Market News- POET: Portland 03/24/20 8:10:33 AM
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|Weekly POET Grain Report|
March 24, 2020
- The beating in the energy markets continued yesterday, with gasoline futures trading to a low of $.41/gallon yesterday (I had to triple check that..it's not a typo). Similarly, ethanol futures dropped to $.86/gallon. Equity futures are up sharply as of this writing, but it's very difficult for me to believe we've found a bottom until crude oil finds support.
- South American weather continues to look nearly ideal for about 80% of Brazil's second season corn crop. The Concern has been with Southern Brazil, where approximately 20% of production exists. Dryness has been a big issue in this region, however the extended forecast continues to pull moisture chances forward for S. Brazil, which would be very welcome at this juncture.
- Now for some good news regarding COVID-19…China will allow transportation to resume for the city of Wuhan on April 8, which will effectively lift a mass quarantine. Wuhan was ground zero in this pandemic, so this is an encouraging sign as they are now on 4 consecutive days of no new cases.
March 23, 2020
- It's been another fairly volatile overnight session as the equity markets opened limit down once again - although they have now worked off those lows with the DOW up 600 points as of this writing. The equity markets desperately needs a key reversal here - with new lows established overnight, a higher close here would be significant.
- Soybean meal is continuing last week's rally as port strikes/closures in South America due to COVID'19 are causing end users to panic. This should shift some business to the US at least short-term, as China had been (up until n ow) aggressively buying Brazilian soybean cargoes, while Argentina exports nearly 50% of the world's soybean meal supplies. Compounding this impact is the perceived future shortage of DDGS as ethanol plants continue to pull back the throttle. The rally in beans coming at an interesting time as producers sharpen pencils for 2020 planting intentions.
- Friday's COT report showed managed money funds much less short than expected - coming in at only 91k contracts short for corn (vs 160k+ expected). Funds were also only short 30k contracts of beans vs 60k contracts expected.
- May soybeans have room to the upside here to $8.88, which is the gap left behind from 3/6/20. The high volume pocket on May beans is right around $9.00 as well - so if this range is achieved it’s a nice level for producers to lay off additional ownership.
- As a reminder, we're beginning our "work from home" today. While there are certain to be a few early glitches, we should be able to work around any issues that arise.
March 19, 2020
- There have been some rumblings of Chinese demand in US ag products overnight. There has been talk of 2-5 cargoes of HRW out of the gulf, beans off the PNW (haven't heard a number yet), and 4-8 cargoes of corn.
- Export sales released this morning showed 35.6MM bu of corn booked for export last week. Nice to see some of the incremental business switching back to the U.S., as S. Korea and Japan booked 25.8 of the 35.6MM bushel total. The good news for the bulls is that the past 4 weeks have seen sales at levels well above what is needed to hit the USDA number. The bad news: US values are only competitive through May, so the window is narrow.
- World cases of Covid-19 reached nearly 220,000 yesterday, with deaths at 8,946 (which was up nearly 11%). Us infections skyrocketed by 3,000 now that testing capability is becoming a bit more widespread.
- Southern Brazil and Argentina will see very little/no precip in the next 10 days. We're now in a streak of 6 consecutive weeks with below normal rainfall in southern Brazil (RGDS) - which produces about 20% of the Safrinha corn crop. This has quickly become something to watch heading into April for prospects on Brazil's second season corn crop potential.
- May corn is attempting a bounce this morning - although the chart looks like absolute death. A close over 3.45 1/4 would be a really good sign for the bulls (yesterday's high) and signal that this thing may have found a short-term bottom, however the $3.15-$3.20 area is still in play for the bears at the moment.
March 18, 2020
- The corn market continues to search for new lows in the overnight session, while equity markets are locked limit down. Crude oil is also trading at new lows for the move, down another 8% as of this writing to $25/barrel. Crude now trading at it's lowest level since May 2002. Technically speaking (if technicals even matter anymore in this environment), crude has downside support at $22/barrel.
- Bloomberg reporting this morning that leisure, transportation, healthcare, and mining companies are drawing billions of dollars from existing lines of credit. If they draw up to 70% of their available credit, about $700B will be sucked from wall street liquidity pools. Goldman saying last week that a 100% drawdown may bring seven of the biggest banks close to breaching liquidity ratios.
- The combination of COVID-19 and the oil price spat between Russia and Saudi Arabia is putting ethanol margins in record low territory. Based on "best guesses" of the impact to gasoline demand, and hence ethanol demand in this environment, corn crush for ethanol could be impacted by 100MM bushels/month until this is resolved. Assuming no surprises in the stocks report at the end of the month, we could easily be looking at a 2.2-2.3B bushel carryout for 19/20. The bigger impact though, is that this pads the "carry-in" for what is looking like a very burdensome 2020/2021 carryout. With the added carry-in, it's easy to see next year's carryout over 3B bushels - with a spot futures price at/below $3/bushel.
- May corn is trying to find support at the spot corn low of $3.36 from Nov 2018. Given now negative ethanol margins are (and the impending demand destruction from plant slow-downs), $3.15 is the the next support level from 2016. It's certainly possible, as funds are still some 200K contracts from their record short level.
- Crude oil (as mentioned in the first bullet) - still searching for a bottom. $22 is the logical target, however below that we'll just call the support level somewhere between $0 - $22. That should cover it.