Morning Commentary

July corn down 1 ½ at $3.2075

July beans down ½ at $8.515

The DOW is up

USD is weaker

Crude oil up $.16 at $25.94

Good morning,

Stanley Druckenmiller, he of the Michael Jordan of trading, said the risk-reward environment in the stock market is the worst he has ever seen.  He also said to trade the FED, not earnings.

Corn bears are pointing to the USDA’s forecast for the largest ending stocks in over 30-years at a massive 3.318 billion bushels, the highest since 1987/88. There’s also some fear and worry that the USDA is overly optimistic about some of their forward-looking demand estimates. Meaning, if the weather doesn’t start to create some larger concern, the market could backpedal on fears of rising yields and small trimming and negative adjustments to demand. U.S. new-crop corn production is forecast record large at nearly 16.0 billion bushels. New crop “demand” was fairly strong with food, seed, and industrial (FSI) use projected to rise +245 million bushels to 6.6 billion. Corn used for ethanol is projected to increase +250 million bushels from the 2019/20 COVID-19 reduced levels, based on expectations of a rebound in U.S. motor gasoline consumption. U.S. 2020/21 corn exports are forecast to rise +375 million bushels to 2.150 billion, driven by growth in world corn trade. Corn feed and residual use is projected higher by +350 million bushels mostly reflecting a larger crop and lower expected prices. With larger stocks relative to use, the season-average farm price is projected at $3.20 per bushel, down -40 cents from 2019/20 and the lowest since 2006/07. The trend for July corn is negative but futures posted an outside day higher on Tuesday. Dropping below 309 signals a test of 300.  Sustained action over 328.75 is the minimum needed to improve the outlook.

Soybean bears are pointing to higher than expected old-crop ending stocks as the USDA lowers exports by -100 million bushels and a sizeable jump in ending stocks to 580 million. Unfortunately, many bears believe that number will work even higher as the USDA is eventually forced to further reduce old-crop exports. On the flip side, bulls are happy to see a tighter than expected new-crop balance sheet, but many, including myself, were hoping to see an even tighter scenario. The USDA has U.S. new-crop production projected at 4.125 billion bushels, up a whopping +568 million from last year on the increased harvested acres and trend yields. The good news is new-crop exports are expected to rise by +375 million bushels. With higher global soybean import demand for 2020/21 led by expected gains for China. The U.S. soybean crush for 2020/21 is projected at 2.130 billion bushels, up +5 million from the 2019/20 forecast with higher soybean meal disappearance partly offset by lower soybean meal exports. U.S. ending stocks for 2020/21 are projected at 405 million bushels, down -175 million from the revised 2019/20 forecast. The 2020/21 U.S. season-average soybean price is projected at $8.20 per bushel, down -30 cents from 2019/20. The trend for July beans is neutral. Stable action outside 834.75-864.25 will provide fresh trending targets.

As of Tuesday, all of the nation’s processing plants were back online and are running at about 70% capacity. Ag economist Steve Meyer with Kerns & Associates says this is the type of recovery to processing capacity the pork industry needs to see.  “If we can maintain it this week, it puts us on a little faster recovery pattern than I thought we might achieve,” he says. While this does help to alleviate some of the pressure on the supply chain, Meyer tells Brownfield he doesn’t think it will ever be able to fully catch up.  “We’ve probably got the better part of 2-million hogs backed up,” he says.  “I don’t think there’s any way to get out of this without euthanizing any market hogs.  Hopefully, we can minimize that by getting (capacity) back up there pretty quick.” The industry is still unsure what slaughter capacity looks like following changes to facilities to implement social distancing measures.  Meyer says his first guess was somewhere around 90 percent of original slaughter capacity.  Tyson’s Columbus Junction, Iowa plant started the week running at around 94 percent of its daily capacity, which Meyer says is right around the facility’s normal run rate.

Beef and pork have been pricey and, at times, scarce in the U.S. this spring amid outbreaks of the corona­virus at slaughterhouses around the country. Chicken has remained widely available and cheap. Why the difference? One reason is that most slaughtering of chickens, unlike that of cattle and hogs, is automated. Deboning and cutting chicken into pieces is often done by hand, which is why there have been some shortages of boneless chicken. But machines are now available to do that work, too, and processors will surely buy more of them in the coming years. Chicken farming has long been the most industrialized of American agricultural operations, and it keeps getting more so. The birds are bred for maximum meat production and raised in a matter of weeks in controlled indoor environments. Interestingly, poultry costs U.S. consumers -62% less in inflation-adjusted terms than it did in 1935, which is how far back the Bureau of Labor Statistics’ price data go. Pork, now also raised mostly at factory scale indoors, is -12% cheaper. Beef, which isn’t, costs +63% more. (Bloomberg)


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