Closing Market Comments May 26, 2021

Today’s Prices

Grain markets finished the day mixed as weather still looks favorable but China is rumored to be in looking for U.S. corn.

Grain Market News

Weekly Ethanol Production

One industry benefitting from the recent price break is the ethanol industry. Ethanol production has shot up over the last 2 weeks, over a million barrels per day the last two weeks. This week as down slightly but still well above the level needed to reach USDA’s current corn use estimate. If this pattern of higher production continues through the summer, USDA may have to raise its current forecast for corn use in the ethanol industry and that would be a positive for the balance sheet.

Weekly Stocks of Fuel Ethanol

Despite gradually increasing ethanol production as  more and more restrictions are lifted, ethanol stocks are declining on a consistent basis and have been going back to about the first of March. Our current ethanol stocks at 18.986 mil barrels is easily the lowest stocks level for this time of year and the lowest stocks in about 4 years. The positive news is that the decline in ethanol stocks is taking place despite a gradual increase in ethanol production.

Ethanol Profit Margin

This is the ethanol profit margin chart which would be cash margin estimated for ethanol plants in Iowa and it’s courtesy of The Hightower Report. Last week on May 14th ethanol profit margins at the plants in IA were about $0.45/bu. We’re hearing this week because of a further sharp drop in corn prices is well above the $0.60/be level. These are extremely profitable margins for ethanol plants, in fact, the most profitable in many years. The combination of extremely profitable margins and expanding ethanol use due to more gasoline being consumed as restrictions are lifted are both positive items for corn use and the ethanol industry.

Corn and Ethanol Futures

This chart plots corn in green with prices on the left margin and ethanol prices in red and on the right margin. Typically corn and ethanol travel in a somewhat similar direction. Last year when covid-19 started having a major impact, corn prices were falling slightly but ethanol prices collapsed. That collapse in ethanol prices promoted a reduction in corn use in ethanol plants as more and more ethanol plants were being shut down. In Jan, Feb, and Mar, corn prices shown in green were rallying and ethanol prices shown in red were rallying. Then both corn and ethanol shot sharply higher in April and into May. But recently corn prices have collapsed while ethanol prices have held steady around $2.33/gal over the past 2-3 weeks. This combination of sharply lower corn prices and steady ethanol prices has allowed those margins to increase dramatically at ethanol plants and that is very good news for demand for corn.

Grain Market News

Normal Rainfall for June

The darker brown is 4-5” and the red is above 5”. Most of the U.S. corn and bean belt is 4-5” of rain in June with areas in IA, MO, and KS typically seeing about 5” during June. As you would expect, lighter rains as you get into the western Plains where 2-3” are common in the far western Plains.

Normal Rainfall for July

This map is for the month of July. It’s similar but you do see a reduction in red. Mostly about 4” of rain in the month of July, lighter totals creeping into the western belt where central ND and SD are closer to 3”.

Normal Rainfall for August

The normal rain for August continues to gradually reduce rain in the hotter, dryer portion of the summer. 4” is in the central and north central portion of the belt with 3” more common along the Dakota/MN border and also some lighter totals are developing in the Delta region.

7-Day Observed Precipitation

Over the past 7 days we’ve seen some pretty good rains in much of the belt. Anything in green is a half inch or more so most of the belt has seen 0.5” or more with yellow areas saw 2” or more. Areas to watch would be areas in blue with less than 0.5” of rain which includes western MN, eastern SD, and then a large share of the eastern belt has seen very little rain over the past 7 days.

30-Day Observed Precipitation

If we expand this map out to the last 30-days. Most areas should be seeing at least 4” of rain over the past 30 days. That means areas with browns, oranges, and reds have seen average or above average over the last 30 days. Areas in green are less than 2” of normal and that is where we have a concern going forward if we can’t’ get better rain. The blue areas are areas that have seen 0.5” or less and those are the areas that are very dry right now and need rain quickly to keep crops from seeing stress. We do want to note the areas that are dry are relatively small and the heart of the U.S. corn and bean belt is in pretty shape.

30-Day Observed Precipitation % of Normal

But its clear to see as we look at the 30-day precipitation as a % of normal that portions of the southern Great Lakes and the upper Midwest into the northern Plains are the driest areas. And even though IA has gotten some rain, most of IA has had below normal precipitation over the last month. We’ll also note some significant dryness developing on the eastern seaboard. This isn’t a major grain producing region but if it would expand further there could be concern developing in the OH River Valley. This again is something we’ll need to watch.

7-Day Precipitation Forecast

We mentioned the near term forecast is favorable. It’s the long term forecast that is showing some threat. Over the next 7 days 1-2” of rain is expected across all of the Plains and most of the central U.S. corn and bean belt. A little bit lighter to the north and to the east and very little rain in the far southeastern U.S. where drought conditions are starting to develop. We don’t want to get overly bullish on weather because the heart of the corn and bean belt looks to be getting pretty good rains over the next 7 days but the fact that forecast is starting to look possibly more threatening is a reason to be cautious as far as making any more sales.

6-10 and 8-14 Day Forecast

Our longer term weather maps show heat building in the northern and northwestern belt in the 6-10 and 8-14 day and that’s combined with drying conditions for the Dakota’s and MN which includes portions of northern IA and northern NE. This is a long ways out but it certainly needs monitored as we enter the first portion of June. Before we get overly bullish, the heart of the belt in the central U.S. should have about average temperatures and about average precipitation. We do think its important to note the dryness that is being hinted at in the northwestern belt and northern Plains.

July Corn Chart

Corn prices are in a sharp downtrend, in fact, we posted new lows today down to $6.02 earlier this morning. That’s down $1.33 from the highs just 3 weeks ago. One positive note in today’s corn trade, the low at $6.02 but we closed at $6.24. So we closed $0.22 off the daily low. Now it’ll be important to see if the market can see some follow through and maybe a little bit of an outside day up in tomorrow’s trade.

July Soybean Chart

Beans are also in a sharp downtrend. They have been for the past 2 weeks or so. Today’s low at $14.89 is a new low for the move and over a $1.70 from the highs posted on May 12th. It’s worth noting that technical indicators are extremely oversold. Prices have fallen to that double bottom at $14.90. The upward trendline and 40-day all converging in that area. That is where prices are now. That looks to be an area with fairly solid support on the chart if it can hold.

July KC Wheat Chart

Wheat prices also sharply lower over the last 3 weeks. Today’s low at $5.88 coming right down to trendline support. Technical indicators at zero. We’ve mentioned over the last few days that although we’re oversold and likely below fair value, there is no sign of bottoming action in wheat. The only good news today is that we closed at $5.98 which is a dime off the daily low. But still a pretty negative chart but this is no place to be making sale of wheat. If you’re a buyer of wheat this is likely a place to be stepping in with new ownership.