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Weekend summary 14 August 2020

• Chicago futures are sharply higher at midday with corn/soybeans leading the advance as traders accept the FSA Program Participation data as correct.

• The August FSA data would suggest a rather sizeable decline in 2020 US corn seeding of 3-5 million acres of corn and 2-3 million acres of soybeans. This has spurred bullish talk of smaller 2020 US corn/soybean crops thereby spurring fund buying and sharp rally in midday prices.

• We note that the FSA data comes on top of the crop losses due to Monday’s straight-line winds that toppled millions of acres of corn across EC Iowa. Although IA crop loss estimates vary widely, the point is that speculation is growing that the US 2020 corn crop will NOT be larger in September. This has pulled December corn futures near an open chart gap at $3.42 while November soybean futures rise above $9.00 to check out the July highs.

• The August FSA data as incomplete and impossible to correlate with past years due to processing delays created by Covid-19. Many Midwest FSA offices are still certifying acres amid limited staffing and the inability to have more than one group of producers in their offices at a time. This caused the FSA August data to potentially undercount US corn/soybean program acres.

• Chicago volume has been massive with December corn trading more than 320,000 contracts and November soybeans more than 140,000 contracts at midday. US farm cash selling has substantially stepped up on the rally.

• Chicago brokers estimate that funds have bought 38,000 contracts of corn, 14,000 contracts of soybeans, and 2,600 contracts of wheat. In soy products, funds have bought 9,000 contracts of soymeal while selling 3,000 contracts of soyoil.

• FAS announced that 110,000 my of US corn and 202,000 mt of US soybeans were sold to an unknown destination for 2020/21, while 197,000 my of US soybeans were sold to China. We calculate that China has now secured 17.6-18.0 million mt of US 2020/21 soybeans (including 1.50 million mt carried forward from old crop).  Research (and the WASDE balance sheet) has China taking some 27-28 million mt of US soybeans in 2020/21.

• US weekly export sales for the week ending August 5th were; 13.5 million bu of soybeans, 36.2 million bu of corn (14.8 million in old and 21.8 million new crop), and 125.2 million bu of soybeans (20.9 million of old crop and whopping 104.3 million of new crop). The soybean sales to China were huge as they secure large amounts of US soybeans heading into the US/China weekend 6-month review. We (and many others) doubt that much will come out of the weekend teleconference with China’s active purchase pace since July helping to solidify the agreement. China wants to be a “good actor” ahead of the November 3 US election to make sure they can assess their trading risks under either President Trump or VP Biden.

• The weather forecast is slightly wetter across the Upper Midwest under a broad Western US ridge and Eastern US trough pattern holding. The mean position of the northern branch of the jet stream will be sinking southward thereby slowly return rain chances across the northern 2/3′s of the Midwest during the 9-15 day timeframe. Next week, the flow of Gulf humidity will be reduced by a NW flowing upper air pattern. However, as warmer temperatures return, so will upper air humidity allowing for thunderstorms during the last week of August. The rains are forecast to target; IA, IL, IN and OH.

• Cool temperatures will limit crop stress with highs in the 70′s and mid 80′s. Warmer readings return during the last week of August.

• FSA has tens of thousands of farmers and millions of acres that have yet to certify their 2020 program acres. It just takes time under Covid-19. We see the August FSA acres as vastly incomplete. History shows that NASS is very rarely wrong by more than 1.0 million acres from June into the final on combined US corn/soybean acres. The Chicago rally should run into strong resistance above $3.42 Dec corn and $9.05 November soybeans. This is no place to turn bullish.

• The August USDA crop report was slightly bearish as US corn/soybean yields surpassed trade expectations. NASS estimated the 2020 US soybean yield at a record 53.3 bushels/acre with corn at 181.8 bushels/acre. The yield estimates did not come as a big surprise relative to what traders had been discussing.

• The reaction of the market was a bounce in corn/soybeans while the wheat market slides. Traders will try to buy the slightly bearish USDA August report, but with harvest ahead, we doubt that a Chicago rally can be sustained. It is the September report that holds more market weight. NASS enumerators make their measurements in early September.

