percent increase year/ year. Corn acres are up the Cash Grain Markets most, year-on-year, in areas which are suffering from unfavorable conditions. State acreage changes vs. last year: Minnesota up 500,000 acres, North Stewartville Edgerton Jackson Janesville corn/change* $6.32 -.23 $6.42 +.09 $6.23 -.25 $6.30 -.04 soybeans/change* $13.14 -.40 $13.30 -.22 $13.30 -.25 $13.31 -.25 Dakota up 1.65 million Cannon Falls $6.17 -.13 $13.19 -.36 acres, South Dakota up Sleepy Eye $6.12 -.11 $13.29 -.35 1.05 million acres, Illinois down 100,000 acres, Iowa Average: $6.26 $13.26 down 500,000 acres, Year Ago Average: $3.03 $8.41 Indiana unchanged, Nebraska down 500,000 acres, Ohio up 50,000 Grain prices are effective cash close on July 6. *Cash grain price change represents a two-week period.

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NYSTROM, from pg. 16

this year and some states have resorted to cloud seeding. Another problem area is in Brazil where they saw three nights of freezing temperatures just as their safrinha corn harvest begins. One private estimate for Brazil’s total corn crop came out at 87.9 mmt. As Brazil’s corn crop shrinks, it may push up demand for U.S. corn earlier in the fall than normal. Usually, Brazil would supply world corn until the cheaper U.S. corn supplies become available at harvest. A lot will depend on whether China repeats last year’s early purchases of new crop corn.

Weekly export sales were mostly ignored this week with the headlines focused on the June 30 reports. Weekly sales were just 600,000 bushels for old crop and 2.7 million bushels for new crop.

Old crop total commitments stand at 2.74 billion bushels vs. the USDA’s 2.85 billion bushel outlook. We need to average approximately 5 million bushels of sales per week to ring the bell. China did cancel 2.9 million bushels of old crop purchases and still has 240 million bushels of old crop purchases to ship this crop year.

New crop total commitments at 620 million bushels are well ahead of 153.3 million on the books last year by this date. The combined sales were the lowest of the marketing year.

The weekly ethanol report showed production up 10,000 barrels per day to 1.06 million bpd. This is on pace to achieve the USDA corn for ethanol usage. Ethanol stocks were up 452,000 barrels to 21.6 million barrels. This is the fifth-straight week of stock increases. Net margins were down a dime to 3 cents per gallon. Gasoline demand fell from 9.44 million bpd to 9.173 million bpd. This is down 3.4 percent from the same week in pre-Covid 2019. We also saw the second week of ethanol imports of 7 million gallons.

Outlook: In a way, it seems fruitless to try and predict how high or low we may trade without having the latest weather forecast in front of us. Underlying support should come from the lower acreage number and problems in the upper Midwest due to a lack of moisture.

The monthly July World Agriculture Supply and Demand Estimates report will be published on July 12 and we’ll see what the balance sheets look like, incorporating the new acreage number and updating the yield. I don’t believe anyone is expecting the current 179.5 bushels per acre yield to hold up — especially when you compare year-on-year conditions. If you combine the lower acreage with a lower yield, it’s going to be a tight carryout this year. Added to the scenario is the frost that has occurred in Brazil and will result in a smaller safrinha corn crop. This situation may push corn demand to the United States earlier in the year if Brazil’s exports are curtailed due to the smaller crop. It won’t be surprising if the market wants to add risk-premium in the short run.

MARKETING

The weather becomes even more critical in the next month as corn begins to pollinate. It will probably take a major weather event over a large area for September corn to try and reach the July contract of $7.44.5 per bushel. However, hot dry conditions should limit any downside with the smaller acreage and stocks numbers.

As the week ended, news was circulating the D.C. Circuit Court of Appeals overturned a 2019 EPA ruling which had allowed the year-round sales of E15 fuels. This cast a shadow over ethanol’s outlook and lent a modicum of pressure on corn, but it shouldn’t affect this year’s outlook. Weather is the price driver.

