Technically the grains are in need a good pullback, but at this point, the concerns that have helped push the grains from 10-year lows to eight-year highs have not been answered. And they likely will not be answered until the South American crop is harvested and the U.S. crop gets planted.

Weather continues to be the short-term driver. Conditions in Brazil appear to have improved greatly. All of Brazil picked up good rains recently and more rain is in the forecast short term. The long-term forecast is calling for dry conditions to return in a couple weeks, but confidence is low. As for Argentina, good rains have been falling. Hot and dry conditions are expected to return soon.

Brazil has started to harvest soybeans in the northern regions. General harvest is expected to start soon. The central and southern regions are about to start the critical crop development stage. So, if hot and dry weather returns, it could cause further crop damage.

To add to that, Brazil’s second corn crop gets planted behind the soybean combines. If dry conditions remain, there is a good chance it will affect the number of acres that will get planted, putting further strain on the U.S. corn crop.

Corn seems to be emerging as the market to watch. It seems interesting that all of a sudden, we are hearing other countries looking at limiting their corn export program in an attempt to maintain domestic supplies. Both Argentina and Ukraine have made the decision to monitor corn exports and if necessary, implement programs to restrict corn exports in an attempt to protect domestic supplies.

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The U.S. does not appear to be in the same mindset for soybeans. The Jan. 12 report increased U.S. soybean imports by 20 million bushels, more than doubling the amount of soybean imports to 35 million bushels. The last time U.S. soybean imports were this high was in 2012 (the Corn Belt drought year). Now it is likely the imported soybeans will come from Canada, but the fact that U.S. Department of Agriculture thinks we need to import more soybeans tells us we are not at a price point to ration supply. And the recent export sales announcements seem to add to that thought.

The largest soybean crop in the world is about to be harvested, and soybeans are sitting at eight-year highs with little sign of backing down. That also says something. The U.S. must add 7 million to 8 million acres of soybeans just to replenish supply and give soybeans a comfortable ending stocks estimate. Barring any weather issues in the U.S., that is.

The Jan. 12 USDA reports were expected to be friendly, but no one was expecting the numbers to be bullish enough to send corn limit up (25 cents) within 12 minutes of being released. The anticipation of the report had most (me included) expecting that we were seeing a buy-the-rumor/sell-the-fact type situation playing out. And to a small degree that did happen, but as has been the case over the past four to six months, breaks are to be bought.

The report for wheat was a double-edged sword. The Final Crop Production report was friendly as was the Quarterly Grain Stocks estimate. But the Winter Wheat Seedlings report was slightly negative.

USDA made no changes to wheat’s 2019 estimates. USDA also left 2020 wheat supply numbers unchanged. For 2020 demand, USDA increased seed demand 1 million bushels and feed demand 25 million bushels. That 26 million bushel increase in demand followed through to show up as a reduction in wheat’s ending stocks estimate, putting ending stocks at 836 million bushels, 21 million bushels lower than expected by the trade. The national average price was increased by 15 cents to $4.85.

The Winter Wheat Seedings report was negative wheat as it showed more acres being planted than expected. All winter wheat acreage was up 1.576 million acres to 31.991 million, which was 463,000 acres more than the trade expected. Breaking down the classes of wheat: hard red wheat was up 938,000 acres to 22.3 million (160,000 more than expected); soft red wheat up 666,000 acres to 6.23 million (350,000 more than expected) and white winter wheat acres were down 9,000 acres at 3.48 million.

World wheat numbers were also friendly as the only changes were to Argentina’s production, which was cut 500,000 metric tons and Russia was increased by 1.3 million metric tons. World ending stocks were 3.3 million metric tons lower than last month at 313.2 million metric tons (that was 2.4 million metric tons lower than the trade expected).

The Quarterly Grain Stocks report put wheat stocks at 1.674 billion bushels, 167 million bushels lower than last year and 21 million bushels below expectations.

The report was the most bullish for corn, which was evident in corn trading lock limit up just a few moments after the report was released. The biggest surprise was not in the demand estimates though, but in the supply side, which is slightly concerning as a major part of this rally has been attributed to demand.