• NASS estimated the US corn crop at 15,278 million bu, a record with the 2020 US corn yield forecast at a record large 181.8 bushels/acre. The IL corn yield was pegged at 207 bushels/acre with IA at 202 bushels/acre. Record corn yields were forecast for; WI, Ml, MN, SD, PA, KY, TN, GA and SC. The surprise was that the IA corn yield was only up 2 bushels/acre from last year at 202 bushels/acre.

US End Stocks (Mil Bu):

July                 August

2019/20           2020/21           2020/21

Corn                            2,248               2,648               2,756

Soybeans                   620                  425                  610

Wheat                         1,044               942                  925

• NASS estimated 2020 US soybean production at 4,420 million bu, just below the record of 2018 at 4,430 million bu. With another bump in the US soybean yield, the US could produce a record soybean crop in 2020 with 6 million acres less than 2018.

• Record large soybean yields were reported in; SD, Ml, IL, IN, OH, MO, KY, and LA. The IA soybean yield was estimated at 58 bushels/acre compared to IL at 64 bushels/acre which seems to be too low. With another few finishing rains, it appears that the US would have a chance of producing a 54-55 bushels/acre soybean yield.

• US spring wheat production was increased to 577.5 million bu with US 2020 all wheat production estimated at 1,838 million bu with a yield of 50.1 bushels/acre.

• WASDE raised their 2020/21 end stock forecast to 2,756 million bu, the largest in 33 years. WASDE raised feed/residual use by 75 million to 5,925 million bu with exports bumped 75 million to 2,225 million bu. WASDE held China’s corn imports from all origins at 7 million mt. The WASDE increase in 2020/21 demand helped offset some of the 278 million bu gain in the crop. The net result was a decline in the farmgate price average to $3.10/bu which forecasts that December corn futures will decline below $3.00 during the coming harvest.

• WASDE estimated 2020/21 US soybean end stocks at 610 million bu, up 185 million from July as the 2020 US soybean crop grew a hefty 290 million bu. The new crop supply was the second largest on record. 2020/21 US soybean stocks are not much different from the current crop year which calls for a range trade of $8.20-9.20.

World End Stocks (MMTs):

July                 August

2019/20           2020/21           2020/21

Corn                            311.9               315.0               317.5

Soybeans                   99.7                 95.1                 95.4

Wheat                         297.1               314.8               316.8

• USDA forecast an average US farm gate soybean price of $8.35/bu, down $0.15 from the current year. Unless China books more than 30 million mt of US soybeans in 2020/21, there is no lasting bull story for soy without a dire S American drought.

• 2020/21 world soybean stocks at 95.4 million mt was only slightly higher than July as WASDE raised China’s soybean import estimate to 99 million mt, up 3 million. The 2021 Brazilian soybean harvest was estimated at a record large 131 million mt with Argentina at 53.50 million mt. Non-Chinese soybean trade was raised 4 million to 165.4 million mt. We. would argue that this increase is too robust in a Covid-19 world. WASDE cut their forecast for 2020/21 US wheat stocks to 925 million bu based on a 25 million bu hike in export demand to 975 million bu. This increase helped slow the decline in the US farmgate wheat price to $4.50/bu.

• In world wheat supplies/trade, WASDE raised their estimate of 2020/21 Russian wheat production to 78.0 million mt and increased their exports to 37.5 million mt. The European wheat harvest was cut by 4.0 million to 135.5 million mt with their exports cut by 1.5 million to 25.5 million mt. WASDE held their estimate of China’s wheat crop at 136 million mt with imports of 6.00 million mt. We would argue that WASDE is too low with their crop views of Canada, Australia and Russia with further upside adjustments likely in coming monthly reports. 317 million mt of world wheat is a record stocks total. There is no evidence of a lasting world wheat rally.

• Research sees the USDA August report as slightly bearish. Our bet is a further increase in US corn/soy yields in coming monthly reports. Rallies will be capped and Chicago prices should grind lower into mid-September to mid-October. We doubt that seasonal lows are being scored in mid-August.

• Chicago futures are slightly higher at midday with corn, soybeans and wheat firmer on short covering/positioning ahead of the USDA August Crop Report that is due out Wednesday. Fund managers have been the best buyers of corn/meal on short covering with the oil/meal spread being unwound on the formation of a seasonal high in the tropical oil values. Spread unwinding remains a key feature for price.

• Chicago has a heavy feel at midday with traders discussing that a year ago, NASS estimated the 2019 US corn yield at a shocking 169.5 bushels/acre. Traders are betting that NASS should not have much trouble beating that yield by at least 10 bushels/acre based on vegetation maps and producer yield reports.

