Weekly Market Recap & Tom's Take May 15, 2020

Corn emergence 2

July corn closed up 1 3/4 Friday, finishing at $3.19 1/4, unchanged from last Friday’s close. December corn closed 1/4 higher at $3.32, down 3 3/4 for the week.

July soybeans closed at $8.38 1/2, up 1 1/2 for the day, but 12 cents lower from last Friday’s close. November beans gained 1 3/4 today, ending at $8.45 1/2, 10 cents lower week-on-week.

This week’s Big Story was the WASDE report issued by the USDA on Tuesday. The Worldwide Agriculture Supply and Demand Estimates were a little bit of good news and some bad news as well. The main message has to do with the Ending Stocks estimates. They estimated Ending Stocks for U.S. corn for both Old Crop and New Crop at levels below the average estimate of the trading companies polled. The bad news is that their estimates for Worldwide ending corn stocks came in above the average estimates from those same companies for both Old Crop and New Crop. 

For soybeans, it’s a little bit different. The USDA estimate for Old Crop U.S. soybeans was well above the average, and at the absolute upper end of the range of estimates. However, for New Crop they are significantly below the average estimate for U.S. soybeans. For Worldwide ending soybean stocks, they made a slight decrease to Old Crop, right in line with the trader’s average estimate, and then also showed a number for New Crop that was quite a bit below the average estimate. The initial reaction Tuesday was a higher close for corn, but then we slid lower Wednesday and Thursday before the rebound today mentioned above. Beans closed lower 3 days in a row before Friday’s slightly higher closes. 

Here is some positive info impacting corn values: 

  • Even though the USDA increased the ending stocks number for U.S. corn to 2.098 billion, up from 2.092 in April, their number was well below what many in the trade expected. The average estimate by traders was 2.225 billion or about 125 million higher than the actual number. 
  • U.S. corn export shipments last week were 52.5 million bu., and above market expectations. Essentially unchanged from the previous week’s 53.1 million bu. and well above last year’s same-week exports of 39.4 million. Corn exports continue to run at a rather solid pace, certainly supporting the USDA’s 1.725 billion bu. projection, having averaged 46 million bu./week for the last 7 weeks.
  • U.S. corn sales last week came in at 42.2 million bu., compared to 30.4 million the week before and 21.8 million during the same time last year. Based on the USDA’s just-raised 1.775 billion bu. export projection, corn sales will need to average roughly 12.5 million bu./week through the end of August vs. last year’s 7.5 million bu./week pace during the last part of the year. 
  • Ethanol production increased another 5 million gallons last week to 181 million. Ethanol usage increased to the highest level in 7 weeks, up 17% from the previous week, and also 73% higher than the all-time low during the week of April 3.
  • U.S. ethanol stocks posted the third consecutive notable weekly decline, falling to 1.016 billion gallons, which is a 60-million-gallon decline. This makes it the largest single-week stocks drop in 31 weeks and follows the previous two weeks’ decline of 30 and 57 million gallons. With the decline over the last three weeks, current stocks are now just 82 million gallons above last year’s same week stocks of 935 million gallons. In fact, the 147 million inventory drop is the largest 3-week combined decline on record.
  • U.S. gasoline demand continues to increase, up 3% last week, and up 39% in 3 weeks. Last week saw an average of 7.398 million barrels per day, up from 6.664 million barrels per day the previous week. 
  • WTI June Crude oil futures are up about $23/barrel since the low set on April 21st at $6.50/barrel.

Negative issues impacting corn include: 

  • The WASDE report for corn confirmed that we should expect Ending Stocks for New Crop to be above 3 billion bushels. While their estimate of 3.318 billion is lower than the average estimate, it’s also 22.4% of expected usage. In other words, if we realize this carry out, we’ll have enough corn leftover to last 80 days at the end of next year. The last time the stocks to use ratio was this high was during the 1992/93 crop year. 
  • The estimate for world-wide ending stocks this year increased 12.5 million metric tons, or almost 500 million bushels. For the coming crop year, it’s up another 25 million metric tons, or a billion bushels. The USDA has the U.S. stocks increasing by 1.22 billion bushels. In other words, U.S. stocks will increase more than the entire increase of world stocks. 
  • On top of that, the demand numbers that they used in the U.S. increase feed demand by 350 million, increase ethanol demand by 250 million, and increase exports by 375 million. That is an increase of nearly one billion bushels in demand from this year. 
  • Similar to last week, even though ethanol production increased, it was still more than 40% below the same week last year, when they produced 309 million gallons. This also equates to using 43 million less bushels than a year ago. 

