We knew it had to happen at some point. The grains have seen a strong rally over the past few months, running from 10-year lows to eight-year highs. But as everyone knows, what goes up, must come down.

The rally in the grains was nothing less than amazing. March Minneapolis wheat rallied $1.33 from its August low to its January high while September Minneapolis rallied $1.18. March corn was able to rally $2.10 from its August low to its January high while December corn gained $1.08. March soybeans rallied $6.12 from its April low to its January high while November soybeans gained $3.77.

But a slight kink in the armor showed up on Friday, Jan. 15, as corn and soybeans pulled back on forecasts for generous rains in South America. Wheat was able to hold its gains and was actually the best performer for the second week of January. But the seeds of concern had been planted and that has resulted in a lot of profit-taking.

Wheat was supported early this past week from news out of Russia. Last week, Russia made multiple changes to its wheat export market. Russia started off the week saying they were going to be implementing a 25-Euro (about 75 cents) tax on all exports starting Feb. 15 and lasting until June 30. The next day, Russia doubled the tax on wheat exports for March 15 to June 30. Then they moved the implementation for the wheat tax to March 1. To finish out the week, Russia said they might even look at extending the wheat export tax into the next marketing year. All of this will help demand for U.S. wheat in the export market.

South American weather over the long holiday weekend was as expected. Good rains fell in much of Brazil and Argentina over the weekend. Rains were then expected to linger in Brazil but exit out of Argentina. Hot and dry conditions were expected to return to Argentina to finish out the week.

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Corn and soybeans broke hard due to the weather forecasts and expectations that general harvest is right around the corner in Brazil. But corn was able to shake off the selling pressure due to support from the strong wheat complex as well as from strong demand. The soybean market was wrestling with a few demons. Soybeans are overbought and in need of a correction but even more important, Brazil’s harvest progress will start to advance across the northern regions. This will likely push China to start to source their soybean needs out of Brazil. To add pressure, palm oil took a huge hit last week selling off over 10% to close out the week due to a sharp decline in exports.

But losses will be kept in check from strong demand. Exports have been stellar to say the least, and the U.S. Department of Agriculture still needs to increase soybeans' export pace. But for now, the attention will be focused on crush. Last week’s National Oilseed Processors Association crush report was a little less than expected by the trade, but a record pace none the less. That puts U.S. soybean crush pace for September to December at 6.5% above USDA’s expectations. USDA was only expecting crush to be up 2% for the year. This means not only is USDA underestimating soybean exports, but they are also underestimating soybean crush.

The trade anticipates demand will switch at some point to South America. The trade has a very large 133 million metric ton Brazil soybean crop worked into the numbers. A crop smaller than that or a rain delay in harvest could send the market rallying again. But for the next month to six weeks, it would not be a surprise to see the grains falter or, at best, remain steady.

The market still has to deal with planting in the U.S. The tight stocks issue in the U.S. has not been solved yet and that will be the next item on the agenda for the grains. But that really won’t start to heat up until February or March. Corn will start to go into the ground in Texas in about a month and that is when the grains will start see a shuffling of acres.

The weather outlook for Brazil has improved to the point where a 133 million metric ton crop is reachable. But the rains may have come a little late to give Argentina a 47 million metric ton soybean crop. Corn harvest has started in both regions as well, but so far, no yield reports have been released. The expectations are that the first corn crop in Brazil will not be as large was expected. The dry conditions had producers looking at reducing the second corn crop acreage, but the recent rains might reverse that decision.

The grains have pulled back a decent amount with most of the markets trading to decent support lines. Corn was able to retrace enough to close the gap that was created in early January. So technically the grains have pulled back enough to correct overbought conditions. But the lack of news helped to add to the pullback as both the ethanol production estimate (normally released on Wednesday) and the export sales estimate (normally released Thursday) were moved to Friday due to the Martin Luther King Jr. Day holiday on Jan. 18 and inauguration on Jan. 20. The main pressure points though seemed to come from fund selling.

In other wheat news, China successfully auctioned off 3.9 million metric tons of its wheat reserves (over 97% of the amount offered) as buyers start to replace expensive corn in feed rations. On the export side, Japan bought 72,653 metric tons of wheat with 51,553 metric being U.S. and Nigeria bought 138,000 metric tons of U.S. hard red winter wheat.

Corn saw strong exports again this past week with daily reports showing Japan bought 128,000 metric tons, Israel bought 100,000 metric tons, and an unknown destination bought 336,500 metric tons of U.S. corn. On the world front, Brazilian officials are estimating corn harvest in the center south region at 3% complete and Argentine officials rated their corn crop at 19% good/excellent versus 55% last year. A lower U.S. dollar helped to add to the strength as did reports of a grain transporter strike in Argentina.

The soybean complex was the most volatile this past week. Better-than-expected rains fell in Brazil and Argentina over the weekend and more rain came early in the week. Due to the late planting and weekend rain, Brazil’s soybean harvest is just getting underway at 0.4% complete versus 1.8% last year.

Exports were the one bright spot this past week in the soybean complex. USDA reported a sale of 132,000 metric tons of soybeans to China, 163,000 metric tons of soybeans to Mexico and another 136,000 metric tons to China.

A lot of production estimates for Brazil were released this past week as well. Datagro increased its estimate by 600,000 metric tons to 135.6 million metric tons due to the recent rains. IHS Markit increased its estimate by 500,000 metric tons to 133 million metric tons, Stonex decreased its by 1.3 million metric tons to 132.6 million metric tons and Informa increased its by 2 million metric tons to 133 million metric tons. Those estimates are in line with USDA’s 133 million metric ton estimate. USDA left its estimate unchanged in the January report.

An early estimate for U.S. planted acres has all wheat acreage at 45.28 million (31.999 million winter wheat, 11.49 million spring wheat), corn acreage at 94.24 million versus 91.16 million last month, and soybean acres came in at 90.08 million which would be 8% higher than 2020.

Cattle traded with small gains this past week. The lower grains and the expectation that food service demand will start to improve added support. Technical buying also added support as cattle have traded down to support lines. Incoming Treasury Secretary Janet Yellen testified in the Senate on Jan. 19 and stated that the Biden administration is not looking at increasing taxes in the short term and that more stimulus is needed to kick-start the economy. This was what the market wanted to hear. A disappointing cash trade limited gains to say the least, but position squaring ahead of the Jan. 22 Cattle on Feed report overshadowed the disappointing cash trade. Gains were also limited by the realization that it is going to be an uphill battle to get Congress to pass a $1.9 trillion stimulus package.

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