• Big yields and big crops are expected on Wednesday with the Midwest harvest starting in just 4-5 weeks. We look for a mixed close with producer selling of old crop corn noted on any rally to take advantage of stout cash basis bids. Traders may try to secure a bearish break post report but buying the markets ahead of a harvest does is seasonally incorrect. A better time to look for a seasonal low would be between September 15-October 15th, after key monthly crop reports when we all know how big is big. A US 2020 corn yield above 181 bushels/acre or above 53 bushels/acre in soybeans mutes recent Chinese buying.

• Chicago brokers estimate that funds have bought 2,200 contacts of corn, 2,100 contracts of wheat and 3,600 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal while selling 2,000 contracts of soyoil.

• Midwest farmers report straight line winds in excess of 100 miles per hour that produced damage to storage bins/crops on Monday from a storm that ripped through IA/IL/WI and IN. The rain was needed, but the winds were not. Pictures of flattened corn fields are circulating. Greensnap produces a 100% yield loss but bent over fields will be able to recover. It is impossible to balance the positive aspect of the rain against Mother Nature’s steamrolled corn fields.

• The hardest hit area is from NC IA were corn fields appear that they were steamrolled. Yet, in gauging the where the strongest winds occurred and potential damage, some estimate that 35-85 million bu of US corn production could have been lost. For producers impacted, the loss is devastating. Yet, on a national basis, the loss will not alter the US corn balance sheet when you consider that rain also helped corn acres that were not toppled. Looking backwards, a sustained bull market in corn has never occurred on straight line winds (or hail) since it is difficult for such acute weather to impact a broad area of the Central US.

• Egypt’s GASC secured 2 cargoes of Russian wheat at $219.60/mt basis C&F, down $8.89 from their last tender just last week. Only Russian and Ukraine wheat was offered with the freight cost being $14.10/mt. GASC used 180-day credit financing which implies that the real fob value for Russian wheat is $4-5/mt lower at $200.50-201.50/mt. The odds are high that Russian wheat prices will slide to test support against $194-196/mt, the spring lows.

• China is rumoured to have secured another 3-6 cargoes of US soybeans this morning for new crop delivery. FAS confirmed the sale of 132,000 mt this morning.

• The midday GFS is drier across the Central Midwest with better rains for OH and the Delta. The GFS weather forecast has been erratic as of late and is not performing up to prior standards. The best rainfall looks to drop across the E Dakotas/MN and through the OH Valley. Temperatures will be seasonally cool ranging from the 70′s to the mid 80′s. Corn/soy crops need another 1-2 good rains to finish out the 2020 growing season. The lack of heat will help fill pods and ears. The overall Central US weather forecast is helpful to US yields, but a wetter pattern is desired.

• Wednesday will start the statistical process of determining how big is big in terms of 2020 US corn/soy yields. If trade guesses of 180 bushels/acre on corn and 51 bushels/acre are near correct, traders will add back yield before the September estimate. A US soybean yield of 53-55 bushels/acre is not impossible this year which would swamp existing Chinese demand. Research (and the industry) expects that the US/China will repledge to work together on Phase One in their meetings this weekend.

• Chicago values at mixed at midday with spread unwinding/position squaring featured ahead of next Wednesday’s USDA Crop Report. Corn has been underpinned by the liquidation of long soybean/short corn spreads, while the same is occurring in wheat following record large private estimates of 2020 Canadian production. Traders are discussing how big-is-big in terms of US corn/soy yields, but the bears would like to see a soaking rain across IA before they lean into a larger net short corn position.

• Funds are modest longs in wheat while continuing their exodus of long soybean futures. The market has a heavy tone with favourable Central US weather and upside surprises on world crops (Russia wheat/Ukraine corn/Canadian wheat) keeping the bulls on the sidelines. It would be historically rare for the US corn market to forge a bottom in early August prior to the USDA August crop report. Late August to mid-September is a better timeframe for corn/soybean futures to start carving out a bottom.

• Chicago brokers estimate that funds have bought 3,900 contracts of corn, while selling 4,200 contracts of soybeans and 3,200 contracts of wheat. Funds have sold 2,800 contracts meal and bought 2,700 contracts of soyoil.

