This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Rains in the Midwest have shrunk the area of drought in the US. Only 20% of US corn production area is currently experiencing drought conditions. That is dramatically lower than the 60% of corn production areas in drought when it reached the peak on March 4th. Corn and beans are rapidly going in the ground in much improved conditions. Rapid planting progress historically has meant more corn acres than what was reported on planting intentions. USDA estimated 95.3 million acres of corn were intended this year which is almost 5 million acres above last year so adding more acres on top of that would mark a very significant shift. The weather is supporting more corn acres and the price ratio between corn and beans is also incentivizing farmers to plant more corn. This makes me very wary of the June 30th Planted Acreage report for corn. On the flip side, the additional corn acres will come at the expense of beans. That would support the bean market, assuming we make some kind of progress with China. Right now the market is not pricing in the trade embargo with China to last through harvest.
The area of drought in the US has dropped significantly but there are still long term weather threats. There is a lot of growing season ahead and the long term models still show some significant production areas turning hot and dry. However the long term models are very unreliable especially going through the transition period of spring where the atmospheric flows are shifting. Many meteorologists point to increased probability of weather threats this summer but that is far from a guarantee. The market has very little weather premium priced in the market but no one is going to feel pressure to bid a weather premium in the market until we see an actual concrete weather threat. Weather for the second crop corn in Brazil also continues to be non-threatening as well. Majority of the corn has pollinated under decent conditions. The models point to a drying in some of the growing regions but that is expected this time of year as the monsoonal rains taper off going into the dry season.
Planting progress and outside market pressure has put the bulk of the selling pressure on the ag markets this week. Wheat came under a lot of selling pressure as good general soaking rains covered most of the Plains which will greatly benefit the wheat crop there. Pressure on wheat spilled over into corn as the corn wheat spread has narrowed and will push some wheat into the feed channel displacing corn. Ag markets had been more insulated from outside market jitters but in the last few weeks we have seen fund money coming back into the ag space so that has made us a little less insulated. Some of the selling this week had the feel of fund liquidation but we will have to wait for the commitment of traders report that comes out this afternoon to confirm.
The news was not all bad this week. Exports on corn remain very strong and we saw several flash sales. Soybean exports have been slowing but that is expected this time of year and exports were solidly within expectations and comparable to last year’s sales this week. Total commitments for soybeans remain more than 13% above last year’s despite the turmoil on trade. Wheat sales were low but within expectations and at least positive. Soybean meal sales were at an 11 week high. Ethanol production saw another bump higher and set a record for late April. Typically this is when ethanol production hits the low for the year when many plants take downtime. Ethanol stocks also dropped from last week showing very robust demand. The EPA just issued a waiver for E-15 through the summer for some states. This has become somewhat routine but in the world we live in right now you cannot take anything for granted.
Market will continue to watch planting pace, weather forecasts and outside markets.