Perspective: Mid-Day Commentary for May 18

By: Arlan Suderman, Chief Commodities Economist

Thu, 18 May 2023, 16:02

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

May 18 - The tech sector pushed to new highs for the move as progress continues in the debt ceiling talks, and economic data continues to show resiliency in the economy. In fact, the VIX is trading near 16 as we approach midday, while the dollar index is trading at an eight-week high near 103.5. Yields on 10-year Treasuries are trading at two-month highs near 3.64%, while yields on 2-year Treasuries are trading at four-week highs near 4.22%. Crude oil prices are more than 1% lower, while the grain and oilseed sector is mostly lower as well, with the primary exception being modest gains in soyoil following recent sharp losses. Kansas City and Minneapolis wheat leads the way lower for the grain complex amid confirmation of European milling wheat coming to U.S. mills due to the high prices of our hard wheat. That tells the market that it overshot the value of the hard red winter wheat crop, despite its massive short comings due to drought. Corn and soybean prices continue to add to their recent losses amid week export sales demand. The bears have the momentum, and there's simply not a story out there currently to change the narrative. Nonetheless, the Wheat Quality Council is expected to release a very low hard red winter wheat production estimate for the wheat-state of Kansas after the close of trading today.

USDA released a dismal export sales report this morning that does little to change bearish sentiment in the markets. Of the four major grain and oilseeds, only soybeans had net positive export sales last week, and they were barely positive. Last week's Chinese corn cancellations had little other positive sales to offset them. As such, net export sales for the week ending May 11 resulted in net cancellations of 13.3 million bushels of corn, 1.5 million bushels of wheat, and 0.1 million bushels of grain sorghum, with positive net sales of 0.6 million bushels of old-crop soybeans. Net new-crop sales totaled 2.9 million bushels of corn, 24.4 million bushels of soybeans, and 12.4 million bushels of wheat. This was again the first time in the past quarter century that we've had net negative old-crop corn sales in this week of the year, putting marketing year to date corn export sales 108 million bushels below the seasonal pace needed to hit USDA's target, with actual shipments 117 million bushels below the pace. Keep in mind that USDA has already slashed its export target by 28% from last year's level. Marketing year to date soybean export sales fall short of the seasonal pace needed to hit USDA's target by 91 million bushels. Actual shipments still exceed the seasonal pace by 55 million bushels, but that gap is rapidly shrinking. Brazil is largely responsible for shrinking demand for U.S. corn and soybeans, with rapidly rising levels of production. Even Mexico is now starting to buy a significant quantity of Brazilian corn.

This year's corn and soybean planting pace is going well across the Midwest, with the largest exception being the northern Red River Valley, where spring wheat planting has been a problem as well. Soils were quite saturated following the melting of a deep snowpack this year, followed by times of rain showers. This is where we are most at risk of seeing 1 - 3 million acres of prevent plant. I remain cautiously optimistic, but the risks are rising with forecasts shifting wetter over the past couple of days for week #2. That would take us to the first of June. Crops can be planted later than that, but at a price. The past five days have not seen a great deal of moisture, but there have been showers to slow the drying, and we'll see a few more of those near-term. Temperatures should be warmer than normal over the coming week, with generally dry conditions, before rains reach the region late next week. As such, the focus will be on how many acres are able to dry out enough to be planted over the coming week. Elsewhere, it looks good to get the crops planted, with a possible modest increase in acreage planted to corn and soybeans in the rest of the belt, followed by what is expected to be a favorable El Nino growing season.

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