• Chicago ag futures at midday are weaker as US ethanol production declined to a fresh low amid record large stocks while fund sell stops were triggered as Chicago July wheat fell below the 50-day moving average at $5.395. A close below the 50 day moving average will spark additional fund selling with seasonal price trends bearish into May. Soybeans have traded both sides of unchanged with meal bouncing after scoring fresh contract lows yesterday.

• US soymeal end users are extending forward coverage amid the fear of reduced DDG production as 45-50% of the US ethanol industry closes. The lack of DDG production will cause livestock producers to feed a growing combination of corn/soymeal in feed rations. Moreover, US soybean crush is starting to fade with margins in sharp decline. The falling crush pace will tighten future Central US soymeal availability.

• Research looks for a continued Chicago slide with limited demand interest to spark a rally. US exporters report that world trade demand is focused on Latin America for soybeans and for corn from June onward, while fresh curtailment of US ethanol production is ongoing. A weak Chicago close is expected.

• Chicago brokers estimate that funds have sold 5,900 contracts of wheat, 5,600 contracts of corn, and 2,400 contracts of soybeans. In soy products, funds have bought 2,300 contracts of meal while being sellers of 1,200 contracts of soyoil. Funds were active sellers of 4,300 contracts of soyoil early and bought an estimated 2,900 contracts back following the NOPA estimate.

• NOPA forecast that US soy processors crushed a record 181.4 million bu of soybeans as soymeal/margins rallied during March. The crush rate was well above the 166.3 million bu of February and 170.0 million bu last year. NOPA member soyoil stocks at 1,899 million pounds were less than the trade expected above 2,050 million pounds. The NOPA data sparked a bounce in Chicago soybean futures, but with plants dramatically slowing their April run rates, one must be careful in raising their annual US soybean crush forecast. US crush margins have declined sharply in the past 3 weeks with amid deeply red livestock feeding margins.

• EIA reported that a greater than expected decline in US ethanol weekly production of168 million gallons per week vs 198 million in the week prior. The precipitous production decline suggests that 45% of the US ethanol industry is off line with an additional 5% to come off line weeks to come. By the end of April some 50% of the US ethanol industry will be shuttered or just over 8 billion barrels of production. We would note that the annual mandate for US ethanol production is also being lower by the 40-45% reduction in miles driven. US ethanol stocks reached a new record high of 1,155 million gallons, up 21% from last year which is an estimated 90% of plant capacity.

• June Chicago ethanol futures have crawled back to at $.98/gallon amid plant shut downs which is aiding industry margins, but hurting blending margins with RBOB gasoline some $.44/gallon cheaper than ethanol. WTI crude oil futures are trading below $20/barrel on the economic demand destruction via Covid-19.

• The midday GFS weather forecast is like the overnight EU weather model run. Cold temperatures in the next few days will transition to much warmer readings on the weekend will rainfall being near to below normal for the Midwest. Snows are melting across IL/WI with the weekend starting a lengthy period of temperature moderation.

• New US export demand or a wet spring weather scare is needed to spark anything more than a modest Chicago bounce. Rain for key areas of the Black Sea will spark fund liquidation and a decline into early May. The nearby May corn downside price target sits at $3.00. Demand is being destroyed via Covid-19 and sliding world energy valuations. Next week Midwest farmers should become active in seeding corn/soybean/spring wheat.

• In the UK, wheat markets are staring at a deficit for the coming year, which leads to markets trading at import parity. Deficit regions of the country will likely face increased premiums depending upon local demand when compared to supplies. Subdued fuel demand due to the coronavirus lockdown has limited current demand driven premiums emanating from ethanol production (Ensus) although this is not a guaranteed situation going forward. Availability of alternative feed wheat substitutes (barley, maize) will also affect market prices in coming months. Monitoring imported grain prices will be extremely important going forward given the significant impact they will have on domestic grain values.

• Chicago ag futures at midday are weaker as global financial markets drift lower for a second consecutive day. Crude’s reaction to the recently announced cut to OPEC production remains non-existent. And the IMF in its updated world economic outlook painted a bleak picture for growth and consumer spending in 2021. Throughout the spread and impact of Covid-19 there just hasn’t been much offsetting bullish commodity input.

