Ahead of the Open | May 25, 2021
GRAIN CALLS
Corn: Down 1 to 4 cents.
Soybeans: Up 6 to 11 cents.
Wheat: Steady to up 7 cents.
GENERAL COMMENTS: Soybeans rose for the first time in six sessions while wheat recovered from a one-month low touched on Monday. Corn is struggling to follow, reflecting some increase in unwinding of long corn positions spread against both soybeans and wheat. The Midwest forecast is non-threatening, but arid weather conditions will hold across the Northern Plains and the Canadian Prairies into early June. The drought here will deepen with the recent rains only providing temporary relief. Until weather become more threatening, rallies may be limited until the June 30 USDA acreage update and any fresh Chinese buying.
Before the reopening this morning, USDA did not announce any new private exporter sales for a third session after a string of large corn sales announcements to China.
More traders are looking for a large increase in final corn plantings and just a small increase in soybeans from USDA’s initial forecast because of corn’s outperformance earlier this year relative to soybeans. Crop consultant Dr. Michael Cordonnier expects U.S. producers to plant between 93 million and 94 million acres to corn this season up from the 91.1 million acres projected in the USDA March 31 Prospective Plantings Report. Cordonnier expects U.S. farmers to plant between 87 million and 88 million acres to soybeans, compared with 87.6 million USDA estimated in March.
On Monday, USDA estimated U.S. farmers had planted 90% of their intended corn acres as of Sunday, up from 80% a week earlier and ahead of the five-year average for this time of year which is also 80%. Soybean planting was 75% complete by Sunday, the USDA said, up from 61% a week earlier. The figure was behind the average analyst estimate of 80% but ahead of the five-year average of 54%.
The USDA rated 47% of the U.S. winter wheat crop in good-to-excellent condition, down 1 percentage point from the previous week, defying the average analyst expectation for a two-point improvement. The USDA's first spring wheat condition ratings of the season pegged 45% of the crop as “good” and “excellent,” the lowest initial crop conditions rating. Conditions in the northern U.S. Plains spring wheat belt have been dry. The latest weekly U.S. Drought Monitor, prepared by a consortium of climatologists, showed 85% of North Dakota, the top spring wheat producer, in extreme drought as of May 18.
The dollar hit 4-1/2-month lows against a basket of peers on Tuesday, as insistence from the U.S. Federal Reserve that policy would stay pat calmed fears about inflation forcing rates higher, while China's yuan strengthened past 6.4 to the dollar. China's major state-owned banks were seen buying U.S. dollars at around 6.4 yuan per dollar on Tuesday in Asia, sources said, in a move viewed as an effort to curb fast yuan appreciation to breach the key level. Investors are heavily short dollars in the belief that low U.S. rates will drive cash abroad as the world recovers from the pandemic. U.S. stock futures got a boost as Fed officials continued to play down the risk of persistent inflation. Shares in other parts of the globe were also happily in the green.
Ocean temperatures off the west coast of North America have been bouncing around this spring. Cooling was noted during the late winter and then a period of warming occurred in April and now the ocean water is cooling once again. The reason for a close monitoring of the water temperatures is because of the potential for further intensification in the negative phase of Pacific Decadal Oscillation (PDO). Many forecasters and commodity traders are closely monitoring the potential evolution of PDO because of its possible influence on summer high pressure systems in the middle of North America. If PDO becomes strongly negative, the ridge will drift farther to the east raising temperatures in the western Corn Belt and shutting down the northwesterly wind flow pattern aloft from eastern parts of Canada’s Prairies into the northwestern and westcentral Corn Belt. This is one of the primary reasons why some forecasters are predicting a potential warm, dry summer in the U.S. after the recent weeks of favorable rainfall.
China will strengthen price controls on iron ore, copper, corn and other major commodities in its 14th five-year plan for 2021 to 2025 to address abnormal fluctuations in prices, the state planner said on Tuesday. The country will also step-up monitoring and analysis of commodity prices such as crude oil, natural gas and soybean, the National Development and Reform Commission (NDRC) said in a statement. The NDRC also said authorities would "reasonably adjust cotton target price levels" and stick to the country's minimum purchase price policy framework for rice and wheat, it said. One means of battling wild price fluctuations would be maintaining large government-controlled reserves of store of key goods such as corn, wheat, and rice. The government buys these grains from farmers at a minimum price when the market drops below that level. But now it looks like they will be importing large quantities to rebuild government stockpiles. Premier Li Keqiang also said on Monday that the government will strive to prevent rising commodity prices being passed on to consumers.
