This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The progress on trade with China and the May USDA report were bullish on Monday. The fast planting progress reported on Monday afternoon weighed on the corn market. Weekly ethanol production report out on Wednesday was not bullish so did not bring buyers back to the corn market either. Ethanol production declined more than expected and fell to a 53 week low. We usually see a seasonal decline in production this time of year as grain movement slows, but this drop was more than the market was expecting. Despite the decline in production, ethanol stocks increased this week. Gasoline demand rebounded which is good for long term ethanol demand but the whole report is concerning. One week does not make a trend but it is something the market will be watching even more closely next week.
Corn exports were off the charts again this week. Total export commitments this year are up 28% from last year (year to date) and some thought it would be difficult to achieve last year’s level again. USDA increased their export projection again on Monday’s report but even their increased number is only 13% higher than last year. We still have three and a half months left in the marketing year. We only need to average 3 million bushels per week from here to reach USDA’s new target. For perspective, this week’s new commitments were 66 million bushels and last weeks were 65 million bushels. The US has the only available corn in the world right now. Brazil uses almost all of their first crop corn domestically so will not have corn available to export until the second crop is harvested and moved to their ports, probably sometime in August. That still gives the US two and a half months with the price advantage. USDA is too conservative on their export projection but we may lose some feed demand to wheat and there is a chance ethanol continues to slow. All in all we do expect old crop to tighten up a bit still. You would not think that after watching the old crop corn contract trade this week as it traded down to even with the new crop. Since the new crop is going in the ground so fast and there is no immediate threat to production, the old crop contract is trading more in unison with new crop. If/when we see some kind of threat to production, the old crop should trade much higher than new crop in case some rationing is needed.
Soybeans traded higher most of the week digesting the China news and USDA report. Exports for soybeans were respectable for this time of year when South America dominates the world market. On Thursday, soybeans gave back a lot of those gains and were pulled down by a crash in soybean oil which closed limit down. There were rumors of a less friendly biofuel policy coming out of Washington. No firm news, just rumors that built momentum to the downside. We are still a few months away from the 45Z guidance but today was a good reminder that we are all now living by the whim of the government. The NOPA crush report was also out Thursday and April’s monthly crush blew the old April record out of the water but the government rumor was all that mattered.
Drought monitor was also out on Thursday showing drought creeping back up in major corn production areas of the US. The crop will be in the ground soon we will then be trading just weather and condition ratings for a while. The market has taken the weather premium out of the price so it will have to react quickly if there is a threat. We need to be ready to sell on that rally.