First notice day is finally behind us for the May contracts. Everything should be quoted over the July now. That gives us until the end of June before we have the pressure of another delivery period weighing on the market. The next 30 to 45 days are our best chance for a rally in corn, beans and wheat. The crop is being planted at a decent pace but it is far from made. The market will keep a weather risk premium until we get closer to harvest. Acreage will still be a big unknown until the end of June when we get USDA’s planted acreage report. Ethanol demand is completely unknown for the future but has been decimated in the nearterm, feed demand is shrinking as animal numbers are being reduced out of fear of the bottlenecks in the meat processing industry and the stronger dollar is making our exports less competitive in the world. The only thing positive on the demand side is Chinese demand and due to our strong currency we will not be the cheapest supplier. Many top level officials keep insisting that China fully intends to honor their Phase 1 commitments. This week we saw some large soybean purchases from China which helped fuel the rally yesterday but late last night Trump announced that he would be holding China fully responsible for the virus and the damage it created to our economy using any means necessary including tariffs and other trade weapons. A ratcheting back up of trade tensions and the trade war is not bullish for commodities. Right now it is just rhetoric, but it keeps the market on edge.
Positives
The biggest positive right now is Chinese demand. They offer an example that an economy can start getting traction again after shutting down for this virus. That is encouraging. This has caused the first negative GDP growth in China’s modern history but they now seem to be growing again. South America is shipping as fast as possible right now and still not meeting their demand. Any small logistical hiccup could quickly snowball at the pace they are currently trying to operate at. That gives us an opportunity on a hiccup and China the incentive to try to meet the Phase 1 commitments like the US officials keep insisting. A logistic snafu in South America also gives the US some leverage, as long as we do not overplay it. We saw huge exports this week in all commodities. This is a start in the right direction! We need to see more weeks like this on exports.
We are now past first notice day on the May and do not have another contract expiration until the end of June. Summer weather is still largely unknown, giving the market an incentive to keep or put a weather risk premium right now. Acres will remain a big question until we get USDA’s final count at the end of June. Chinese demand is growing and with a little help from a logistic hiccup in South America, we will have some leverage to make them at least try to honor their commitments.
Corn
Corn tried once last week and once this week to push below $3 but was able to find enough support to keep from printing a 2. I am encouraged by that, but only in the short term. Hopefully we have priced most of the old crop negativity in the market now. We still need to be selling any rallies as there is a lot more risk as we get further through the growing season. Soybeans have not made a strong push for acres and with the crop insurance guarantees this year and good planting weather so far, I do not see us losing many corn acres in the country. If USDA prints 95+ million acres on the June final acreage number and we are not facing a significant economic recovery supporting energy demand and the weather looks benign for the remainder of the growing season this market may have a significant amount of downside. We need to get all we can in the next 30 to 45 days and take some risk off the table. Chinese demand would be a help, but it will not be able to replace all the ethanol demand. We cannot let the ethanol industry be completely destroyed. Trump ordering meat plants to stay open will be a help, but there will still be challenges keeping them running. Animals are being culled and reproduction is being slowed right now. That is not helpful for feed demand. I want to be positive on corn after holding support this week and getting a bounce but until we see something change for the better on the demand side, I have a hard time making a case for much upside from here.
I see $3.30-$3.40 being the upper limit of what July corn will be able to do right now. We need to sell old crop on any rallies. New crop December could get back to $3.50, and we need to be selling new crop rallies as well.
Soybeans
Soybeans got a big boost from Chinese purchases. As mentioned above, South America is exporting all they can possibly handle right now and it is still not enough. For soybean meal, the loss of demand from reduced animal numbers is mostly offset by the lack of DDGs for feeding so they are not facing nearly as much domestic demand loss as corn. We are also not seeing a big shift to bean acres in the US as a whole. Soybeans have a much better fundamental outlook than corn does, but it is still not a cakewalk. South America lost the tail end of their crop but still has a large crop even though its not a record. Soybean oil is the laggard of the complex.
Basis has leveled off but is still at a very strong level and I do not see it weakening much here especially with the possibility of increased exports. Scale in sales on rallies if you need cash flow but overall I think we can be more patient on beans than we can on corn. I would be patient on new crop beans.
Wheat
Wheat really got punished going into delivery but still has a lot to be positive about. US crop saw significant decreases in condition ratings after the cold temps and there remains significant threats of more cold weather in the midwest. Black sea is still very dry but does have the possibility of some rain in the longer term forecast. We had strong exports this week. Wheat has a good chance to rally here before harvest but needs to get started soon. Chicago wheat inverted yesterday going into delivery indicating tight old crop stocks at the tail end of the crop year. In a typical year in the Southeast, the drop from milling wheat to feed what is not that significant in markets with strong feed demand. With corn as low as it is, that is different this year. This will make elevators more competitive with feedmills so make sure you start planning now and we will be looking at homes that you may not be used to going to.
Be patient on wheat but we do need to start selling at $5.50 futures when we get back there. Be thinking about hedging new crop wheat at those levels as well. If it drops from there and you decide not to plant it, we can buy the hedges back for a profit. If it keeps going up and you want to plant the wheat, the hedge will have your marketing started.
Cotton
Cotton lead us lower during the crash and seems to be indicating optimism now for the recovery. There are rumors of significant Chinese purchases as they refill their government stocks. We got confirmation of them with huge exports this week. The exports this week more than offset the cancellations last week and makes us question USDA’s huge drop of exports on the April S&D update. Cotton acres are dropping significantly in the Southeast, but may not drop as much in Texas where it will be planted for the insurance payouts. Cotton is in no mans land where the LDP protects us from getting any less for it. If you have old crop cotton, basis has improved with the Chinese demand. Nothing to do on new crop.