Issues with a positive impact on soybean values: 

  • The good news from the WASDE for soybeans is the ending stocks for New Crop, as they are estimating 405 million bushels for the U.S., well below the average estimate of 452 million. They also shaved Old Crop ending stocks for the world, expecting just over 100 million metric tons. Their estimate for New Crop ending stocks drops to 98.4 million. 
  • Earlier this week, there was a news story quoting the CEO of ADM with regard to Chinese soybean purchases. While he acknowledged the rift between China and our President, he also reminded people that it is a two-year agreement. He also said that it appears that Chines purchases for September through January, typically the peak export period for U.S. soy, remain "completely open”. So, we’d have to expect that they have nowhere else to buy their beans than the U.S. for shipment during and immediately after Harvest. 
  • US soybean sales last week were 24.1 million bu., meeting market expectations and holding steady with sales from the previous week. The last 3 weeks have averaged 29.2 million bu./week in sales compared to 5.1 million bu./week last year during the same time frame. 
  • The May NOPA report today came out today, showing 171.75 million bushels of beans crushed by NOPA processors during April. That was 1.27 million bu. above the average estimate, and a new record for the month of April.

Negatives to soybean values include: 

  • The real problem was the 100 million bushel decrease in export estimates for this year. This 100 million went right to the bottom line, as ending stocks are now expected at 580 million, up from 480 million in April’s data. 
  • Actual shipments last week, at 18.2 million bushels, were up from the previous week, but below the same week last year. The past 5 weeks of the shipment have averaged about 18 million bushels, remaining below the level needed to reach the USDA’s 2020 projections. 
  • The May WASDE also continues to use 83.5 million planted acres. There is quite a bit of speculation that this number is too low, with some saying the number will eventually be closer to 85 million. We’ll see how that changes in coming months. 

Tom’s Take:

Earlier this week, I was reminded of a book I once read called “Good to Great”. I was reminded because I saw a recent video featuring the author, Jim Collins. His topic was what he has called the “Stockdale Paradox”, as first related in his book. His reason for making the video was to give some context to the current Covid-19 situation facing all of us. He relates what he learned from Admiral James Stockdale about his 8-year imprisonment in a Vietnamese Prisoner of War camp. He once asked the Admiral about the people that didn’t survive the ordeal, and the answer surprised him because the Admiral said it was the optimists; the ones that said, “we’ll be out of here by Christmas” and then Christmas would come and go, and the next year they would say the same thing “we’ll be out of here by Christmas”. He says they finally died of a broken heart, as they never reached a goal that was truly outside of their control to reach. Admiral Stockdale went on to say that for him to survive, and eventually thrive, he always retained his faith that, in the end, he would prevail, but he also had to confront the brutal facts as they were, not as he wished them to be. Jim Collins is comparing the current international Covid-19 situation to a “Stockdale Moment” and encouraging all of us to retain faith that we will prevail at some point, but in order to do that, we must confront the brutal facts as they are. 

I couldn’t help but think of the current situation in the U.S. for agriculture. We certainly have some brutal facts to confront. I don’t think it’s realistic to think the markets will make a miraculous recovery by the 4th of July, or perhaps even by Christmas, given the recent WASDE information. So, I’ll leave you with the questions that Jim Collins leaves at the end of the video… “do you have faith that you will prevail?” “are you confronting the brutal facts as they are today?” I have found myself too often hopeful that we’ll get a little rally here and add 15 to 20 cents to this corn price, and then another week goes by, and then another month. Do you realize that the 4th of July is only 7 weeks away? Will I/you/we still be sitting here hoping for another 15 to 20 cents then? Or will we confront the brutal facts, finalize Old Crop marketing and move on to New Crop? If you want to watch the video, here is the link: https://www.youtube.com/watch?v=GvWWO7F9kQY. It’s well worth the 6 minutes it will take you to watch it. Tom Guinan

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Have a GREAT weekend!