Special Market Update
Grain Market Commentary
Monday, May 3, 2021
by Zach Kelly, Associate Merchant, The Andersons
As the old saying goes, April showers bring may flowers; but what happens when there are no April showers? That’s easy, corn rallies more than a dollar! As Brazil looks to finish their second corn crop, they have seen very little rain, putting pressure on the US corn market. Weather aside - April started out explosive, right on the heels of the March 31 planting intentions which showed us an estimated 91.144 Mil. corn acres would be planted for new crop. This extremely bullish number sent futures prices soaring in an attempt to secure more acres for new crop. Soybeans wouldn’t let corn have all the fun, and also rallied more than a dollar throughout the month.
Corn saw a double whammy of effects this last month. First was the planting intentions report mentioned above. The market had to incentivize producers to plant corn before it was too late. Over the course of the month new crop rallied 80 cents, and old crop July rallied $1.28 per bushel! The market is trying to give producers no choice but to plant corn! However, domestic supply wasn’t the only concern. Brazil has had extremely dry conditions in its main growing regions, and we are now past the point of revival. The question now is how far can production estimates fall? The USDA currently estimates their production at 109 MMT per the last WASDE release (April 9th). Given the lack of rains this month, private estimates put their final production as low as 90MMT, with the large majority estimating sub 100. As bushels get burnt off the top end of their production, global balance sheet tightens. The US also gets looked to as the replacement for all these bushels into the export market. Using a 180 bpa yield, and conservative usage numbers, new crop carryout is still sub 1.5 billion bushels with the current planted acres number. Mix in an already projected tight carryout, with more export demand, and you get April 2021. As we move forward all eyes will be on the Brazilian crop, US planting progress and conditions, and the next planted acres estimate which comes June 30th.
Soybeans followed corn, posting very solid gains as well. Old crop July rallied $1.38 while new crop rallied 76 cents per bushel. The story in the soybean market is mostly unchanged. The soybean balance sheet remains tight, and we will see if any changes are made on next week’s WASDE report on May 12th. Soybean crushers are facing great crush margins on the back of a huge rally in the soybean oil market. Soybean oil is used as cooking oil, and bio diesel, both of which have seen an uptick recently as America begins to overcome the corona virus. Summer premiums are also on the rise, with the first triple digit basis posted in Claypool, Indiana. (+100N) Given the tight carry out we are facing, 120 mbu per the USDA, domestic processors are having a hard time sourcing soybeans. This carryout number is reflected in the cash markets, with many processors paying over $16 per bushel for soybeans towards the end of April. There have been rumors of Brazilian imports on the way for the summer months, which would put a ceiling on basis. Old crop soybeans will be mostly reflective of supply and demand as we finish the crop year. Should crush margin remain strong, soybean premiums will stay on the rise as processors continue to incentivize a producer to sell their bushels. However, should crush margins start to break, and soybeans are too expensive, processors will pull back their bids to a level that makes them profitable. We must also keep a close eye on Brazilian imports, and if the rumors formulate into physical soybeans hitting our ports. Increased supply from South America would help satisfy the domestic processors demand, and again, cause basis to decrease.
Make sure to stay disciplined in your marketing! Contact your local Merchant to stay up to date on the markets and your marketing plans. Also, follow us on twitter for daily market commentary and reports!