This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.
We have had several sessions to digest USDA’s latest numbers now and there has not been much for the bulls to hang their hopes on. We have seen good news on the demand side this week in the form of NOPA crush, exports and ethanol data, but nothing has been able to overcome the selling and the thoughts that supply continues to get bigger.
Ethanol grind this week was up from last week and just above expectations. Ethanol stocks were also much lower than expectations indicating continued strong demand. After the break in prices, the US has the cheapest corn and soybeans in the world right now and we are setting an uptick in new crop sales for both. Corn and bean export sales were at the absolute top of expectations this week and we saw several flash sales. The NOPA soybean crush report on Thursday showed yet another monthly record broken for July. That means out of the 11 months so far in the marketing year, 10 of them have broken the record for each month and March set a new all time high. The massive increase in domestic demand has made up for the lack of exports this year but with a big crop in the field, we are still facing the prospect of growing stocks.
Demand is the good news, supply is the bad news. Condition ratings have been above average and much of the Midwest continues to get timely rains. Everyone is bracing for a big crop and expects it to get bigger. We have been talking about the trouble areas in Northern Iowa and Southern Minnesota that flooded early in the season but the market assumes USDA has now accounted for that with their acreage reduction on Monday. There is nothing obvious on the horizon that could scare the funds into covering their short positions. The Pro Farmer Tour will start next week and will go through the heart of the Midwest which has had the best conditions of the growing season so we do not expect them to find anything but big crops.
It is a struggle to find something that looks positive but I will do my best here. One is demand. Low prices are stimulating demand as mentioned above. The other positive thing is timing. South American farmers are making planting decisions now and they are facing the same negative margins that we are staring down. That will discourage acreage and that is what the market needs. More demand and less supply. The window is rapidly closing where US weather can give us a bullish spark, but it will be opening very soon for South American weather. We do not have such large carryouts that we can afford a production problem anywhere in the world so South American weather will be crucial.