Weekly Market Recap April 17, 2020

Corn Emerging 360X240


May corn futures gained 2 1/2 Friday, and finished at $3.22 1/4, losing 9 1/2 for the week, and December corn also gained 2 1/2, ending at $3.43 1/2, down about 7 this week. 

May soybean futures were down 4 1/4 Friday, ending at $8.32 1/2, down 31 on the week, while November beans lost 3 1/2 Friday to close at $8.51, down almost 25 from last week. 

This week continues to be as much about the energy sector as anything else impacting corn and soybean prices. After last week’s announcement of an agreement to cut oil production in much of the world, the main response has been it won’t be enough to offset the drop in demand. This Tuesday and Wednesday, the Texas Railroad Commission met to discuss curtailing oil production in that state, but at the end of their meeting, the message was that a vote was NOT taken and another meeting is scheduled early next week. 

Another growing concern is the various issues impacting the livestock industry. One of the largest pork processing facilities in the country closed over the weekend as a large percentage of workers were diagnosed with COVID-19. One of Canada’s largest beef packing plants reduced production this week. A large egg processor in Minnesota closed this week. This plant manufactures liquid eggs for restaurants, like McDonald’s and others. We continue to hear of woes in the dairy industry with several stories across the U.S. of producers dumping milk. Along with all of that, we’re hearing of avian flu in the SE part of the U.S.

Many people initially thought that production facilities closing would actually increase feed demand, and while that is true in the short term, the longer-term implication is that feed demand will drop as producers continue to cull herds and flocks. 

Some other issues impacting corn and soybean prices this week were: 

  • Export inspections last week dropped to 40.5 million bushels, and while that is down about 10 million from the previous week. Cumulative exports for the year, at 802 million bushels, are down 36% from last year at this time, but they are gaining, as in early January, we were 50% of the previous year at that time. 
  • Late last week, China’s agricultural minister increased their estimate for corn imports from the U.S. to help with their compliance with the Phase 1 agreement. Previously, they were expecting 3 million metric tons, and are now projecting 4mmt. 
  • U.S. ethanol production dropped again last week, setting another new all-time low of 168 million gallons, down from 198 million gallons the previous week and equals about 53% of the weekly high for this year set during the week that ended January 31st.
  • Even with this reduced production for the week, ethanol stocks increased to another record of 1.15 billion gallons, and now reflects more than 50 days of production at this pace.
  • The USDA confirmed the first case of high-pathogen avian flu in commercial poultry in 3 years. The H7N3 bird flu was found in a turkey flock in South Carolina. 
  • This week’s NOPA report showed 181.4 million bushels crushed during March, while expectations were closer to 175 million. This is a new monthly record. In fact, 4 of their highest monthly crush numbers have occurred in the past 6 months. 
  • U.S. soybean export shipments last week increased to 16.2 million bus., and up from the previous week’s 11 million bu., but continue to run below the 25 million bushels we need to see every week to hit the USDA’s annual projection.

Something else to consider: 

On Friday, WTI Crude oil futures declined a couple of dollars to around $18/barrel, the lowest price since 2002, but that’s a little misleading. This is for MAY futures, and Friday was the last day for that specific contract to trade. There are A LOT of weird things that happen on the last day of trade for any futures contract. The June contract also traded a little lower for the day, down less than 50 cents per barrel, but closer to $25, not $18. However, Brent crude traded higher today. It’s important to note that Brent is, and has been, trading June futures as the lead month for quite a while. It will be a bit of a surprise to some people to wake up Monday and see that WTI crude is trading around $25, and yet not showing +$7 as they’re probably thinking it finished the week at $18.

This is a good lesson for all of us, we need to make sure we’re not comparing apples to oranges. We occasionally see the same thing in corn and soybeans when we move our cash bids from following one futures month to the next. We inevitably get questions about why the basis changed so dramatically overnight. We normally just walk through the math and talk about cash prices – did they change a lot? Usually, no. So, if you’re paying attention next week, when we move from May futures to July futures on both corn and soybeans for our cash bids, you’ll notice the change. If you are just looking at basis levels, it will feel like you’ve lost something. You always have to check to see what futures month the basis is related to in order to make sense of it all. 30 or 35 under doesn’t tell the whole story until you also identified “under what”. Just something to pay attention to. 

For more in-depth analysis, tune in to our Bull Bear Banter podcast. Here is the link to previous episodes, and this week’s episode: