AgriVisor Market Recap

Monday, June 01, 2020
Commodities started out the week and month mixed as traders increased their positioning. Soybeans favored the positive side as funds are more comfortable owning that commodity than grains. The grains also found pressure from weather forecasts that are mostly favorable for development and the advancement of the harvest on the winter wheat crop. An active weekend of planting also weighed on today’s trade. The most negativity came from trade developments between the US and China as China is suspending the purchase of some US products. Losses were limited by a hesitation to extend short positions, especially in corn. 

Over the weekend the Chinese government ordered its two largest import buyers to halt purchases of US grains and pork. This comes after President Trumps announcement that Hong Kong would no longer receive the special treatment is has on trade. Trade is unsure of how this will impact long-term trade, but it does bring into question the entire Phase 1 agreement. 

The market is receiving mixed opinions when it comes to global corn production forecasts. Last week the International Grains Council projected the world corn crop at 1.17 billion metric tons. While this was an 11 million metric ton increase from the previous IGC projection, it is 18 mmt under the latest estimate from the USDA. At this point it seems trade is putting more faith in the higher USDA projection. 

Trade continues to keep a minimal amount of risk premium in futures, and the lack of a significant weather threat is the main reason. Current forecasts indicate a ridge is going to stay over the US Plains and Western Corn Belt over the next week to ten days, but this is then forecast to break down and bring in cooler temperatures and precipitation events. By most standards, this generates near perfect growing conditions for a large portion of the US. As a result buyers see little reason to extend their coverage at this stage, especially with questionable demand. 

Traders are also keeping a close eye on global weather, with Argentina quickly becoming a point of major interest. Drought has impacted Argentina for the past several weeks, with the most attention falling on how it has affected the country’s logistics. Water levels remain very low on the Parana River which is Argentina’s main transit artery. Even with reservoirs being emptied into the river it is barely raising water enough to allow for barge movement. This is also affecting crop production, as farmers in the country are holding off on wheat planting until rains return. Forecasters believe these dry conditions could persist through the summer and possibly well into the fall months. 

The short position funds are currently holding in corn is starting to receive more market attention. As of May 26th funds were short a reported 276,000 corn contracts. This is the largest short position funds have held in corn since the record one from April 2019. Funds covered that position in five short weeks and caused a market recovery of 14.6%. To see a similar action this year would not come as a surprise, giving a narrow window to make cash sales. 

Export inspections for the week ending May 28th all came in under the volume needed to reach yearly USDA projections, but were in-line with the recent pace. Corn inspections totaled 44.4 million bu, 2 mbu under the needed amount. Soybean inspections were half the needed amount at 14.5 mbu. Wheat inspections only totaled 18.35 mbu, considerably less than the 55.25 mbu needed wit just 1 week left for that crop’s marketing year. 

Hog values in China have started to decline from the record highs that were seen earlier in 2019. In the first half of May hog values in the country slipped 10%. This comes as China continues to rebuild its hog herd following the African Swine Fever outbreak. Hog and pork values remain at higher than normal levels though, even with ongoing releases of government reserves and record pork imports.