Gains remain muted by uncertainty around Chinese buying intentions
Good afternoon! How are your crops surviving the heat? Click here to take our ongoing Feedback from the Field survey on 2021 crop conditions. Our Google Map, updated daily, provides all past responses for farm readers. Check out our latest Feedback from the Field analysis to see the most recent farmer comments from around the country.
Corn: The bullish momentum from yesterday’s Crop Progress report, which trimmed corn and soybean ratings across the Heartland, stalled in today’s trading session, propelling corn futures to a mostly flat trading day as bargain buyers snapped up contracts. Uncertainty about export demand capped the day’s gains.
U.S. corn exporters reported the three largest monthly volumes for international corn shipments between March and May 2021. So it should come as little surprise that ADM saw its second quarter profit rose an astonishing 52% on bullish corn exports and profitable oilseed crushing margins.
In its quarterly earnings call early this morning, the processing giant beat out earnings expectations on the sentiment, sending share prices up 1% to $59 at last glance. Quarterly revenues appreciated nearly 41% to $22.9 billion.
Corn sales to China contributed to the lion’s share of the company’s eye-popping second quarter. But the company remains leery of Chinese buying activity as the U.S. crop approaches maturation. China increased corn acreage this spring and markets have struggled to gauge potential impacts of a larger crop against rising global grains demand.
Tight global edible oil supplies were also a leading factor in the company’s quarterly earnings appreciation. ADM profited off of strong crush margins as the food industry scrambles to source adequate volumes of soyoil in the post-pandemic era.
Farm Futures contributing analyst Bryce Knorr reminds growers that the August WASDE is coming up and farmers may want to start creating some hedges against further downside price risk ahead of USDA’s updated yield estimates.
“While new crop lags nearly a dollar below May contract highs, history suggests potential for more pain ahead,” Knorr cautions in the latest Ag Marketing IQ column. “Over the past 10 years futures dropped half the time the day of the August report, and were lower six times two weeks later.”
Knorr argues that puts can be a valuable strategy to pursue in the event prices continue on a downward spiral, though pursuing that strategy may depend on your cost structure. “Evaluating options in this fashion isn’t easy,” Knorr surmises. “But knowing how a position might respond can help decide whether it’s better to pay a little or a lot for a put – or perhaps forgo this type of protection altogether.”
Soybeans: Soybean prices also continued higher today after USDA cut 2% from good to excellent crop ratings in the latest Crop Progress report. Despite favorable weekly loading volumes reported from USDA yesterday, traders remain concerned about Chinese soybean buying paces as the country’s soybean crush margins grow increasingly tight.
Livestock carcasses continue to litter the flood waters of Central China’s Henan province. As the carcasses decompose, fresh batches of pathogens will be created that could potentially spread to other animals – and humans – in the region if disinfectant measures are not quickly taken.
Henan, which is China’s third-largest hog producer, is estimated to have lost thousands of livestock, namely pigs and chickens, in the recent floods that ravaged Central China. The rains increase the likelihood of another round of African swine fever outbreaks as the virus easily spreads through contaminated wastewater.
Last winter’s ASF outbreak in China is largely believed to have been tied back to flooding that previous summer. ASF destroyed over half of China’s hog herd following the virus’ onset in 2018. Hog farmers in the region are scrambling to source disinfectant materials following the recent floods to curb further spread of the virus.
Have the recent price fluctuations in the grains market left you excited or stressed out? Advance Trading’s Eric Meyer points out that a good marketing plan can make the difference between the two. Meyer expects that the excited farmer likely has price floors in place to hedge against downward price potential. Similarly, this group likely has strategies in place to capitalize on upward price movement as well.
Meyer encourages farmers to take control over their marketing plans while price remain profitable in a recent Ag Marketing IQ column. “The markets can go higher or lower but it’s no reason to feel stress.”
Wheat: Chicago wheat prices traded $0.02-$0.03/bushel lower at last glance as a large Russian crop is expected to be harvested in the coming weeks. Variable hard red winter wheat yields pulled up Kansas City futures prices by $0.02-$0.03/bushel as harvest activity shifts into the drought-plagued Northern Plains. Spring wheat futures continue $0.01-$0.03/bushel higher on that sentiment as well.
Russian agricultural consultancy Sovecon expects Russian wheat exports to edge lower in the 2021/22 marketing year as a rainy harvest season and farmer hesitancy to sell the freshly harvested wheat crop slows export rates. Sovecon expects Russia will export 1.36 billion bushels of wheat in 2021/22, down nearly 4% from the consultant’s previous estimates.
Russia continues to update its ongoing wheat export tax on a weekly basis. The added cost has deterred some Russian growers from booking sales in hopes of more lucrative pricing options in the future. “Many farmers still prefer to postpone sales, hoping that the current export tax could be lifted in several months,” Sovecon’s Andrey Sizov said.
“In our view, this looks like wishful thinking, but it does slow down exports."
Sovecon expects Russia will harvest 3.02 billion bushels of wheat in the coming weeks. Current USDA forecasts peg the crop at 3.12 billion bushels. Russia is the world’s largest wheat exporter.
Weather: The recent heatwave finally has an end in sight, according to NOAA’s short-range forecasts. Hot and dry weather will likely dominate the forecast early this week but expect temperatures to moderate across the Corn Belt by Thursday. The cooldown bodes well for crops – especially corn crops that are entering into peak pollination activity this week.
While there is a chance of scattered showers in the Great Lakes region today and tomorrow, don’t expect significant accumulation for crop areas enduring heat stress. Northern Wisconsin and Michigan could see the best prospects for about a quarter inch of accumulation over the next 24 hours.
Wind may be a factor in the Northern Plains today, with gusts topping 20 mph blowing through North Dakota.
Financials: Coronavirus cases in the U.S. rose to 34,535,436 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. It was a daily increase of 90,666 cases – one of the largest daily caseload increases since vaccinations rates peaked earlier this year. The death toll increased to 611,007 deaths as of this morning.
The CDC announced today that all persons, vaccinated and unvaccinated, are recommended to wear masks in indoor spaces in areas of the country where COVID-19’s Delta variant is spreading at high rates.
According to the CDC, 69% of U.S. adults have received at least one COVID-19 vaccine. Over 163 million Americans (49%) are fully vaccinated. Over 3.9 billion vaccine doses have been administered worldwide.
It’s halfway through the 2021 growing season and Water Street Solutions CEO Darren Frye points out that it is a great time to evaluate how your farm’s progress towards financial goals are going. “You can revisit projections created earlier in the year to make updates and changes, now that you probably know more information about things like costs, revenues, and the current state of your crops,” Frye suggests.
In the latest Finance First column, Frye recommends that farmers take some time in the next few weeks to evaluate 2021 crop year projections, long-term operational goals, and financial metrics. “Once you’ve checked in with these three areas, you may have a clearer picture of where your operation currently stands,” Frye explains.
“Then, use that information to determine whether you need to make any changes to your marketing plans, as well.”
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