USDA Report Worksheet & Weather Models Show Development Of A High Pressure Ridge
Update for June 10th, 2020
Tomorrow the USDA will announce their June WASDE and Crop Production reports @11:00 a.m. C.T. The trade is not expecting to see any adjustments to the 2019-20 carryout but do expect a slight reduction to world carryout due to lower production totals in South America. Looking to the 2020-21 crop, traders are expecting to see slight increases in both U.S. soybean and corn carryout, world carryout is not expected to see much change.
Source: USDA, INTL FCStone Inc., Reuters
Corn futures saw a “corrective pullback” on Tuesday after corn prices reached a 7-week high the day before. Higher U.S. crop ratings, favorable weather for early plant development and beneficial rains accompanied by cooler temps for the remainder of this week all combined to pressure the market. Rainfall totals from tropical storm Cristobal that is bringing moisture into the Midwest will be closely monitored as some forecasts are showing a shift to a hotter and drier pattern in the long-range 6 to 15 day outlook and into July. Weather, as usual will dictate price direction for corn through pollination. Current weather models are showing the development of a high-pressure ridge over the Southern Plains. Where the ridge sets up and its movement over the next several weeks will be closely monitored by the market. With the funds short 270,000 contracts a high pressure ridge could be the spark that could lead to short covering if concerns escalate. The weekly planting progress shows 97% of the U.S. corn crop is planted with 75% in GD/EX condition. All key corn production states now have GD/EX corn ratings at 60% or higher.
Soybeans prices are up $0.40 to $0.45 from recent lows and are not at levels we have not seen for a couple of months. But a 2% increase in the USDA GD/EX crop ratings this week and favorable weather conditions pressured prices lower. Reuter’s reported Tuesday that Chinese state-owned firms purchased “at least” 2 cargoes of U.S. soybeans out of the Pacific Northwest for December delivery. Always good news and particularly now with increased U.S./China tensions over Hong Kong and the coronavirus.
A bi-partisan group of 44 U.S. House members have signed a letter to President Trump urging him to deny the requests of governors from several “oil” states to wave RFS requirements to assist financially stressed refineries. The letter from House members states that the request should be rejected because it would, “only compound the challenges facing rural America and weaken one of the most successful clean air policies in the U.S.” They also pointed out that the requests do not meet the criteria under law for waivers of the RFS, “recent oil market volatility is the result of Covid-19 impacts on travel and lower demand for fuel combined with high production levels in Russia and Saudi Arabia, not the RFS. RFS regulations and requirements account for a drop in the demand for fuel with a proportional change in the volume of renewable fuel requirements”. Also there, “is an excess supply of RINs currently on the market and available to refiners, offering flexibility for RFS compliance.”
OPEC and allies have agreed to extend the production cuts first agreed to in April through the end of July. The Wall Street Journal reports the new extension agreed upon over the weekend targets a reduction of -9.6 million barrels a day vs the -9.7 in the original April agreement as Mexico has said they will not continue to limit production. In addition Libya is planning to restart some +300,000 barrels a day of production, as they are exempt from the quotas. U.S. oil wells are beginning to come back online now that prices have begun to recover and are back near $40. U.S. crude oil production during the final week of May averaged 11.2 million barrels a day still nearly 2 million less than the 13.1 million per day record of mid-March.
USMCA is set to start on July 1, removing much of the uncertainty for trade with our closest neighbors. As we approach the start date though there are still some unresolved agriculture issues that need to be resolved between the U.S. and Mexico and trade officials are voicing their concerns. To add to the tension, President Trump recently mentioned that the U.S. should not allow any trade deals that allow for live cattle to be imported into the country. Such a change would essentially invalidate the USMCA trade agreement. (Politico)
Following Cristobal we can begin to see the development of a drier pattern. From the 13th through the 17th much of the Corn Belt can expect to see cooler and drier than normal conditions (represented in the first maps below).
In the following maps for June 20th to July 3rd the significantly drier and hotter pattern arrives for most of the country.