This has been a tough week in the grain complex. For the most part, the grains had been on a one-way trip over the past six to eight weeks. In that time, from the most recent low to the most recent high, December Minneapolis wheat rallied 80 cents, December corn rallied $1.02, and November soybeans rallied $2.30. Last week, it seemed like all of the news switched from friendly to negative, and that resulted in the funds grabbing profits.

The rally in the grains was fueled by several reasons, one being production concerns because of dry conditions in the Black Sea, Argentina, Brazil, European Union, and U.S. Southern Plains. Last week, some of those regions were able to see rain, while other remain dry. Russia did pick up some rain that helped alleviate their drought situation, but it was not enough to reverse the drought as dry spots remain.

The U.S. Southern Plains has seen drought conditions this fall. That was evident in last week’s Crop Progress report. As of Oct 25, the winter wheat crop was rated at 41% good/excellent, 40% fair, and 19% poor/very poor. This is 15% lower than last year’s crop rating and 11% lower than the average trade estimate. Now fall conditions are not a real tell on how the crop will turn out, but it gives us a good indication of what obstacles the crop has to face.

As the week progressed, the Southern Plains did see moisture. Good rains and snow blanketed the central and western parts of the winter wheat belt. This rain will help to germinate later planted winter wheat.

Harvest progress was slower than expected by the trade, but that should not have been a surprise because of the wintry weather that has blanketed the Northern Plains and western Corn Belt. Corn harvest was estimated at 72% completed, 1% below expectations. With last week’s weather delays, half of the major corn producing states have now fallen behind their average harvest pace.

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Soybean harvest also fell short of expectations. USDA estimated soybean harvest at 83% completed, which was 3% below expectations. Like corn, due to the wintry weather, soybeans harvest fell behind in seven of the 18 states that produce 96% of the nation’s soybeans.

Last week’s export inspections report likely gave us a signal of the future. Soybeans shipments were extremely large last week, with most of the soybeans headed to China. But soybean shipments were so large that it slowed downed the ability to load out other crops. There is only so much loadout capacity, and last week the capacity was focused on soybeans.

The issues that helped the grains rally sharply higher are still in play. Export demand continues to be aggressive (although we have seen a slowdown in China’s purchases as of late). The U.S. still is the only game in town for corn and soybeans and the U.S. continues to be the cheapest source. If the rumors about China’s need to import corn are realized, the rally in the corn market is far from over. The rumor is China needs to import 1 billion bushels of corn in the next year to replenish reserves and to meet their growing livestock needs. The U.S. remains uncompetitive in the wheat export market, but if other regions continue to see production issues, the U.S. could capture a few sales. To add to that, the U.S. hard red winter wheat crop is not off to a good start and conditions were estimated at the lowest level since 1988.

The grains came under heavy selling pressure on Oct. 28. The bearish news had been mounting, but once corn and soybeans traded to another new contract high the night of Oct. 27, the rally uncovered sell stops which resulted in traders taking profits and the market has been on the defense ever since. The grains have had a significant run without much of a retracement, so in this correction is healthy, as long as it does not cut too deep.

Funds turned to be sellers as we approached month end. There will likely be a sizable reallocation of the funds taking place with how much the grains have rallied. That would result in fund long liquidation as they readjust portfolios.

Wheat saw pressure this week from improving weather conditions, not only in the U.S. but also around the world. A stronger U.S. dollar added to the selling pressure. The dollar was supported by economic concerns due to the recent surge in COVID-19 cases. Light activity was centered on the unwinding of long Chicago/short Minneapolis and Kansas City spread trades. Wheat exports were light this week as the only daily sale reported was South Korea buying 78,000 metric tons of U.S. wheat. Last week’s wheat export shipments pace was estimated at 13.4 million bushels while sales were estimated at 27.3 million bushels.

Corn has been supported by production concerns in South America as late planted soybeans will lead to late harvested soybeans and later planted corn with lower yield potential. This is significant because of the potential demand from China. China has already bought 10.6 million metric tons of corn from the U.S. as well as another 5 million metric tons from other sources (Brazil and Ukraine), China has a low tariff quota of 7 million metric tons, which means half of purchased corn could see a tariff of 65% of its value. It is expected that China will increase its low tariff quota for corn to allow for more corn to be imported to slow down price inflation.

The realization that the U.S. reached export capacities hit the corn market hard this week. Last week’s export shipments pace was disappointing as shipments came in below expectations and at a marketing year low due to a lack of capacity to load out corn due to the aggressive soybean shipments pace.

Last week’s corn export sales report was nothing short of bullish as last week’s sales were sharply above expectations and at a marketing year high. Corn’s export shipments pace was estimated at 25 million bushels while sales were at 88.3 million bushels.

Farmer selling remains light which has end-users worried about being able to secure enough corn to meet their needs. Harvest progress was not as far advanced as expected. Weather forecasts calling for rain in Brazil added to the pressure as this will help get planter rolling again. Brazil is estimating their corn planting progress at 53% completed versus 58% average.

Last week’s ethanol production was estimated at 941,000 barrels per day, up 28,000 barrels from the previous week. Stocks were estimated at 19.6 million barrels, a decrease of 120,000 barrels from the previous week and the lowest stocks level since 2016.

Soybeans were the only grain to see gains in a session this week. Early support came from last week’s export shipments report with shipments at a very impressive 97.9 million bushels and a high for the marketing year. The soybean shipments pace was so aggressive that it prevents other crops from being brought into the docks. Exports sales continued to be strong for soybeans this week, but China remains visibly absent. Last week’s pace was strong, but at a marketing year low as the previous eight weeks have seen tremendous sales. To date, China has bought 26 million metric tons of U.S. soybeans versus 6.2 million metric tons last year. In the end, soybeans slipped lower from a combination of factors: positioning before end of month, sharply lower outside markets on election jitters, coronavirus concerns and profit taking.

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