May corn futures lost 1 3/4, finishing the day at $3.43 3/4. For the week, that is down 22 cents. December corn was unchanged today, ended at $3.63 1/4, down 9 3/4 for the week.
May soybeans gained 19 1/4 today, ending at $8.62 1/2, gaining 13 3/4 since last Friday. November beans were up 12 1/4 , at $8.60 3/4, losing 3 3/4 for the week.
Covid-19 remains front and center this week in almost every news story. However, with regard to commodities, this week was also about the ongoing price war between Russia and Saudi Arabia, and the resulting consequences of that. Crude oil was off significantly again this week. At the end of last week, West Texas crude oil futures ended just below $32/barrel. This week, it fell to almost $20/barrel, before a late week bounce. Gasoline futures were also hit hard, with the nearby April contract dropping from about 90 cents/gallon to as low as almost 62 cents. Ethanol futures were pushed considerably lower, with the April contract down from almost $1.20 per gallon last Friday to below 94 cents at one point. Realizing that most of us don’t deal with these numbers on a daily basis, let’s put it in perspective. If ethanol futures are trading around $1 per gallon, and gasoline is below 70 cents per gallon, there really isn’t an incentive for ethanol blenders to blend much ethanol. All of this, plus the reduced demand for gasoline and ethanol due to Covid-19 really affected corn basis this week, with ethanol plants significantly reducing their bids. We’ve also heard of some plants not posting a bid and others closing down for the time being.
Believe it or not, there are some positives in the market right now – here is a run down of bullish and bearish factors to consider:
CORN – BULL FACTORS:
- The weekly Export inspections report showed a new marketing year high, with 38.5 million bushels loaded last week up almost 6 million from the previous week.
- Last week’s ethanol production was “only” down 3 million gallons to 304 million. We should expect a bigger decrease when we see the report next week.
CORN BEAR FACTORS:
- Ethanol stocks climbed again last week, up from 1.022 billion gallons to 1.033 billion.
- Between now and the end of the marketing year (August 31), every 5% decrease in gasoline demand would imply about 110 to 120 million bushel reduction in corn demand for ethanol. For perspective, most of the “dry mill” plants in Iowa use around 20 to 40 million bushels per year.
- Corn basis has fallen hard this week, especially in the nearby (March and April) slots.
SOYBEAN BULL FACTORS:
- NOPA crush was strong again in February, up 7.7% from last February. Trade estimates ranged from 163 to 166.6 million, and came in at 166.3, just below the top estimate. Even though February is a short month, this represents a new daily record for a month. Part of this is due to Argentina raising export taxes.
- The last couple of days, we’ve also heard of even more demand for Soybean Meal in the US, since feeders aren’t being able to secure as much DDG’s as they’d like due to the slow-down in ethanol production.
- There is also talk of China restoring it’s hog herd which could lead to even more demand for soybean meal. Along with that, a couple of plants in Argentina have closed down for the time being due to concerns about Covid-19.
SOYBEAN BEAR FACTORS:
- Export inspections were a marketing year low, at 16 million bushels last week, down from more than 21 million the previous week. We’re still 10% ahead of this time last year, but we need to maintain shipments of around 26 million to hit the USDA’s projections for the year.
- There are starting to be more and more doubts about the Chinese hitting their Phase One targets for this crop year. We’ll see if that’s the case, as there are reports that Chinese buyers were in the market late this week, purchasing corn, soybeans, wheat and other commodities at these relatively lower prices.
- Another bearish factor to consider is the decline in demand for bio-diesel due to everything mentioned earlier about gasoline demand declining.
More items to be aware of:
- This week, we began asking our customers and suppliers to further limit their interactions with all of our locations and use phone calls and e-mails whenever possible. Given everything we’re hearing about social distancing and shelter in place, it seems wise to do everything we can to limit contact with each other. So, please take a moment and call the location before just dropping in. We’ll also mail all checks and contracts for the time being. If you have some paperwork to sign and return, please do that as soon as practical by mail.
- USDA’s Prospective Plantings report will be out March 31st. Given everything else that is going on in the world, this will take on even more importance. However, there will undoubtedly be stories about this info being gathered on March 1st, and before all of these significant price reductions on grains.
- Right now, it may tempting to ignore the markets and “HOPE” things have found a bottom. To quote John Maynard Keyes, “markets have a way of staying irrational longer than you can remain solvent.” Just because it feels like we’re at the bottom, it doesn’t mean we are. Stay involved, make prudent decisions. At some point, we will begin to rally, the only question is from where.
- At the end of this week’s podcast, we have an interview with one of our Regional Sales Managers, Kent Klingbeil. Kent talks about tissue sampling and how that can benefit yields. Please tune in for that.
Here is the link to the Bull Bear Banter podcast: https://landuscooperativeexperience.podbean.com/