• The IMF this morning  projects the global economy in 2020 to contract by 3%. This compares to its October 2019 outlook which projected the world economy to grow by 3.4%. Advanced economies are expected to contract a massive 6% in 2020, with emerging markets projected to contract 1%. Meat markets will face product shortages as bottlenecks are triggered via lowered capacity. But unemployment and the loss of per-capita income/spending will on the margin weigh on total food consumption into late year. IMF does foresee a quick recovery in the global economy in 2021 (5.8% growth) but only if Covid-19 is properly contained.

• Egypt’s GASC via its Monday tender secured two cargoes of Russian wheat for delivery between May 15-June 5. Egypt paid an average fob price of $242/mt, the highest in 14-month and which includes a decent premium over fob quotes Monday evening due to logistical risks. Yet, a larger purchase was anticipated after Egypt stated it would resume imports during its local harvest to boost strategic reserves. We would highlight that, as of now, new crop wheat out of Russia and Europe is offered $24-30/mt below spot offers. This will limit additional importer interest in wheat for May-Jun arrival.

• The Black Sea’s two-week forecast is consistent with prior runs and features a much more progressive pattern of precipitation into the final days of April. There is only one single major precipitation event forecast through the period, but rather a pattern of light/steady rain will trigger cumulative two-week totals of 1.0-1.8″ across key oblasts in the South, Central and Volga Regions. This is well above normal for the second half of April in Ukraine and Russia.

• It is estimated that managed funds this morning were long a net 30,000 contracts of Chicago wheat. There is a risk of speedy liquidation if regular rainfall materialises in the Black Sea and continues into May. Wheat’s longer term outlook hinges almost entirely on the EU/Black Sea weather into early May.

• Updated EU model weekly guidance also features normal/above normal rainfall across some 70% of Brazil’s safrinha corn belt into April 27. Total corn production potential in Brazil has stabilised at 99-100 million mt following recent and needed precipitation in Parana and Mato Grosso do Sul.

• Spot ethanol futures have crawled back to at $.96/gallon, basis spot. However, Futures-based production and blending margins remain deeply negative. We expect the EIA’s data Wednesday morning to show another cut in weekly production to 185-190 million gallons vs. 198 million the prior week and vs. 299 million in late April a year ago. Additional declines in US corn consumption lie ahead.

• The midday GFS weather forecast is similar to the morning run. Winter-like temperatures this week transition to normal/above normal level readings next week. Light snow will impact a narrow band stretching from N MO to NOH in the next 72 hours. This will melt quickly as temperatures rise. The GFS forecast also maintains the potential for heavy rainfall across IL, IN and OH next Wed-Fri, but the EU and Canadian models are much drier next week. The return of abnormal cold is unlikely beyond this week.

• Weather premium is being extracted from the KC wheat market. IMF data suggests 2020′s economic recovery will be a drawn-out affair.

• The USDA’s April Crop Report held slightly bearish surprises for corn/wheat, while being neutral for soybeans. However, macro/financial forces via a rise in crude oil (20 billion barrel/day OPEC/Russian cut) along with the massive monetary stimulus provided by the US Central Bank has produced a supportive Chicago tailwind. A US$ drop has sparked fund managers to be post report buyers. We forecast a firm/mixed close, but we doubt that any end user will chase the rally. Until corn/soybean seed enters the ground in an abundant fashion, xc xb is likely to stay rangebound.

• WASDE elevated 2010/20 US corn end stocks to 2,092 million bu (gain of 200 million) with farmgate prices falling $0.20/bu to $3.60. WASDE raised US corn 2019/20 corn feed/residual use rates by 150 million bu based on the March Stocks data which reflected stronger than expected quarterly feed consumption. However, WASDE also cut US ethanol use by an unprecedented 375 million bu to 5,050 million bu due to stay at home orders and a 43-47% decline in unleaded gasoline consumption. US 2019/20 corn exports were left unchanged at 1,725 million bu.