Cargill Inc., the commodity superpower that’s the largest private U.S. company, is emerging as one of the biggest winners of the boom in global agricultural markets as it barrels toward its most profitable year ever in its 156-year run, according to Bloomberg. The company made almost $4.3 billion in net income during the first nine months of its fiscal year, according to data released by the trading house to tap the bond market. That figure already surpasses its best ever total annual profit.
CORN: Corn futures opened higher last night but retreated into the morning break. A close outside of last week’s range of $6.33 to $6.71 1/4 in July corn and $5.20 3/4 to $5.50 3/4 in December futures will set the near-term prices direction Look for underlying support from tightening the underlying supply-and-demand fundamentals. Cordonnier lowered his Brazilian corn crop estimate by 2 MMT, dropping his crop estimate to 95 MMT. Safrinha corn areas received variable precipitation over the weekend. “The rainfall was beneficial for some of the latest planted corn, but it came too late for much of the safrinha corn that had not received a rain for 40-50-60 days. It will probably be enough to keep the crop from experiencing the ‘worst case scenario’ of 85 MMT, Cordonnier says
SOYBEANS: July beans are leading higher. The bull spread strengthening reflects the tight supply story ahead of the U.S. harvest. The world vegoil markets are rebounding and providing additional support to the soybean market’s rebound away from support at the April lows. Malaysian palm oil prices jumped 3.5% overnight, snapping a four-session decline on Tuesday. Dalian soyoil futures and palm oil futures both gained 1.4% in China overnight.
WHEAT: Wheat futures are trying to rebound. World buyers are starting to nibble on extending forward coverage, but more will be needed to support the wheat market. Egypt’s GASC yesterday bought 240,000 MT of wheat for August shipment, all coming from Romania. Japan is seeking 125,000 MT of milling wheat in their regular weekly tender, including 64,0000 MT from the U.S. and 61,000 MT from Canada. Algeria has issued an international tender for a nominal 50,000 MT of durum wheat for July shipment. Meanwhile, good soil moisture has many analysts calling for a bumper Australian wheat crop this season. Rains leading up to the April/May planting season were widespread, priming soils for a good start. And the country’s weather bureau says there are 80% odds of above-average rainfall for New South Wales and South Australia over the next three months. Western Australia, the country’s biggest producing state, is expected to receive average rainfall.
CATTLE: Steady to firm
HOGS: Steady to firm
USDA’s monthly Cold Storage Report showed there were 453.6 million lbs. of beef in frozen storage at the end of April, a 29.4-million-lb. (6.1%) month-to-month drop and a much more aggressive drawdown than the 11.4-million-lb. retreat over the past five years. Beef stocks came in 25.8 million lbs. (5.4%) lighter than last year at this time and 7.8 million lbs. (1.7%) under the five-year average. Frozen pork stocks climbed 4.2 million lbs. (0.9%) from March to 455.3 million lbs. at the end of April, which was just a fifth of the usual 19.9-million-lb. build during April over the past five years. Pork stocks were 25.5% (156.0 million lbs.) under year-ago levels and 163.8 million lbs. (26.5%) under the five-year average. The pork and beef stocks numbers both speak to pent-up consumer demand as Covid-related restrictions ease. Total red meat stocks stood at 940.6 million lbs., a 17.3% retreat from year-ago and a 2.8% dip from March 31. Total frozen poultry stocks were down 19.7% from year-ago levels. Chicken stocks were 22.4% under year-ago levels.
CATTLE: Cash cattle traded at an average price of $119.72 last week, basically unchanged from the week prior and a few bucks above June futures. Early expectations are for more of the same this week, but the market has shown little initial interest in aligning the cash market with futures. The market was encouraged by last week’s uptick in processing, but several more weeks of strong tallies will likely be needed reduce the supply of market-ready supplies and support higher cash cattle prices. Boxed beef values climbed $1.08 (Select) to $2.66 (Choice) to start the week, but movement was light at 99 loads.
HOGS: The pork cutout value climbed $1.35 to start the week, which was well off morning trade that shot the pork cutout $7.43 higher. Movement was lackluster at 226.95 loads. Cash hog bids climbed an average of $2.51 nationally to start the week and lend support to the futures to begin trading this morning.
