Overall, the condition of the 2020 U.S. corn and soybean crop is very good, and the soybean crop ratings make the top 3 ratings for this time of year over the last thirty years. The prospect of good yields adds to the pressure on futures prices, but the market has benefited from both demand and a weak U.S. dollar index.
Arlan Suderman at StoneX explains the benefit of a weak dollar for commodities trade across the world.
“The dollar continued to have some weakness this week and tried to bounce Tuesday after making new two-year lows Monday, and that bounce didn’t last long,” he said. “Historically a weak dollar is good for the commodities, helps us compete on the world market. With the crop ratings being so good overall, I know there are some problem areas, but nationally they’re so good we’re going to need to be able to compete on the global market to get rid of it.”
China has been in the marketplace buying corn, soybeans, and wheat lately. Suderman says they’re not so much fulfilling trade obligations as they are buying what they think they need.
“If they were totally committed to the phase one trade deal, I think they would be purchasing other products, ethanol and distillers grains. They’re not, but they do have a need for soybeans to get them to the Brazilian harvest that comes the first of the calendar year, and their corn supplies are getting very tight as well. So, they’re starting to buy corn. They’ve bought some wheat but they do have a lot of wheat supplies.”
Suderman says it appears China is fulfilling the wheat import part of the trade agreement. That is supportive of the market. What is his take on why the Chinese are making all the other purchases?
“Overall China is doing what China feels is in its best interest, and right now that’s to hoard as much commodities as possible because they still believe that coronavirus will eventually shut down our ports and shut down ports in Brazil.”
Better ethanol production is one indicator of better corn demand, and the update this week showed an 18-week high on production. The corn for ethanol grind is still lower than the same week last year, a weekly reality since the economic shutdown. Production has improved since the spring, 63 percent higher than at the lowest point, but still over ten percent off levels before the pandemic.