Market Highlights and Weather Outlooks - Friday, 07 July 2017

Many traders had been expecting to see a reduction in the overall Good to Excellent ratings for corn this week and instead saw the rating raised 1 point higher to 68% from the previous week. The uncertainty surrounding corn demand has weighed on market prices for a long time.  This week Egypt announced that that they will be reducing imports due to better production than expected in their country last year, this brings into question the entire global demand for corn for the near future.  China has been working to reduce their corn inventory and have been using their domestically grown corn for ethanol production.  This strategy has been working well for the country as they have now become a net exporter of ethanol instead of an importer.  While the volume of ethanol exported has not been substantial to this point the volume is expected to increase.  What impact this will have on U.S. ethanol is unknown at this time but there is little doubt that it will create some competition in the market. Some of the other headlines driving the markets:

  • RFS is set to remain unchanged for 2018
  • Corn used for ethanol in May was up 27 million bushels from a year ago this production level consumed 452.4 million bushels of corn during the month of May
  • June ethanol production remained high as well averaging over 1 million barrels per day.
  • Ethanol reserves are still record size at 21.57 million barrels
  • China is auctioning more domestic corn supplies
  • There are reports that China has been cancelling soybean bookings
  • Reports of many poor looking soybean fields has been supporting prices
  • Large on farm inventories has been weighing on corn basis values
  • Demand for new crop corn and soybeans is concerning traders, sales for new crop are down 36% on corn and 14% on soybeans from this year
  • U.S. remains overpriced in the global market
  • Global buyers opting to cover needs with cheaper South American offerings versus those from the United States
  • Brazilian farmers are beginning the 2016/17 Safrinha corn harvest.  Mato Grosso estimates that 54% of the newly harvested bushels will be exported

The photo below from NASA’s Goddard Space Flight Center satellite sensors show photosynthetic activity as indicated in the florescent glow. According to NASA, “the Midwest region of the United States boasts more photosynthetic activity than any other spot on Earth”. “The magnitude of the glow is an excellent indicator of the amount of photosynthesis, or gross productivity, of plants in a given region.” It’s believed that the amount of “glow” seen in these images may be used in the future to help monitor crop health as well as assist in predicting regional crop yields.   

June 2017 was the driest in history for several regions of the country.  Many of these locations received 70% or less of their normal rainfall totals during the month.  According to research from F.C. Stone, “history shows that in many years with a dry June, corn production falls short of trend by an average of 7%.” For reference, if we were to have this occur this year the national average corn yield would be 161 bushels per acre.  While much of the Corn Belt has seen less than ideal rainfall the grain markets have been reluctant to respond due to irrigation and the prevalence of genetically modified crops which have shown drought resistance in previous years. Looking at the upcoming forecast the latest 6-10 and 14 day outlooks are in agreement that the heat ridge that has been in the western region of the U.S. is expanding east next week.  The next big weather story could be corn pollination taking place during the heat wave in 95 to 100 degree heat.

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