Commodity Blog

Jul 16 2020

Summer 2020 Grain Market Outlook and cmdty Updates Series - Part 2 Recap

Yesterday we hosted the second segment of our Summer 2020 Grain Market Outlook and cmdty Updates Series, giving attendees the latest on the grain market as well as what’s new with cmdty by Barchart. If you missed it, you’ve come to the right place!

Darin began by reminding us that because we are at the very midpoint of summer, weather is everything right now. He first wanted to take a look at the corn futures market, which he says is nothing more than a tradeable weather derivative. He said that when there is adverse weather across the Midwest, noncommercial traders buy and corn futures go up and on the flip side, when there is favorable weather across the Midwest, noncommercial traders sell and corn futures go down. He also wanted to point out that it is important to keep an eye on intrinsic value (cmdty National Corn Price Index) and fundamentals (basis and futures spreads).

Darin then explained that Soybeans act similar but also have a more geopolitical component and are more reliant on Export Demand. Darin pointed out that looking ahead to the 2020/21 marketing year, we are looking at total supplies up to almost 4.8 billion bushels, similar to the 2018/19 marketing year after dropping off about 400 million bushels for the 2019/20 marketing year. We’re looking at almost 84 million acres planted, on average yield almost 50 bushels to the acre, giving us production of around 4.1 billion bushels. But he says the question is, is this realistic? He said if we don’t pick up the pace of exporting, we could come up 100 million bushels short.

Darin then went on to explain what the soybean market itself is saying. There is a total cost of carry of almost 20 cents, meaning the spread is covering 30% of full commercial carry. He then pointed out that anything less than or equal to 33% is considered bullish and that something about the fundamental analysis of the soybean market doesn’t seem to fit…

To summarize, based on market type, soybeans have been the most bullish Type 1. However, noncommercials hold a large net-long and could liquidate and he pointed out that there is more trouble brewing between the U.S. and China. Old-crop exports could come up 100 mb short of expectations, while nobody knows about new-crop.

After explaining the current state of the soybean market, Darin dove into the corn market. He wanted to remind viewers that the DNAI Supply and Demand table is based on his analysis of marketing year daily average price of the cmdty National Corn Price Index (weighted national average price), the intrinsic value of this key market. He correlates the daily average price with ending stocks-to-use, the reverse engineer ending stocks and the rest of the supply and demand categories. His analysis shows a near 100% r-squared value between price and ending stocks-to-use percent. And he wanted to note that USDA is about to close the book on its 4th consecutive marketing year of grossly overstating U.S. ending stocks.

This year, Darin expects beginning stocks of corn to be around 1.7, while USDA expects around 2.2. Will we ever see an adjustment from USDA? Darin says no and that when you look at the intrinsic value of the market, we see the real supply and demand situation is nowhere near as bearish as what USDA continues to say.

In the end, Darin said that what happens with corn depends on weather and support could come from a round of noncommercial short-covering buying. Futures spreads and basis remain bullish, but could change, and seasonally, the market tends to come under pressure. Darin explained that we need to keep an eye on ethanol and feed demand in the latter half of summer.

To wrap up the market outlook, Darin touched on the winter wheat market saying it was explosive yesterday. He explained that bullish Chicago (SRW) spreads indicate a tighter global supply and demand situation and that a contra-seasonal rally is possible.

Michael then took over to tell the audience about the latest updates within cmdtyView, starting with Yield Forecasts. In cmdtyView, you can view forecasts not only by state, but also by crop reporting districts, counties, and at the National level. Users also have the ability to chart these forecasts to see how they’re trending and compare them. For example, you can view the Iowa Forecast, the U.S. National Forecast, and overlay them with the price of corn.

We produce these forecasts daily based on a number of factors including satellite imagery, USDA corn and soybeans condition reports, soil moisture, and more that we have built a regression model around. Within cmdtyView, you can also view this data in a map geographically. You can visit this link to sign up for our free yield forecast report to receive these twice per month, or you can view these within cmdtyView where they update on a daily basis.

Next Michael wanted to showcase to the audience some fundamental data including crop progress and crop condition. Within cmdtyView, you can view the current progression for both soybeans and corn, as well as seasonally for as many years back as you want.

Michael then showed that similarly to progress, you can view the current conditions for both corn, soybeans, and wheat. Within the U.S. you can see how much of the crops are in excellent, good, fair, poor, and very poor condition, as well as the history. The displays are pre-built but you also have the ability to create your own.

Michael also explained that we have recently expanded on our international cash data. He showed international data for grains and oil seeds as an example and how you can view the history by table and by chart. We have also recently added international data for softs, including sugar, coffee, and cocoa, dairy and livestock, as well as tea, spices, and rubber. Some other types of data that we’ve added are ethanol and biofuels from SCB.

This grain market outlook was extensive and there was far too much valuable information to fit in a single blog post, so be sure to check out the full webinar here. There is still one webinar left in this Summer 2020 Grain Market Outlook series, plus, cmdty by Barchart is constantly adding new data and technology, so be sure to click here and sign up for the third webinar taking place on Thursday, August 6th!

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