Another year has come and gone. The year 2020 will certainly go down in the record books as one we soon hope to forget. But when looking back, maybe not all of it was bad. As most news sources have already stated, the leading story for the year was COVID-19. Since March that has been the focus of everything, from government reaction to the economy.

But in ag, the lead story has to be demand. The bull run of 2020 has captured the attention of many, not only for the size of the rally, but the length of the rally. Weather rallies usually last three to five days. A good weather rally can last as much as seven to 10 days. But this rally has lasted almost five months. So maybe weather started the rally but has not been the main reason for the rally to continue.

Demand is the root of this rally. Looking at exports, corn export sales for 2020 are 900 million bushels higher than 2019. Soybean exports are 525 million bushels higher in 2020 than in 2019. And the thing about demand rallies, they can last as long as it takes to satisfy the demand. Now combine the increase in demand, a decrease in production, and concerning weather, and you have a bull market that has run for five months.

It has taken wheat a long time to finally start participating in the rally, but this month wheat has made a good push. A lot of the strength in wheat is spilling over from the other grains. Wheat is in a bind. If wheat prices do not keep up with corn and soybeans, it will lose acreage. Now wheat stocks have tightened up some but by no means are U.S. wheat stocks tight. But if Russia follows through with their quota and export tax on wheat, it might result in an increase in U.S. wheat exports. Also, rumor has Brazil looking at sourcing some wheat out of the U.S. due to slow shipments out of Argentina (due to the strike). But the main focus for wheat in the short term is to follow corn and soybeans close enough to hold onto winter wheat acreage and stay competitive enough to not lose a majority of the spring wheat acres.

A breakdown of wheat’s rally this year has March Minneapolis wheat up 77 cents from its August low, September Minneapolis wheat up 66 cents from its August low, March Chicago up $1.55 from its June low, July Chicago up $1.33 from its June low, March Kansas City up $1.72 from its August low, and July Kansas City up $1.59 from its August low.

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Corn has consistently been the strongest market, not so much in the amount the market has rallied, but in how many days corn has rallied. Corn has posted gains for 13 straight sessions. Production concerns in the U.S. and South America helped to push corn higher, but so has the increase in demand. Corn exports have increased just shy of 900 million bushels year over year due to a huge increase in China buying. South American production is not out of the woods yet as Argentina continues to see production estimates lowered due to dry conditions. And weather forecasts for Argentina are not showing any improvement. Top that off with the formation of a drought in the U.S. Of course, the U.S. drought situation can change in a heartbeat, but spring forecasts are calling for the Corn Belt to remain dry. Corn stocks are not as tight, but if there is a production issue corn prices could become interesting.

What was interesting about the Dec. 28 performance was that corn was the only market to hold its gains and not only hold its gains but also close at new contract highs while wheat and soybeans faded in the second half of the session. Corn needs to hold its gains to participate with soybeans for acreage in 2021. Spread trading was also evident as traders were unwinding long soybean/short corn spreads. Jan soybeans are also about to go into delivery, so a bit of rolling and spread unwinding was seen there as well.

March corn has rallied $1.44 off of its August low and December corn is 77 cents off of its June low.

What can you say about soybeans that has not already been said? The battle cry “beans in the teens” became a reality on Dec. 30. What is impressive for soybeans how much the market has rallied. It goes to show what happens when massive demand reenters a market combined with a large production cut. China’s return to the U.S. export program has made a huge difference. I hate to say it but China’s return likely had little to do with the Phase One trade deal. It had to do with China’s massive increase in soybean demand. South America ran out of soybeans and had to import soybeans from the U.S. That officially left the U.S. as the only major supplier of beans in the world. It did not hurt for the U.S. to also have the cheapest beans in the world due to increasing prices in Brazil as they tried to ration what little supply they had left. In the end, U.S. imports increased over 500 million bushels and production was trimmed 250 million bushels, not to mention the increase in domestic crush. Those adjustments were enough to take a close to 1 billion bushel ending stocks estimate down to 175 million bushels. And that estimate is likely to decline more as the U.S. Department of Agriculture will likely increase exports further.

January soybeans have rallied an impressive $4.72 from their April low. November soybeans have rallied $2.79 from their April low.

It does not appear that this rally is over yet. The market is expecting the Jan. 12 Final Crop Production estimate to be friendly. Maybe that will be the event that puts a short-term top in this market?

It seems like a broken record, but the grains continued to get their direction from South American weather forecasts and news on the Argentina strike (the strike ended mid-week with little influence on the U.S. grains). Weather continues to be supportive as northern Brazil continues to see adequate rain. Central Brazil is seeing hit and miss timely rain but remains on the dry side. The southern regions of Brazil continue to be dry as does Argentina and the long-term forecasts are calling for both of those regions to remain dry. The next two weeks has Brazil seeing 15% to 20% of its region remaining in drought stress while Argentina is expected to see 50% to 65% of its growing region enter into drought stress.

Not to make this anymore friendly than it is, but if you hadn’t noticed the grains have not really been following seasonal patterns during the second half of the year. Normally the grains slip into harvest, stage a small recovery once harvest hits 50% or so and then fade during the holiday season as traders clean up positions and prepare for year end. That has been just the opposite so far in 2020. Guess we should have expected 2020 to not perform normally; it hasn’t all year, why start now.

The grains are in need of a correction and that seems to be the focus of the overnight session and maybe that selling pressure will continue into the day session. A slight retracement to close out the year would be healthy at this point. Traders are continuing to sit on the edge of their seats waiting to see how USDA handles the Final Crop Production report, which is due out Jan. 12. Traders are expecting to see corn and soybean production trimmed in that report and it is likely USDA will increase soybean export pace. It not a question of whether soybean stocks decline, it’s a question of how much will stocks decline.

It's early, but the market will start to flip its attention to 2021 production. A majority of the U.S. growing regions remains dry, and spring forecasts are calling for that trend to continue. To top that off, soybeans need to add over 6 million acres just to make the supply and demand numbers balance. That means soybeans are going to try and buy another million to 2 million acres by spring, but at the expense of what crop?

Cattle continue to struggle as adequate short-term supplies continues to collide with slow domestic demand. The holiday season is always a little tough on the meats as this is not the season that beef is a feature, so domestic demand falters. Look for demand to slowly increase in 2021 as the country starts to return to normal. Feeders could see some added pressure especially if the grains continue to rally. Cash bids for live cattle have started to improve, which will help absorb some of the higher feed cost.

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