This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
On Monday we got more data and news than we were able to process in one day. The US Treasury Secretary met with a Chinese delegation in Switzerland over the weekend. What was expected was just the first meeting and hopefully some progress in backing down from tariffs so high they amounted to a total trade embargo. Leading up to the meeting, the Chinese had been saying they were going to fight to the death if they were not treated like equals. To most people’s surprise, the Trump Administration Sunday night announced that a deal had been reached. As more details came out, it was not a comprehensive trade deal but still a huge step forward. What was agreed was a 90 day pause in the bulk of the tariffs (they will drop from 145% to 30%) for goods coming from China and goods going to China will only be subject to a 10% tariff. Initially at the overnight open, soybeans gapped higher on the news a deal had been reached. As the day trade wore on, beans fell back close to unchanged when it became known that it was more of a pause in the trade war to negotiate a deal rather than a comprehensive deal. I do not mean to downplay the significance since Friday we basically had a full trade embargo with China and now we do not, but just that does not make more soybeans go to China. US beans are 70 cents higher than Brazilian beans landed in China right now even before any tariffs, so they are not going to be buying US beans today. Equity markets soared higher and crude was also higher as the market perceived a lower chance of a US recession now but this first step did not create any new bean demand so that is why soybeans gave back most of their gains.
Then at noon on Monday we got USDA’s updated supply and demand estimates. The May report is the first one we see the full new crop balance sheets and they also update the demand side of the old crop balance sheets as well. An increase in demand for old crop means less bushels to carry in to the next year and will come out of that carryout as well. This report had plenty of feed for the bulls as both corn and bean carryouts came out at the low end of the range. For soybeans, USDA raised soybean old crop exports by 25 million bushels which pulled old crop carryout down below where the market was expecting. They were pretty optimistic on new crop demand compared to what the market was expecting as well and new crop carryout came out 80 million bushels below the average expectations. That was enough to get the market to rally again and beans closed near the highs on Monday.
For corn, USDA raised old crop exports by 50 million bushels which was long overdue based on the export pace we have been achieving. On the new crop demand, they increased feed and exports from this year and left ethanol the same. A lot of analysts have questioned how we are going to export more next year with such a big second crop corn coming in Brazil, but these are the numbers we are going to trade now until they are changed. Historically USDA has been slow to adjust the new crop demand numbers through the growing season unless we see a dramatic change in price or world situation. There have not been many things farmers can thank USDA for on a crop report, but this is certainly one. So that took old crop carryout to 1.4 billion bushels and new crop carryout to 1.8 billion when the market had expected at or above 2 billion for new crop. That was a good bullish report for corn. Price action in the wheat weighed on the corn market and it was not able to get much of a positive close.
After the close on Monday, USDA released the weekly crop progress report. Corn planting was reported at 62% complete compared to 60% expected, 40% last week. That was way ahead of the 47% last year and 56% on average. Soybean planting was estimated at 48% complete compared to 47% expected advancing from 30% last week. Last year we were only 34% and average for this week is only 37%. Feed for the bears right now is this rapid planting pace. The crop is harder to kill when it is planted early but we still have a lot of growing season left. The numbers USDA gave us Monday show that there is very very little room in the balance sheet for any weather problem. The funds have sold out of almost all their long position in corn and beans and will quickly turn back long on a weather issue. Meteorologists are pointing to increased chances of threats but we need to see those in the forecast runs before the market will react.