• Research argues for a further 100 million bu drop in US corn ethanol grind to 4,950 million bu and a 50 million bu cut in US corn exports to 1,675 million.

• Latest research is not willing to embrace the USDA 2019/20 feed/residual use forecast with livestock feeding profitably declining sharply in the post Covid-19 landscape. The outlook is for a further rise in 2019/20 US corn stocks and an additional lowering of the farmgate price to $3.50/bu.

• WASDE raised 2019/20 world corn end stocks to 303.2 million mt, a gain of 6 million mt from March. Such stocks are down only 17 million mt from last year. The 2020 Brazilian corn harvest was left unchanged at 101.0 million mt with Argentina at 50.0 million. Both crops would argue for US export challenges beyond May. China’s corn imports were left unchanged at 7.0 million mt, which meets its WTO entry obligation.

• US 2019/20 soybean end stocks were raised by 55 million bu to a more adequate 480 million bu with a 50 million bu cut in exports to 1,775 million bu with the residual dropping 24 million to just 5 million bu. The average farmgate price was lowered to $8.65. Research argues that WASDE is still 50-75 million bu too high with its 2019/20 US soybean export estimate amid pace analysis. A further hike in US soybean old crop stocks is forecast to 530-555 million bu. Such stocks will cap rallies in July soybeans at $8.85-9.00 without adverse US weather threats.

• World 2019/20 soybean end stocks fell to 100.5 million mt, a decline of 2.5 million. The Brazilian soybean crop was lowered by 1.5 million mt to 124.5 million, while the Argentine soybean crop fell by 2.0 million to 52.0 million mt. The fall of 3.5 million mt of S American soybean production is seen as supportive to the complex. We look for another 1.5 million mt in Brazil and 500,000 mt for Argentina.

• The US wheat balance sheet was loosened slightly from March. The USDA slashed feed use 15 million bu to 135 million followed weaker than expected feed/residual disappearance in the Dec-Feb quarter. The recent plunge in cash corn prices across the Plains will also weigh on wheat feeding into summer.

• US wheat exports were lowered following a slowing of world trade and cheaper EU/Black Sea offers through the duration of the old crop marketing year. US all wheat stocks were lifted to 970 million bu, vs. 940 million previously. Old crop US HRW Stocks were raised 19 million bu to 503 million. HRW stocks will decline in 2020 but will remain more than abundant with normal weather.

• Global wheat stocks were raised 5.6 million mt to a new record 292.8 million mt. World stocks less China were raised 3.5 million mt from March to 142.4 million. The primary theme in USDA’s updated global numbers is lower than expected feed use. Feed use was cut in China and Europe, while total Indian domestic use was lowered 1.9 million mt. 2019/20 world wheat trade was lowered 0.9 million mt. Black Sea weather remains priority number one longer term, but there is no shortage of wheat currently.

• The USDA’s April WASDE lacked market-moving data, but rather better quantified the pace of soybean and wheat exports to date as well as accounted for the recent collapse in biofuel margins. Oversupply will be the dominant theme in 2020 with normal weather.

• Dull and mixed is the midday Chicago trade with corn and soybean weaker with wheat values trading mostly higher. Trading volume is diminished ahead of the USDA April WADSE report due tomorrow morning at 11:00 CT. The market has a negative feel following the weekly EIA report that was bearish for corn. We look for a mixed Chicago close with the bears needing to see corn/soybean seed in the ground before the next bear leg unfolds. In coming weeks, corn will be the bear leader while wheat will be the bull stalwart with beans caught in between.

• US stock market values soared after it was announced that Bernie Sanders has dropped out as a US Democratic Presidential contender. The news caused a relief rally as Biden is the lone Democratic remaining candidate to challenge US President Trump. It is now a Trump/Biden race to the November Presidential election. The S&P 500 is again testing the 50% retracement level of 2,800.

• Chicago brokers estimate that funds have sold 3,400 contracts of corn, 1,300 contracts of wheat, and 2,200 contracts of soybeans. In the products, funds have sold 1,400 contracts of soymeal and bought 1,800 soyoil. Funds have been modest sellers. Chicago lacks a strong buyer on a scale down basis.

