Picking up where we left off

Published on: 09:15AM Apr 27, 2020

We have begun a new week of trade, but it is already looking suspiciously like the old, with grains markets under pressure and the soy complex struggling to hold its head above water. Most of the news circulating this morning would appear to be a rehash of previously reported stories, and there would seem to be no question that the ag markets could stand for an injection of something new and different.  Weekly crop updates should be garnering more attention as will weather forecasts, so we shall see what this afternoons update brings us.

Over the weekend, Russia has sold out its quota for grain exports through June 30th, but the way I read this, it only means they will stop issuing new declarations or documents for export.  They will continue to move grain until all the previously sold bushels have been shipped.  This is not to say that if a buyer who was late to the table, would not need to search out another source but one has to suspect that some key trading firms may have snapped up a few more of the quota declarations than would be normal, so the risk of running out of supplies should be negligible.

It turns out that during the month of March, Chinese bean imports were 13% lower than the previous year.  Much of this was attributed to February weather issues in Brazil that slowed harvest and the arrival of beans to export facilities.  They received 2.1 MMT from Brazil for the month, which compared with 2.79 MMT in March 2019.  The U.S. tried to help pick up the slack as bean imports from our shores totaled 1.71 MMT compared with 1.51 last year.

How many yuan per kilo is that trading for?  After a decade of planning, the Dalian Commodity Exchange has won approval to begin trading a live hog futures contract.  One of the stumbling blocks up until now has been due to the fact that there were so many small, backyard type operations that produced hogs in China, there were doubts that they were apt to use such a hedge tool.  That has changed dramatically since the outbreak of ASF as the farms that are trying to reboot hog production in that nation have trended toward large commercial operations who are looking for ways to transfer risk.

With more than 5,000 meat and food processing workers infected with COVID-19 as well as the shutdown of several key plants, the U.S. Labor Department has issued new guidelines.  I suspect there will be more to come, but initially, employees will be required to be screened each day before they begin (taking temperature one would assume), and they need to be spaced 6 feet apart once in the workplace.  I would suspect the industry will put on a good face in trying to comply initially, but unless this becomes mandatory, it is difficult to imagine that will be the case indefinitely.

It certainly comes as no surprise, but for the week ending April 21st, large speculative money were sellers in almost every grain and soy market with the exception of KC Wheat.   They sold over 2,500 contracts of Chicago wheat, 9,500 contracts of bean oil, nearly 2,300 contracts of meal, and over 20,000 contracts each in beans and corn.  In beans, they have now returned to a net short of 18,000 and in corn have pushed through the 200,000 contract mark.  That corn boat is leaning quite heavily to one side, particularly for this time of year, but there would appear to be no waves forming just yet that could knock a few of these bears overboard.

Last but not least this morning, the dollar has begun the week under sharp pressure, following through on the negative close last Friday. While the break has not been significant enough to confirm a peak, having failed against the 101 level now for a second time, and we appear poised for a push back down to see just how good the underlying support may be.