The changes USDA made to the corn numbers started in the 2019 numbers. USDA increased feed demand 76 million bushels, which in turn followed through to show up as a decrease in ending stocks; 2019 ending stocks are now estimated at 1.919 billion bushels.

In 2020, USDA cut corn supply by a whopping 400 million bushels. This was accomplished by a large cut in production, actually one of the largest cuts in production in history. USDA lowered planted acreage 200,000 to 90.8 million and reduced harvested acreage 27,000 to 82.5 million. But that was not the biggest news. That came in the 3.8 bushel drop in yield, which was the largest yield reduction for the Final Crop Report. This put yield at 172 bushels, 3.3 bushels below expectations. The net result was a cut in production of 325 million bushels, putting production at 14.182 billion bushels (the trade was only expecting a 37 million bushel cut).

But as you trim production, you have to also trim demand on the expectation of higher prices. USDA lowered feed 50 million bushels, ethanol 100 million bushels and exports were cut 100 million bushels for a net reduction in demand of 250 million bushels. The net result was ending stocks were cut by 150 million bushels to 1.552 billion bushels, 69 million bushels more than the trade was expecting.

The national average price was increased 20 cents to $4.20.

The Quarterly Grain Stocks estimate was also friendly corn. The stocks estimate was 5 million bushels lower than last year at 11.322 billion bushels while the trade had expected to see an increase of 624 million bushels.

For world numbers, Brazil’s production was cut 1 million metric tons to 109 million metric tons and Argentina’s production was cut by 1.5 million metric tons to 47.5 million metric tons. World ending stocks for 2020-21 were cut by 5.5 million metric tons to 382.8 million metric tons (that was 300,000 metric tons more than expected). Chinese imports were increased by 1 million metric tons to 17.5 million metric tons.

The soybean numbers had a little bit of something for everyone. Although the numbers came in close to expectations and on the surface did not seem to have a lot of substance, what jumped out at Martinson Ag was the increase in imports. USDA increased soybean imports by 20 million bushels, more than doubling that estimate from the previous month. Does this mean USDA expects the U.S. to run out of soybeans? If you remove the 35 million bushels of imports from the stocks estimate, stocks drop to just 105 million bushels.

USDA only made minor adjustments to the 2019 numbers. The adjustments consisted of a 7 million bushel cut in residual and a 6 million bushel increase in exports. The net change was a 2 million bushel increase in stocks, putting stocks at 525 million bushels.

For 2020, USDA left planted acreage unchanged but increased harvested acreage 11,000 acres to 82.3 million (trade was expecting an increase of 5,000 acres). Yield was reduced 0.5 bushels to 50.2 bushels, 0.3 bushels lower than expected by the trade. The net change was a 35 million bushel cut in production, now estimated at 4.135 billion bushels (that was 23 million bushels lower than the trade expected). With the 20 million bushel increase in imports, supply was cut 14 million bushels to 4.695 billion bushels.

On the demand side, crush was increased by 5 million bushels and exports were increased by 30 million bushels while residual was cut by 13 million bushels, for a net increase in demand of 21 million bushels. Ending stocks were cut by 35 million bushels to 140 million bushels, just 4 million bushels above trade expectations.

The national average price was increased by 60 cents to $11.15.

The Quarterly Grains Stocks was also a nonevent for soybeans. Stocks were cut 319 million bushels from last year to 2.933 billion bushels, but that was 13 million bushels more than the trade expected.

For world numbers, Brazil’s production was left unchanged at 133 million metric tons. The trade had expected to see a decrease of 2.2 million metric tons. Argentina’s production was lowered 2 million metric tons to 48 million metric tons (that was a 500,000 metric tons bigger cut than the trade expected). World ending stocks were cut by 1.3 million metric tons to 84.3 million metric tons (that was 1.7 million metric tons more than the trade expected). Chinese imports were left unchanged at 100 million metric tons.

Cattle have struggled the past few weeks with the strength in the grains taking the biggest toll. Additional pressure has come from a disappointing cash trade (while boxed beef prices have been firm). To add to the disruption, cattle have been under pressure from the recent political uncertainty combined with a slower than expected vaccination program and economic concerns. The deferred contracts are showing optimism, but the front months are struggling with the idea that not much will change will occur in the economy until third quarter.

“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”