This Week in Commodities 7-31-20

China buys more US corn.

September corn futures were 10-1/4 cents lower this week to close at 316. December futures were 9 cents lower this week to close at 326. A huge sale of corn to China was announced on Thursday morning. Just over 76 million bushels were sold for the marketing year beginning in September. This is the single largest US corn export sale ever recorded to China and the third sale to China of more than 1.25 million metric tons in the month of July. The United States in July has sold at least 281 million bushels of corn for export. This is by far the largest July in recent history. Beef export sales were a marketing year high this week. Up 89% form the week before coming in at a total of 29,500 tons. Pork export sales were also rather strong coming in at 39,600 tons. Increased feed usage would be a welcome sign to corn demand which has been beaten down since March.

The month of July was rather volatile for the corn market, at least compared to the previous few months. After starting the month by trading to their highest level since mid-March, front month corn futures tumbled following the July WASDE report to close the month 23-1/2 cents lower. The major buying spree by China during July has not been enough to offset timely rains which undoubtedly have increased yields as well as demand woes on the ethanol sector of the market.

 

Soybeans lower this week.

September soybeans were 14-1/2 cents lower this week to close at 890-1/4. November soybeans were 6-3/4 cents lower this week to close at 892-1/2. 8 to 14 day forecast models show mild temp and less dryness. August is seen by many as the key month weather-wise as it pertains to the soybean market. A cooler and wetter start to the month is non-threatening and could put pressure on prices. After 10 straight days of soybean buying by China, the binge ended this week. US soybean sales through last Thursday have totaled nearly 280 million bushels. When combining both corn and soybean sales for the month of July the bushel total exceeds 560 million. This has been by far the biggest July in terms of export sales for corn and soybeans in recent history. Yet again, these sales must be taken with a grain of salt as they can be cancelled as we move into the new marketing year come September.

The US dollar ended July with its worst month since 2010 losing over 4% this month. While the dollar still remains “high” compared to the last 15 years another brutal month like July would be welcome to commodities. In the seven years following 2008 the US dollar spent much of its time at depressed levels and all-time lows. In this same time frame front month soybeans spent little to no time below the 10 dollar per bushel mark. Obviously other factors played into the price action of soybeans at that time, but the significance of the US dollar should not be taken lightly.

 

Wheat lower this week.

Chicago September wheat futures were 8-1/4 cents lower this week to close at 531-1/4. September KC wheat futures were 7 cents lower this week closing at 442-1/2. September spring wheat futures were 1-1/4 cents lower this week to close at 514. For the month of July Chicago wheat futures were 39 cents higher. A weaker dollar has much to attribute to this rally during harvest. Thursday’s Export Sales showed that for the week ending July 23, net wheat sales came in at 676,000 tons, all for the current marketing year. Cumulative sales have reached 37.2% of the USDA forecast for the 2020/21 marketing year versus a 5-year average of 35.7%. Sales need to average 363,000 tons per week to reach the USDA forecast.

 

Spot Cheese Lower Futures Higher

Cheese prices went lower in substantial fashion as the block/barrel average dropped over 25 cents on the week to finish at $2.2438/lb. The majority of the fallout was coming from the block market as it fell back from the astounding $3.00/lb levels we saw only a couple weeks ago. Prices are now retesting the highest of 2019 in the spot market. This may provide some level of support. The other part of the fat complex, butter, was hit hard this week as well losing 12.25 cents on the week. The majority of the selling all came in a single day where 20 loads were traded. It looks like somebody had inventory they needed to get rid of and pressed the market substantially lower. Powder and whey prices were unsubstantially changed this week. Powder continues to fail to get back above the $1.00/lb that serves as a psychological resistance for the market.

The July to December average for 2020 finished well below last week’s close of $19.85 to finish at $19.30 this week. Given the decline in cheese, you would normally have expected more of a pullback. The biggest thing to consider is that the market has priced in a substantial pullback in the market and we will have to see if the spot market meets its expectations. On Friday the block/barrel average dropped once again but futures actually traded higher. This just shows how far the cheese market has come still at $2.25/lb after a 25 cent down week in the market.

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Kelly Rubisch

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