• For the week ending July 30, FAS reported that the sold 22.2 million bu of wheat, 106 million bu of corn (both crop years combined), and 64.3 million bu of soybeans. The wheat sale was larger than expected, while corn/soybean sales were right at trade expectations.

• For their respective crop years to date, the US has sold 376 million bu of wheat (up 32 million or 9%), 1,724 million bu of corn (down 242 million or 12%), and 1,725 million bu of soybeans (down 67 million or 4%). We anticipate the USDA trimming its 2019/20 US corn and soybean export estimates by 25 million bu next Wednesday. WASDE is unlikely to adjust is new crop estimates based on the mid July surge of Chinese demand for US corn and soybeans. FAS reported that China booked 2 cargoes of US soybeans (126,000 mt) for new crop delivery. China continues to book US soybeans, but at a pace far less than late July. No other daily grain/soybean sales were announced.

• Brazilian farmers are happy with a +50% profit margin on planting new crop soybeans due to the cheap Real. Farmers are looking to plant soy wall-to-wall according to S American sources. Brazilian soybean seeding can start on Sept 15 and a yearly seeding gain of 4-6% is being discussed. The Brazilian Real is priced at 5.35:1 US$ today. A year ago, the Real was trading at 3.92:1 with Brazilian soybean profit margins just 15-20%. The 35% annual fall in the Real is providing a massive economic incentive to farmers

• The midday GFS’s weather forecast details are slightly drier in NW IA, but wetter for the E Midwest/Missouri over the next 10 days. Rainfall deficit pockets will exist in W IA, but positive moisture anomalies stay intact elsewhere. The forecast features mild temperatures into the weekend with a warmer/wetter pattern to follow next week. Daily rain chances will help N Plains and Midwest crops from Aug 16-24. The forecast leans positive for Midwest corn/soybean yield potential into mid-August. No extreme heat is offered across the Midwest for at least the next 2 weeks.

• Outside of a dry pocket in IA, the US corn/soy yield potential will likely further increase. 2020/21 US corn and soybean stocks will be on the largest in years. We doubt that the cash market has yet come to grips with the abundance of grain. Also, Canada has a big wheat/canola crop in the making which will produce record large North American supplies. Research maintains a market stance of selling any rallies of substance. Sept Chicago corn should test key support at $3.00 while Nov soybeans drop to $8.65-8.75.

• Chicago values are mixed at midday with soybean futures sagging while the grain markets bounce. The volume of trade is diminished from recent days with spreading the key morning feature. Traders have been unwinding long soybean vs corn and long soybean vs wheat spreads. We anticipate a mixed Chicago close with December corn trying to hold $3.20 support while funds are watching to see if Nov soybeans close below $8.83 50-day moving average. Chicago price trends are down amid the pending large US crops and the coming harvest. The market has a soft tone at midday with selling likely to return at the close.

• Chicago brokers estimate that funds have bought 2,100 contracts of wheat and 1,900 contracts of corn, while selling 3,200 contracts of soybeans. In soy products, funds have sold 1,800 contracts meal and 2,500 contracts of soyoil. The fund long liquidation is expected to increase if Nov soybeans close be low $8.80, last week’s low.

• FAS announced 192,000 mt of soybeans to China for 2020/21. This was the first US sale to China in the past 5 business days. There was an unknown sale on Monday that likely was made to an EU buyer.

• IHS Markit (lnforma) estimated the US 2020 corn yield at 179.0 bushels/acre and the soybean yield at 52.5 bushels/acre for a US soybean crop of 4,355 million bu. The US all wheat yield was forecast at 50.2 bushels/acre, up slightly from the NASS estimate of July. The US all wheat crop was forecast at 1,843 million bu. We would remind that HIS is trying to forecast what the USDA will report next week, not what the final US yield will be (like StoneX). We also argue that the NASS farmer survey will be more conservative that yesterday’s StoneX estimate.

• US weekly ethanol production amounted to 274 million gallons, below the 285 million gallon weekly average needed to reach the USDA annual forecast of 4,850 million bu. Research maintains that WASDE will cut its US 2019/20 corn grind estimate by 25 million bu next Wednesday. It is likely that a further reduction of 10-15 million bu may be required by the final count by the end of August. US ethanol stocks are historically low, but the seasonal driving season is ending.

