The market took a good hit to start December and it seemed there was no stopping the sell off. The selloff is healthy and very much needed. The markets were all overbought and in need of a correction.

The funds had been aggressive buyers for the past few months, allowing for little chances for pullbacks during the rally. A fast up-swinging market cannot hold its steep rally as most burn out from exhaustion. So a slower, less steep rally is healthier and has better chance of survival as it is building a strong base. At some point, a pullback was inevitable to help clean up an overbought market condition and to allow for new traders to enter the market.

Think of it this way, no one wants to buy when prices are increasing, but once an item goes on sale, you become more interested in owning. The same scenario is playing out in the grains. While the market is rallying, new buyers are reluctant to buy as they expect the market to retrace or set back. But once the market becomes cheaper, the traders that were sitting on the fence have more courage to buy.

Timing was perfect with the end of the month and the official end to the 2020 growing season. On Nov. 30, the U.S. Department of Agriculture released its last crop progress report for the 2020 crop year. The report was negative as it showed a much larger than expected increase in the winter wheat crop condition rating. Traders were expecting to see wheat conditions improve 1% but instead they improved 3% to 46% good/excellent. All southern states saw solid improvements in the crop as it was the northern states that saw the declines.

To add pressure, weather forecasts for South America are improving. The first week of December had hit-and-miss showers covering most of Brazil and Argentina, but more general rains are in the forecast for the second week of December. Early forecast is showing the rains to cover a majority of both countries. But the third week of December’s forecast has hot and dry conditions returning. It’s important to remember that South America is a rain forest — it is going to rain. The key is how much falls and the coverage area. That will be watched closely in December.

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Stats Canada’s final crop production estimate was released on Dec. 3, and it held a few surprises. All wheat production was larger than expected, coming in at 35.18 million metric tons, 8% above last year and 2% above expectations. It was also the second largest wheat crop in Canada’s history. Spring wheat production was actually friendly as it came in 1% lower than last year at 25.84 million metric tons. Durum production offset that friendliness though coming in at 6.57 million metric tons, up 31% from last year and 3% above expectations. The big change in wheat production came in winter wheat. Production was estimated at 2.77 million metric tons, a 63% increase over last year.

Canola also held a surprise for the market. Canola production was estimated at 18.72 million metric tons, 5% lower than last year and 3% lower than expected. This was the lowest canola production estimate for Canada in five years.

Although the grains did see a slight retracement the first week of December, any real pressure will likely be limited until USDA’s December Crop Production is released on Dec. 10. Traders are not expecting to see much change in wheat’s supply and demand estimates in this report, but there could be further adjustments to corn and soybeans. It is unlikely USDA will make any more adjustments to corn’s demand estimates, but production could be trimmed slightly. The focus of the report will be on soybeans. USDA made significant cuts to production in the November report but no adjustments to demand. Traders are expecting USDA to increase soybean exports in this report as well as crush. It would not be a surprise to see crush increased 10 million to 15 million bushels and exports increased 50 million bushels. That would result in a 60 million to 65 million bushel decline in stocks, putting stocks in the 120 million to 130 million bushel area.

Wheat was coming off a week of gains and traders were hoping that wheat could put together back-to-back stronger weeks, but that was not the case as wheat ran into a buzz saw. Reports that Russia was looking to increase wheat exports from 15 million metric tons to 17.5 million metric tons in 2021 pressured the U.S. wheat exchanges. Light selling was also due to reports Australian officials increased their wheat production estimate to 31.2 million metric tons versus 28.9 million metric tons last month and 15.2 million metric tons last year. This would be Australia’s largest wheat crop since 2016. And the trifecta for wheat came from expectations of higher U.S. winter wheat acres as this fall’s higher wheat prices likely attracted more winter wheat acres to be planted. If realized, this would be the first time in eight years winter wheat acres have increased.

The weakest link in wheat continues to be export demand. Last week’s wheat export shipments pace was estimated at 18.5 million bushels and sales were at 16.4 million bushels. After 26 weeks, wheat shipments were at 49% of USDA’s expectations versus 48% last year while sales are at 70% of expectations versus 63% last year.

Corn has been the best performer this week as strong demand has limited traders’ willingness to sell. A few export sales were even large enough to show up on the daily export sales report as an unknown destination was in early in the week and bought 344,000 metric tons. Traders were also encouraged by the fact that 40% of last week’s export shipments headed to China. A prominent crop scout decreased their production estimate for Brazil by 2 million metric tons to 104 million metric tons. Brazilian officials are estimating planting progress at 94% complete versus 93% average.

Technically, corn put in a key reversal down formation on Nov. 30 (higher high and lower low than the previous session and lower close) and that formation was confirmed Dec. 1 with a lower close. But the lack of follow through the rest of the week could negate that formation.

Last week’s corn export shipments pace was estimated at 35 million bushels and sales were at 53.99 million bushels. After 13 weeks, corn shipments were at 15% of USDA’s expectations versus 13% last year while sales were at 57% of expectations versus 32% last year.

Up until last week, soybeans had been the stronger performer of the grains, gaining over $3.65 in the January contract. Pressure came from reports that most of Brazil and Argentina saw better than expected weekend rains with hit and miss rains expected to continue this week. There is also a good chance for general rains next week across all of Brazil and Argentina. End of month positioning and profit-taking added to the losses. Losses were limited by another strong export shipments report as a new record was set for the first quarter of the marketing year at 980 million bushels shipped versus 2016-17’s 959 million bushels.

As reported earlier, the ship carrying 1.1 million bushels of U.S. soybeans will reach Brazil this week, the first time in 10 years that port has received an international shipment of soybeans. In other Brazil news, a prominent crop scout lowered their production estimate for Brazil soybeans 2 million metric tons to 130 million metric tons. Brazilian officials are estimating planting progress at 83% complete versus 85% average.

Last week’s soybean export shipments pace was estimated at 74.8 million bushels and sales were estimated at 14.95 million bushels. After 13 weeks, soybean shipments were at 45% of USDA’s expectations vs 35% last year while sales were at 87% of expectations vs 57% last year.

Live cattle were stuck spinning their wheels last week with the lack of a cash trade causing most of the concern. Traders are expecting first quarter 2021 beef demand to increase due to the availability of a vaccine, but traders are reluctant to commit to the long side of the market. Packer margins continue to be strong. Feeders, on the other hand, did see a decent week as feedlots are willing to keep lots full on the anticipation of increased demand in early 2021. News of a possible stimulus package getting passed before end of year added support.

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