AgriVisor Market Recap

Monday, April 19, 2021
Trade started out the week on the positive side with weather being the primary catalyst for the rally. Concerns over cool temperatures in parts of the Corn Belt were a portion of this, but more importantly were the ongoing dry conditions in Brazil. Brazil is starting to enter its dry season and recent precipitation verifies the shift. With a portion of the crop entering the pollination stage this is a critical time frame. A six-week low in the US dollar also supported today’s commodity trade. Advances were held in check by overhead technical resistance and reports that planting is progressing around the US. 

Concerns are building over the dry weather conditions in Brazil. An estimated 40-45% of the Brazilian Safrinha crop is suffering from abnormally dry conditions. Data also shows that 39% of the Safrinha crop has seen less than 25% of normal precipitation over the past 30 days. The most concern is in Southern Brazil where drought also impacted soybean production, which is not uncommon in a La Nina influenced year. The Safrinha crop is starting to pollinate in early planted fields, making dry conditions more of an issue for yields. 

Export inspections for the week ending April 15th favored corn over soybeans and wheat. Corn inspections totaled 60 million bu (mbu). This was slightly less than a week ago, but just over the volume needed per week to reach yearly USDA projections.  Of this total, 22 mbu was destined for China which gave the corn futures even more support. Soybean inspections totaled 6.7 mbu, down from last week’s 12.4 mbu, and only half the amount needed on a weekly basis. Wheat loadings reached 22.5 mbu, and while 5.6 mbu more than the previous week, it was 7 mbu under the needed amount. 

We are starting to see a shift in market attention from soybean balance sheets to corn figures. Given the lower acreage numbers being predicted by the USDA and concerns over yields have some new crop carryout estimates down to 1.2 mbu. Even this may be too high if acres shift to soybeans as the market has indicated may happen. Some models indicate the new crop stocks to use ratio on corn could drop to 5% by the end of the 2021/22 marketing year. This possibility is keeping an elevated volume of risk premium in the corn market. 

The US economy continues to improve as Covid restrictions are lifted, and as it does, travel is increasing. This obviously brings elevated energy product demand, including for ethanol. As a result US ethanol reserves are now just 75% of a year ago. We have to remember that ethanol stocks were rapidly building last year as travel restrictions were placed on US travelers. This is still the lowest US ethanol inventory since 2013 and is being closely monitored by trade. The most attention now is if ethanol plants can find enough corn to raise production and prevent further declines. 

Soybean values continue be supported by soy oil, and more importantly, the entire vegetable oil complex. Soy oil from the United States is currently being offered at 60 cents per pound. While this is more costly than palm oil which is at 50 cents per pound, it is cheaper than sun seed oil offers at 75 cents per pound. This has kept buyers coming to the US, although we are now starting to see more pressure from South America. 

The global wheat market is keeping a close eye on political developments in the Black Sea. Tension is building between Ukraine and Russia and has reached a point where global trade may be affected. This comes after Russia held navy maneuvers in the Black Sea. While not immediately threatening, this may prevent import and export vessels from moving into the region, and push more business to other commodity sources, including the United States. Even if ships do enter the Black Sea, they will likely carry a high freight cost given the potential for conflict. 

Ukraine officials have revised their new crop grain production and export forecasts. Officials in Ukraine now estimate grain production of 73.6 million metric tons (mmt) this year, up 13% from last year. This is the result of improved weather conditions following last year’s drought. Corn production is forecast to total 35.7 mmt and wheat at 27.6 mmt. These higher production forecasts will elevate Ukraine exports as well. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.