Volatility is starting to increase as the market becomes more erratic. This is one of the major signs a top is near in this market. Usually when a market trades sharply higher and fades to end the session mixed, it is a sign of a potential change in trend. Another sign of a top, or at least a sign that trading is trying to be manipulated, is when margin rates start to increase. Margins requirements were seeing increases last week as well.
I hate to sound like a broken record, but the reason for the push continues to be the same. It’s odd that this market can keep pushing off the same old news. There is a saying in trading that the bull needs to be fed every day. Well, this bull run has been fed the same news day in and day out and has been able to maintain its strength. Sure, the adverse weather in South America continues to affect the potential size of their crop and demand in the U.S. remains in the upper range of estimates, but it’s been the same news that has pushed the markets from 10-year lows to six-year highs.
But last week a few wrinkles started to show up to cause the grains to stumble. Concerns about the Georgia Senate runoff and the new COVID-19 strain caused the market to stumble this week. The stock market reversal due to the new strain of COVID-19 and reports of slow vaccination progress all came into pressure all of the market this week.
The grains are extremely overbought and in need of a correction, but at this point it does not appear that one will occur in the short term. And if the market does retrace, it’s likely that any pullback ahead of the Jan. 12 Final Crop Production estimate will be limited due to thoughts that that report will be friendly.
On Tuesday, Jan. 12, USDA will be releasing a lot of numbers. Not only will the Final Crop Production estimate be released, but so will the Quarterly Grain Stocks and Winter Wheat Seedings reports.
Early estimates for the Winter Wheat Seedling Report: All: 31.53 million versus 30.4 million last year; hard red wheat: 22.14 million versus 21.36 million last year; soft red wheat: 5.88 million versus 5.56 million last year; and white winter wheat: 3.5 million versus 3.49 million last year.
Early estimates for the Quarterly Grain Stocks Report: Wheat: 1.695 billion bushels versus 1.841 billion bushels last year; corn: 11.33 billion bushels versus 11.95 billion bushels last year; and soybeans: 2.92 billion bushels versus 3.25 billion bushels last year.
Early estimates for U.S. ending stocks: U.S. wheat ending stocks: 859 million bushels versus 862 million bushels last month bushels last month; corn ending stocks: 1.599 billion bushels versus 1.7 billion bushels last month; soybean ending stocks: 136 million bushels versus 175 million bushels last month.
Early estimates for world ending stocks: Wheat ending stocks: 315.4 million metric tons versus 316.5 million metric tons last month; corn ending stocks: 283.5 million metric tons versus 289 million metric tons last month; soybean ending stocks: 82.6 million metric tons versus 85.6 million metric tons last month.
Wheat continues to be the weakest link in the grain complex. Support for wheat continues to spill over from the strength in the corn and soybean markets as well as from a lower U.S. dollar. Exports continue to be disappointing as the U.S. waits to see if Russia will follow through on its promise to slow exports in February. To add to the selling pressure, rain did fall in the U.S. Southern Plains last week which improved the crop. That was evident in December’s Crop Progress report. Some states released their December Crop Progress reports on Jan. 4, and wheat’s crop rating showed an overall improvement (mostly due to Kansas). The winter wheat crop ratings showed Kansas’s crop improved 13% while Colorado dropped 1%, Montana slipped 9% and Oklahoma slipped 6%. Texas did not release a report.
Corn was able to post solid double-digit gains again last week with support coming from weather reports showing Argentina was drier than expected over the previous weekend and that little relief will likely be coming this week. But there is a change on the horizon as general rains are expected to fall in 85% of the country by the middle of January. Reports that China has bought 11.1 million metric tons of U.S. corn versus 100,000 metric tons last year added to the support. The market is still trying to digest reports that Argentina has suspended corn exports until March 1.
The grain inspector strike continued in Argentina most of the week which has slowed shipping. The strike was settled by the end of the week, which will allow for shipments to resume. It is estimated that is will take Argentina two to three months to catch up on shipments.
The biggest concern hitting the corn market this week was reports that Mexico will be suspending all imports of GMO corn, with a complete ban by 2024. Mexico is the U.S.’s number one importer. To add insult to that, Chinese officials are reporting China will increase corn acreage in 2021.
Corn did see an export sale this week with 103,000 metric tons of corn being sold to an unknown destination. This helped corn break above $5, but technical selling and farmer selling stepped in to push the market below the $5 level. What has been the biggest surprise this week is that corn open interest has been increasing as the market is rallying, which is friendly as it indicates net new buying.
Last week’s ethanol production was estimated at 935,000 barrels per day, an increase of 1,000 barrels from the previous week. Stocks were estimated at 23.28 million barrels, a decline of 220,000 barrels from the previous week and the first decline in stocks in 10 weeks. There are starting to be some reports of ethanol plants closing due to poor margins.
Soybeans continue to be the leader of the commodities, posting decent gains for the week but well off the triple-digit gains seen the past two weeks. Gains were because of continuing dryness in Argentina and the grain inspector strike. Currently about 50% of Argentina’s growing areas are dry while 15% to 20% of Brazil’s growing regions are dry. Argentina’s soybean planting is now 90% complete versus 85% average.
The volatility peaked in the soybean market this week as at one point, soybeans were up 60 cents, before fading late in the session. Soybeans were able to put in 14 straight new contract highs before fading late in the week.
Reports had Brazil exporting just 274,000 metric tons of soybeans in December, the lowest monthly amount since November 2014. Soybean harvest has started in the Mato Grosso region of Brazil in areas where double crop cotton will be planted. Brazil’s Parana region, which has received decent rains, has 79% of the crop in good condition.
Gains were trimmed late in the week due to a very disappointing export sale estimate for the week of New Year’s. That week’s export sales pace was only 1.4 million bushels, a marketing year low. The sting of the low weekly export sales pace was lessened by reports of export sales. USDA reported sales of 343,000 metric of soybeans to an unknown destination.
Cattle continued to spin its wheels this week with live cattle once again ending the week with minor changes while feeders slipped more into the red. Live cattle were seeing strength from expectations of higher demand as the country begins to return to normal activity.
Gains were kept in check from political uncertainty as most adjust to the fact that the Democrats now have control of Washington, D.C. That has some worried about the possibility of increased taxes and the Green New Deal gaining traction. Concern lessened later in the week with the expectation that with the Democrats in control, a larger stimulus check is on its way.
Feeders struggled due to the higher grains. The outlook for cattle is friendly. We just need to pick up the vaccination pace, which will help get the general economy back on track.
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