This week, September corn rallied 61.75 cents to close at $5.92 per bushel and December jumped 60.5 cents to $5.79.75 per bushel.

SOYBEANS — Soybeans followed the same storyline as corn with the Planted Acreage and Grain Stocks as of June 1 sharing center stage with each changing weather forecast. The biggest surprises were in the acreage numbers. High volatility and big daily trading ranges will likely stay with us for at least another month. On report day, August soybeans closed 90.25 cents higher and November soybeans closed 86.5 cents higher.

Soybean acreage this year on the USDA report was 87.555 million acres, up 4.47 million acres from last year (up 5.3 percent). This number was less than the trade estimate of 88.955 million acres and nearly unchanged from the 87.6 million acres the USDA forecasted in March. Last year we planted 83.084 million acres. Here is the state-by-state acreage changes vs. last year: Minnesota up 300,000 acres, North Dakota up 1.45 million acres, South Dakota up 550,000 acres, Illinois up 400,000 acres, Iowa up 500,000 acres, Indiana unchanged, Nebraska up 200,000 acres, Ohio unchanged, and Wisconsin up 200,000 acres.

Soybean stocks as of June 1 were 767 million bushels and down 44 percent from June 1 last year. This was much lower than the 787 million bushel trade estimate. On-farm stocks were 28.7 percent and the fourth lowest since 1990. Off-farm stocks account for 71.3 percent and are the fourth highest since 1990. Based on the numbers, it looks like we have more rationing to do this year. The states with the most soybean stocks as of June 1: Iowa with 136.5 million, Illinois with 122.6 million, Minnesota with 71.1 million, and Indiana with 66.9 million bushels.

Weekly export sales were disappointing at 3.4 million bushels for old crop, bringing total commitments to 2.27 billion bushels. The USDA is anticipating this year’s exports at 2.28 billion bushels. China has 28.4 million bushels of old crop purchases left to ship. New crop sales were within expectations at 61.4 million bushels. New crop commitments are 341 million bushels compared to 255 million bushels last year. China has purchased 150.6 million bushels of new crop U.S. soybeans.

The National Agricultural Statistics Service’s May soybean crush report was mildly friendly to the soybeans. The soybean crush was 174 million bushels vs. 173.4 million expected and is the second largest crush for the month of May. Soyoil stocks were slightly lower than expected at 2.05 billion pounds compared to the estimate of 2.144 billion pounds.

The Buenos Aires Grain Exchange is estimating Argentina will export just 4.4 mmt of soybeans this year versus 6.6 mmt last year. Argentina continues dredging on the Parana River and will continue throughout the year. Their logistical issues need to be watched for signs of delayed loadings which could make the United States a more attractive supplier.

World vegetable oil markets have been providing underlying support to soybeans. Palm oil closed higher for four straight sessions and soyoil has retraced over 62 percent of the loss from the contract high to the June low.

Outlook: The July 12 WASDE report will adjust for acreage and may make a slight yield adjustment lower, but it’s early to do that in soybeans. The weekly condition ratings may provide a clue to what any yield change may be made. As of June 27, U.S. soybean ratings were unchanged for the week at 60 percent good/excellent compared to 71 percent last year. In general, the carryout will be expected to shrink after the smaller June 1 stocks number. Weather and crop condition ratings will continue to be closely followed, just like any other summer. This year, however, the tight stocks situation will make for high volatility and big swings. We have little room for any decline in ending stocks and we will need timely rains to avoid deterioration. Prices will reflect how much rain hits the ground and how high the mercury goes.

For the week, August soybeans soared $1.30.5 per bushel to $14.33.25 per bushel and November surged $1.29.25 per bushel to $13.99 per bushel.

Nystrom’s notes: Contract changes for the week as of the close on July 2, (September contracts): Chicago wheat was 12 cents higher at $6.52.75, Kansas City was 10.25 cents higher at $6.19.25, and Minneapolis rallied 30.75 cents to close at $8.38.75 per bushel. v