• The ethanol margin problems are not focused only on the US. The EU consumes 6.5-7.0 million mt of corn and 4.5-5.0 million mt of wheat for ethanol each year. The dramatic decline in gasoline and jet fuel demand has caused EU ethanol plants to shut. It is estimated that EU ethanol use of corn will decline 2-2.5 million mt and upwards of 1-1.4 million mt of wheat before the end of the old crop year. This adds to feed availability across the EU which is pressuring values.

• Brazil consumes 6.5-7.0 million mt of corn for ethanol annually. Amid historically strong cash corn prices due to the weakening of the Eeal, Brazilian ethanol plants are closing and selling their stored and future booked supply back into the domestic market. If crude oil prices stay below $30.00, Brazilian domestic corn consumption could decline 3-3.5 million mt with the supply available for export.

• Weekly US ethanol production declined to its lowest level since June of 2010. A deeper decline is forecast as plant storage capacity is strained. US ethanol stocks are record large and rising amid stay at home orders and reduced gasoline consumption.

• US ethanol mandates are based on a percentage of US gasoline consumption with a target/cap at 15.0 billion gallons annually. Most just remember the 15 billion gallon target and assume that Americans will drive the same or more miles each year. The current 43% decline in weekly US unleaded gasoline consumption impacts the mandate. Therefore, it is important to follow unleaded demand weekly and annually.

• The Midday GFS weather forecast is like the overnight run with near normal rain and a cooler temperature trend starting Friday. A deep Low-Pressure Vortex that pushes southward across the Central US during the Easter weekend. Temperatures next week will average 6-18 degrees below normal with frost likely across the C Plains. The 11-15 day forecast is warmer, but below normal temperatures will prevail. The W Midwest looks to seed spring crops during the last half of April.

• Until a large amount Midwest corn/soybean seed enters the soil, Chicago will be choppy. Wheat price direction hinges on Black Sea weather while soybeans await Chinese demand.

• Midday Chicago values are mixed in better volume with short covering the feature in corn/soybeans with funds reducing some of their market risk in long wheat ahead of Thursday’s USDA April Crop report and the coming 3-day weekend. A mixed Chicago close is forecast following the midday trend. Traders do not want to chase strength or weakness until Midwest corn/soy seed is planted in abundance. Choppiness appears to be this week’s price trend.

• US equity values have soared as traders are hopeful that the EU apex in Covid-19 infections has passed. The US may have a couple of tough weeks ahead, but traders hope that some percentage of the US economy can get back to work during early May. The S&P has nearly reached 2,800 resistance, a 50% recovery of the recent decline. The 2-day S&P gain of over 10% in the world financial markets has produced a mentality of buying breaks in raw material markets. This is most evidenced in CME livestock which are limit up bid.

• Chicago brokers estimate that funds have bought 5,400 contracts of corn and 1,300 contracts of soybeans, while selling 1,200 contracts of wheat. In the products, funds have sold 1,400 contracts of soymeal and bought 1,800 soyoil.

• CME livestock futures are limit bid with extreme volatility persisting. There have been few trading days in the past 3 weeks when cattle/hogs/feeders did not have limit move. The industry is trying to unravel the bearish/bullish influence of a collapse of food service demand and its shift to the grocery sector. The grocery supply chain was not prepared to handle the sheer size of meat that is moving. We look for continued extreme CME meat market volatility as the industry adjusts to a dramatic shift in consumer demand and its impact on packer margins and the entire chain. And US packers must keep their deboning lines operating with human spacing of at least 6 feet.

• The US’s largest US ethanol producer, Poet, announced that they are idling 4 plants that consume 110 million bu  of corn annually. The monthly grind reduction will be just over 9 million bu. We estimate that some 24% of US ethanol production is now offline with other plants slowing their daily run rates.

• With US unleaded gasoline consumption declining 47%, we estimate that the US corn ethanol industry must idle at least 35% of their plants to bring production and consumption into balance. Additional plant closures are expected in coming weeks that could torpedo the 2019/20 US corn ethanol grind by 350-450 million bu. USDA will likely be conservative in projecting a decline of 200-250 million bu of 2019/20 grind in Thursday’s WASDE report.

