April USDA Report – April 9, 2020

We should not have been surprised to get a bearish report from USDA. It seems that is all they are capable of releasing these days. The surprise was the market’s reaction to the bearish report. It went up. That is a good sign that we have all the panic and negativity priced in for now. The Saudis and Russians reportedly came to an agreement to significantly cut their production this morning. That will help with price. Now we need to get the world back to work to help with energy demand. It looks like the virus is slowing as all the models are starting to back off the most dire predictions. We did not get a look at new crop estimates as they will start on the May report. We will get planted progress starting Monday.

USDA dropped corn for ethanol by 375 million bushels but added 150 mln bu to feed usage and left exports unchanged. They estimated final corn carryout at 2092 mln bu compared to 1892 on the last report. The fear now is that ethanol demand will continue to drop increasing carryout if we do not get gas demand restarted very soon. Corn cares very little about old crop right now as we are already looking toward new crop acres. It is cold and wet in the midwest right now but it is not late enough to cause much concern. Even if we drop corn acres 5 or 6 million, it will still be too many if we do not have ethanol demand back. Chinese imports will not fix that. Corn is currently trading just as an energy like oil and gas and we need to get the world back to work quickly and orderly as soon as possible. Price old crop corn on any bounce above current levels. Price new crop on a move back close to $3.75.

Report was mixed overall. US data is a bit negative with exports and domestic use lowered, but that was offset by bullish changes in the world balance sheet. Increases in Chinese import demand and reductions in South America production dropped world ending stocks by 10%. Soybean fundamentals remain firmly bullish. The significant reduction in DDGs will be a big benefit to soybeans, as meal will be used for protein and China had to sell beans out of their state reserve to support domestic crush as their stocks are so low. Old crop bean basis remains strong. Beans have a real shot at a move toward $9 on old crop and $9.50 on new crop. Be patient on beans.

The market was not expecting an increase to wheat carryout, but wheat is trading more of a weather market right now. It is very dry in Russia and there are very cold temps coming to the Midwest which is helping support wheat. The export controls being eyed in Russia and other wheat exporting countries is also helping support. With production uncertainty and low acres, wheat has been a rare bright spot in the commodities. I see wheat trying to make a run to $6 on the board. Basis is tight for harvest into the Carolina flour mills but I expect to back out to triple digits during fall. We have a bigger crop than last year but far from a record.

Cotton had the worst bearish surprise. Exports were cut by 1.5 million bales to just about everyone’s surprise. Exports had been strong until this week when we saw net cancellations. Such a huge negative surprise and a non-reaction adds to confidence we have seen the low for now. I say for now because we still need to get the economy moving. Now that we seem to be over the hump as far as the virus, we will need to see evidence of the economy being able to sputter to a start when we start walking back the restrictions. Evidence of a prolonged downturn will bring more downside to cotton, otherwise we finally have some support. Be patient on new crop cotton.