Weekly Commentary – May 25

Cash Commentary-

Soybean basis garnered more upside as export trade winds turned favorable helping bolster US average soy basis by 2.3 cents on average, while corn was fractionally higher on average with a 0.5 cent improvement.

In corn, some of the recent gains due to planting were erased as farmers returned to market grain, which pushed some basis lower at key end users in NE/IA/IL/IN. But in the Upper Midwest where planting is still in full force corn plants were slightly higher to try and meet needs. In the week corn plants were unchanged.

Around the river markets, barge rates have mostly stabilized in recent weeks. Gulf basis for corn was off a penny which kept corn river markets mostly flat to lower, while soy basis at the Gulf was up 7 cents which put upstream river markets higher by a nickel. Soy crush plants continue to hold firm advancing 2.3 cents on the week as May crush margins were the highest for this time of year.

Futures Commentary-

Grains got bullish this week thanks to dry weather in key wheat growing regions and the US-China trade issues normalizing. On the week, beans were up 40, wheat was up 33 and corn tagged along for the ride with a 9-cent advance.

Last weekend US and China agreed to deescalate the trade war and forgo tariffs for the near term while the two countries agreed to work out a broader trade agreement. Both countries said they would keep taking measures that would allow China to import more energy and agricultural commodities from the US. By mid-week there was one cargo of new-crop soybeans sold to a Chinese trade house. But on Friday we had 312,000 MT of new-crop sales to China and another 165,000 of optional origin soybeans sold to China.

For wheat, dry hot weather continues to plague the US SW Plains, but now concerns are mounting across the global bread basket as well. Some degree of drought is prevalent in major growing regions of Russia, Australia, Canada and China. Russian grain consultancy, IKAR, downgraded the Russian crop to 69.5-77.5 MMT vs a previous forecast of 73 to 90 MMT while SovEcon consultants dropped their forecast by 1.2 MMT to 77 MMT. USDA has factored in a 12 MMT drop in Russia’s crop year-on-year with their 2018 forecast at 72 MMT.

In South America, crop reports there continue to take down the production numbers. Brazil’s AgroConsult pegged the 2nd season corn crop at 57 MMT, down from their previous estimate of 60 MMT based on their ongoing crop tour. If realized it would be a 10 MMT shortfall relative to last year. They also estimate the country will only export 24 MMT of corn, a far cry from USDA’s estimate of 30 MMT. In Argentina, the Ag Ministry lowered their latest old-crop soybean production estimate to 36.6 from 37.2 MMT and off from USDA at 39.0.

For the US, weather looks mostly favorable although as the calendar flips to June meteorologist are pointing to potential heat for the WCB and Southern Plains. The forecast shows little hope for Winter Wheat to get so much needed rains in early June during kernel fill. For corn and soybeans weather should be mostly ideal, but there is enough uncertainty about the extent of the heat to warrant caution.  It is possible that June heat could be more excessive than forecasted and that could set the stage for problems in Jul/Aug. Therefore, if the 2018 corn/soybean crop is to head downhill in a significant manner, it will likely be evident in June. If on the other hand the forecast verifies with favorable weather over at least the eastern Corn Belt, it spells good news for total crop prospects as last season demonstrated.

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