• WTI crude oil prices have slipped into the red at midday as doubt is being seeded that Russia/OPEC will be able to announce a meaningful pact to reduce the world crude oil surplus that is estimated at over 20 million barrels daily.

• A 10 million barrel cut would restore stability to world crude oil pricing between $20-32/barrel, but it would not produce a return US biofuel demand (or exports) that was lost with ethanol priced above unleaded gasoline. US biofuel demand only returns with a more normal lifestyle, which is a long way off without the arrival of a vaccine or therapeutic for Covid-19. Few are willing to risk air travel, or a hotel stay today into the summer season.

• The Midday GFS weather forecast is like the overnight run with near normal rain and a cooler temperature trend starting Friday. A few warm days will give way to a deep Low-Pressure Vortex that pushes southward across the Central US during the Easter weekend. Temperatures next week will average 6-18 degrees below normal with frost likely across the C Plains. The 11-15 forecast is changeable, and our confidence is low. The midday solution is cooler/wetter into Apr 23.

• Until a large amount Midwest corn/soybean seed enters the soil, Chicago will be choppy.   Wheat must hold last week’s low, the 50-day moving average at $4.68. Soybeans are range bound.

• Midday Chicago values are mixed in slow volume with few traders wanting to add to their risk profile in a holiday shortened week amid the big unknowns of coronavirus and world energy prices. Chicago brokers report limited trading interest with corn sliding on US ethanol capacity shutdowns and negative feeding margins. Chicago wheat traders are watching Black Sea weather/logistics while the soybean market hopes for new Chinese demand for late summer/autumn.

• Chicago traders estimate that funds have sold 2,300 contracts of corn while buying 2,900 wheat and 2,400 contracts of soybeans. Soybean products feature fund selling of 3,100 of soymeal and buying of 3,200 contracts of soyoil.

• Weekly US grain export inspections for the week ending April 2 were; 50.0 million bu of us corn, 10.9 million bu of US soybeans and 11.8 million bu of US wheat. US corn exports were larger than expected while wheat and soybeans were in line.

• For their respective crop years to date, the US has exported 761 million bu of corn (down 449 million or 37%), 1,171 million bu of soybeans (up 64 million or 6%), and 764 million bu of wheat (up 51 million or 7%).

• China showed up as taking a very modest amount of US soybeans from the interior with its import demand being filled by S America through July. Research notes that Brazil was told by China on the weekend that it should stop blaming China for the virus with China threatening to take its business to the US if Brazil did not stop calling the virus the China or Wuhan virus. We note new Chinese interest in the US Gulf for late August/ September delivery this morning. The switch from Brazil to the US could be starting over the next few weeks.

• Mato Grosso Brazilian farmers report that its winter corn crop looks fantastic and they are expecting record yields as harvest starts in 5-7 weeks. The Brazilian corn crop is favourable through the north but challenged by dryness in Parana and portions of Santa Caterina. Some estimates suggest that Brazil will produce a total 2020 corn crop of 99.5-100.5 million mt. Amid Brazil’s reduced use of corn for ethanol, Brazilian corn exports will start to flow again in the last half of June and July.

• Brazil exported 3.35 million mt of soybeans to all origins last week or 123 million bu. This is down 7 million bu from the prior week but shows that Brazilian ports are functioning at a high level of capacity. China has been the big reason for the large Brazilian soybean exports shipping or securing a record 23.7 million mt since mid-February. China has been a huge taker of Brazilian soybeans since Feb 15.

• Russian sources report that truck and rail logistics improved late Monday. Russian officials became more liberal in handing out certification to make sure that trucks keep moving Russian grain for export and food for urban areas. We would doubt that Russian logistics on truck certification are going to pose a big problem to Russian grain loading during April.

