This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.
The driest areas of the Midwest have gotten rains this week. Not enough to break the drought, but it bought the crop some time. The weather has been near ideal for much of the corn belt and the forecasts for the rest of the month look non threatening. With all the bearishness in the market and the fund selling, it is really a testament of strength that the markets have held support levels and are not trading even lower. It seems a lot of the negative has been priced in now. There are some hints in the weather models of a high pressure ridge building over the western corn belt, but nothing concrete enough for the market to react to. Brazilian second crop corn estimates are also moving higher as their harvest progresses. It will still be some time before they will be able to export corn, but offers out of Brazil August forward are now cheaper than the US. We have been the cheapest corn in the world for quite some time until now. Total corn export commitments for the year now total 2.564 billion bushels (up 27% from last year) which has basically already reached USDA’s 2.600 billion bushel estimate for the entire year. So any additional sales we make from now until Brazilian corn is competitive (probably August) will come off the old crop carryout. That could really change the math on the old crop corn.
The weekly ethanol report contained a bullish surprise this week as well. Ethanol production was higher than expected jumping to an 11 week high. There has been an increase of sorghum usage for ethanol, but we are still well above the pace needed to reach USDA’s estimate which could further trim old crop corn carryout.
Tightening the old crop corn carryout does not matter until it does. As long as there is no threat to the new crop, the market is going to discount what is happening in the old crop. If there is any kind of weather scare and we start shrinking the new crop the market will start to care very much. You will see old crop contract trade back to an inverse relative to the new crop ones.
The soybean market was the leader to the upside Thursday and that was in some part due to the news that Trump and the Chinese President had spoken by phone. The news was first broken by Chinese media who said that Trump had called Xi and the lack of confirmation by the US side caused some concern. Trump did later confirm the call and said very good progress was made and there would be high level meetings to continue progress.
We get USDA’s June Supply and Demand update next Thursday, June 12th, at noon. We are not looking for anything on that report to feed the bulls. I do not wish ill on anyone, but we need a weather scare ASAP. With the funds loaded on the short side a scare is all it would take to get a major reaction from the market. We could really use some positive guidance on biofuels of which we have gotten very little from the new administration. The crop is planted which is a big checkmark for production. As we approach July, we will have pollination in our sights which is the next big checkmark. We have the June 30th planted acreage report at the end of the month as well which will probably not be bullish. The crop is not in the bin yet, but we are marching closer each day. We need a spark and we need it soon.