AgriVisor Market Recap

Wednesday, June 10, 2020
Pre-report positioning dominated today’s trade, and while this benefitted soybeans and wheat, it pressured corn. Trade is expecting to see a slight bump in US corn production tomorrow and a possible decrease in the world soybean supply. No major changes are expected though, which could easily set the market up for a surprise. Current weather conditions are mostly favorable, or at least non-threatening, which is preventing big moves in the market. One story that is starting to gain interest in the market is replants on corn, as more reports of this taking place are coming in. 

Trade is starting to place more attention on US exports as we get closer to the end of the marketing year. The main focal point in exports always comes back to China as they are the world’s leading commodity importer. In fact, China has made record purchases of several US products recently, with pork being one getting the most attention. While this is positive, other countries have slowed their purchases. In fact, US pork sales to buyers other than China are at a 4-year low. This same trend is starting to develop in soybeans as well. 

Overall, some economists are starting to voice their opinion on the outlook of the US ag economy. It is believed that US commodity values have outpriced themselves in the global market given current usage forecasts. As a result, a contraction in commodity values is being predicted. Economists believe we may see a 7.4% decrease in commodity values during the next quarter if demand does not increase considerably. 
This outlook is causing long-range ag economic outlook changes. According to the Food and Agricultural Policy Research Institute, US farm income in 2020 will total $102.2 billion. This would be a 15% decrease in income from 2019. Of the 2020 farm incomes, $16 billion is coming from subsidy payments. FAPRI believes the US farm income will contract even further in 2021, totaling just $95.1 billion.

A portion of this decline in Ag revenue is being credited to the Covid-19 outbreak, which has impacted the entire global economy.  The World Bank is forecasting a shrink to the global economy of 5.2% this year as it tries to recover from the virus. For the United States, the World Bank has predicted a 6% decline in the economy. This would be the greatest decrease in the economy since World War Two. 

US ethanol manufacturing continues to ramp up. For the week ending June 5th the United States produced 5.86 million barrels of ethanol. This was a 9.4% increase from the previous week, but still a 23.6% decrease on the year as plants remain idled. Ethanol reserves decreased for the 7th consecutive week, decreasing by 674,000 barrels. US ethanol stocks are now equal to those of a year ago. Corn use for the week was an estimated 84 million bu, just under the amount needed to reach the USDA yearly projection. 

Quality is once again becoming a topic in the commodity market. While this has been discussed in corn all marketing year, we are now hearing of issues in the newly harvested wheat crop. For corn the issue remains test weight which has been lower than normal due to last year’s growing conditions. Test weight on winter wheat is normal, but we are seeing a wide variability in protein content. This ranges from a low of 8% to a high of 16% so far. There is little doubt buyers will use this as a bargaining tool, especially in the export market. 

We have started to see a slight decline in Chinese meat imports. In the month of April China imported 816,000 metric tons of meat, a 5.3% decrease from March. Meat imports for the year are still up considerably from 2019 though, with the 1st five months of the year seeing a 73.4% increase. China is still trying to rebuild its food supplies following the African Swine Fever outbreak but has seen a decrease in demand since the Covid-19 outbreak, same as the rest of the world. 

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