• The Midday GFS weather forecast is wetter across the Gulf States and portions of the OH Valley, but otherwise unchanged. A few warm days will give way to a deep Low-Pressure Vortex that pushes southward across the Central US during the Easter weekend. Temperatures next week will average 6-18 degrees below normal with frost likely across portions of the Plains. Warming will occur west to east after April 19 as a High-Pressure Ridge builds across the Western 1/3 of North America and produces a more favourable spring planting outlook.

• Chicago corn is trying to find value amid the closure of 30-35% of the US ethanol industry amid favourable Brazilian weather. Soy futures appear “stuck” waiting on new crop buying from China. Wheat is a complicated market with Russian crops in ok shape, even amid recent dry weeks, waiting for rain and new export demand. Bull markets always let you in and rains are  showing for SE Russia in the 11-15 day period. We anticipate choppy price action into Thursday’s USDA April WASDE report.

• Midday Chicago values are mixed with summer row crop futures lower while the wheat market is trying to hold in the green. The volume of trade is active with funds piling into a larger net short corn position while liquidating accumulated soymeal length. We look for a weaker close in corn/soy while wheat tries to hold awaiting improved US export demand.

• Chicago brokers estimate that funds have sold 4,400 contracts of corn and 3,900 contracts of soybeans, while buying 2,100 contracts of wheat. Funds have been active selling soybean products with sales of 3,200 soymeal and 2,700 soyoil.

• The US crude oil market has witnessed a collapse with stay-at-home orders limiting auto use/gasoline consumption in key urban states. The order has knifed US gasoline consumption by more than 40% causing a quick shuttering of the US ethanol industry. This has occurred in just 3 weeks. We estimate US corn consumption has declined 80-100 million bu/month on ethanol demand destruction. And the loss of ethanol bids has pressured cash corn basis bids and purchase contracts be called into “force majeure” thereby canceling contracts.

• The US farm community is not used to these fast and difficult markets. Biofuel demand was a bullish beacon for American agriculture, that has temporarily been lost. US President Trump will be meeting with the US oil company executives this afternoon. Our wish is that he also meets with the US ethanol industry to prevent additional plant closures. We woulda suggest that without political intervention, some 30-35% of the US ethanol industry needs to close to balance supply and demand with US gasoline consumption by mid-April.

• The US livestock industry amid the prospect of large US red meat exports to China (ASF) was a major domestic demand driver consuming large amounts of US feedstuffs amid their profitable margins. However, the near closure of the US food service industry has caused livestock prices to tailspin in a dramatic bear market. CME hog futures have fallen into economic despair with feeder pig prices said to be under $4.00/head and live hog price back to just $30/pound with packers suggesting that they will keep dropping cash bids amid the void of food service demand. 51% of meals were consumed outside the home and the loss of that demand has been dramatic for meats and dairy. The impact will be curtailed feed demand, which previously has underpinned cash corn bids. The feed markets now lack any evidence of a demand driver.

• US farmers are looking for assistance beyond the $9 billion that was earmarked for US livestock/special crops in the $2 trillion Care Act. CME livestock markets are assuming that packers will slow/cut kills amid the need for expanded product demand. Dairy states are asking the US Government to secure product under the CCC.

• We understand that US politicians are discussing additional aid for the US livestock industry. Several proposals are being discussed amid the dramatic calls to Washington. Cash cattle is said to have traded today at $105.00, down $15.00 from last week. April cattle futures and June hog futures are limit down once again. April cattle options expire today with April cattle now priced at a $17.00 discount to cash heading into delivery that starts Monday.

• The midday GFS weather forecast is drier across the Plains and the W Midwest than recent runs. Near normal rainfall in over the next 10 days is forecast for the E Midwest. Temperatures look to be above normal next week with cooling likely beyond the Easter weekend. The forecast looks ok for normal spring seeding.

• The decline in CME livestock markets is a second demand concern for US corn/meal markets. Reduced ethanol demand is now followed by falls in feed usage as livestock profitability plummets. Midwest weather forecasts call for normal spring seeding. Argentine farmers are back delivering corn and soy normally as their harvest expands. The next target for May corn is $3.02, the 2016 summer low with May soybeans targeting $8.25. Wheat may have a bullish story if Russian dryness persists.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 3 April 2020