• The midday GFS’s forecast details are slightly drier in SE IA, but wetter for the E Midwest and Missouri over the next 10 days. Should the forecast verify, moisture deficits will persist in IA while positive moisture anomalies stay intact elsewhere. Overall, the Central US pattern will feature mild temperatures into the weekend. A warmer/wetter pattern follows. Weak high-pressure ridging will reach into the S Plains with a broad trough/ridge pattern forecast thereafter into Aug 18. Daily rain chances will impact the N Plains and Midwest Aug 10-25. Cumulative totals in excess of 1″ will favour SD, WI, MO, IL and IN. Temperatures warm beyond the weekend.

• The grains are bouncing on long soybean/short grain spread unwinding. Chicago downtrends remain intact. We doubt that funds will ease up on soy/corn selling heading into next week’s USDA Crop report. Some 10-15% of the Midwest is dry, but other areas are well watered/improving which is more than making up for any yield loss in C IA. Some rain dropped across W IA overnight, but much more is needed. The forecast models have trouble in forecasting convective rain totals into mid-August. Starting Friday, the Midwest has a daily chance of rain into August 16 which should help crop ratings.

• Chicago values are sharply lower at midday on rising US corn/soybean crop discussions prompted by strong NASS US crop ratings and initial estimates from StoneX (formerly INTL FCStone) on US final corn and soybean yields. The market is fearing a big crop with widening talk of record large US corn and soybean yields from producers and traders. Whether it is the Russian wheat crop, or the Ukrainian corn, and now US corn and soybeans, the world appears to be overproducing grain amid a world economic outlook that is darkening on rising Covid-19 infections.

• Chicago has a heavy feel with December corn contract low noted at $3.22 while soybean futures are testing last week’s low. September corn has already scored new contract lows with the weekly chart showing support at the late spring low at $3.00. Funds are long of soybeans which is adding to the downside price risk. Chinese demand for US soybeans is modest and most Asian traders are turning bearish of Chicago beans on crop size.

• Chicago brokers estimate that funds have sold 3,400 contracts of Chicago wheat, 7,700 contracts of corn, and 9,200 contracts of soybeans. In soy products, funds have sold 3,600 contracts soymeal and 2,700 contracts of soyoil. The fund long liquidation is expected to increase if November soybeans fall below $8.80.

• Cash-connected traders report that farm selling of old crop corn has quickened this morning with many just giving up on stored corn prices rising. Farmers are willing to accept a better basis bid today than what will likely be offered during harvest. Record large US corn and soybean yields would produce a combined summer row crop that would strain storage availability this autumn. Producers are better off selling any remaining stored grain now. The only hope for a sustained rally is an historically early frost/freeze during the first half of September.

• FAS did not announce any new US soybean, corn or wheat sales this morning. If Monday’s sale of US soybeans to unknown was not China, then it has been a week since China purchased US soybeans. The lack of demand is worrisome to traders with China continuing to import record soybean tonnages from Brazil.

• The USDA/NASS/WASDE will release their August Crop Report next Wednesday. The report is a farm survey only. The NASS estimate is based on farmer reports on their yield expectations as of August 1. NASS will send their crop enumerators to the fields in early September for a more definitive yield assessment. Following the USDA August estimate, a slew of private crop tours will be offered, including the Pro Farmer Crop Tour that starts on August 17. The market will have many assessments on “how big is big” heading into the end of August, which will likely cap Chicago rallies. Therefore, we doubt that seasonal Chicago lows won’t be formed until mid-September or mid-October.

• The midday GFS’s weather forecast details are drier in southern IA but wetter in SD and MO over the next 10 days. Should the forecast verify, moisture deficits will persist in IA while positive moisture anomalies stay intact elsewhere. Overall, the Central US pattern will feature mild/dry weather into the weekend. A warmer/wetter pattern follows. Weak high-pressure ridging will reach into the Central Plains and Midwest, with a broad trough/ridge pattern forecast thereafter into Aug 18. Light but daily rain will impact the N Plains and Midwest Aug 10-25. Cumulative totals in excess of 1″ will favour SD, WI, MO, IL and IN. Temperatures warm beyond the weekend.

• The lack of meaningful supply issues has allowed negative seasonal trends to take hold. Longer term, markets need to boost consumption, which will be a more difficult task in this era of Covid.