Markets cannot go up every day, just like they can’t go lower every day. There has to be a balance, and the grains were getting a little out of balance. The steeper the incline (or decline) the more important the correction is. The grains have been on a good run for the past few months and all were in need of a correction. That is what happened the third week of January.
Sure, some of the pressure might have come from the onset of better-than-expected rains in South America. The improving weather conditions might have started the ball rolling, and it might have gotten a push from the U.S. Department of Agriculture's Final Crop Production estimate, but it was more about technicals and money flow than it was about anything else.
Bargain hunting buying helped the grains return to the positive side as traders that have been waiting for a retracement to start buying finally started to come off the fence.
Now there is nothing saying this market can’t see further selling pressure, but it appears that maybe support might hold. Weather has certainly improved in South America for the most part. Brazil’s crop has improved the most, but with the rain also comes a little mud. The northern and central regions of Brazil have seen consistent rains for over 21 days as the crop is nearing maturity. To add to that, the consistent rain showers have prevented producers from being able to spray for rust, which has started to become an issue in the northern half of the country. How much it will affect yield potential, no one knows. So far, yield reports in the north are coming in as expected at 60 bags per acre.
But the trade seems to be switching its focus off South America and more to demand. Demand for U.S. corn and soybeans remains robust, to say the least. That has been evident in the weekly export sales and shipments reports. The Jan. 25 export shipments estimate showed a marketing year high for corn shipments and another strong week of shipments for soybeans.
Soybean demand continues to be the strongest of the three major gains, and at the pace sales and shipments are going, USDA is going to have to increase soybean exports. And looking at the numbers, it would not be out of the realm to see that increase be close to 100 million bushels, which would leave stocks at a very tight 40 million bushels. Now USDA will not do that, as it would create panic in the soybean complex. But when looking at the numbers, it’s hard not to justify that increase.
Corn demand also has taken a huge jump. This past week China was an aggressive buyer of U.S. corn, and there were even rumors of a massive ethanol sale to China. On Jan. 26, China reportedly bought 1.36 million metric tons of U.S. corn while an unknown destination bought 103,000 metric tons of U.S. corn. That same day, there were reports that China bought 200 million gallons of ethanol for shipments in the first six months of 2021. That was followed up with China reentering the U.S. corn export market on Jan. 27, buying another 680,000 metric tons of corn and 132,000 metric tons of both old and new crop soybeans. An unknown destination also bought 127,000 metric tons of U.S. soybeans. It doesn’t look like we have hit a price that will ration supply yet.
The reason China is starting to show up in the U.S. export market after being absent for so long, well, they really haven’t been out of the U.S. export market. They have just been buying smaller amounts that do not qualify for being reported daily. But with this past week's corn purchase and the large soybean purchase the week before that, it sends the signal that China is back and not comfortable with the timeframe for Brazil’s crop to become available.
Brazil’s harvest pace on soybeans was reported at 1% last week versus 4% average. Mato Grosso is usually 11% harvested by now. The delay in planting has pushed back harvest to the point that some importers have had to switch their source. To add to that issue, the delayed harvest will also slow down corn planting. The second corn crop is 75% of Brazil’s corn production and the portion that gets exported. The delay in harvest is delaying the planting of the second corn crop. So once again, any end user that was expecting to import soybeans or corn in January/February from Brazil will likely be looking to switch sources.
U.S. corn and soybeans are 20 weeks into their marketing year, which leaves 32 weeks left in the marketing year. To date, USDA has sold 95% of its soybean export expectations, which means soybeans have 32 weeks to sell 117.5 million bushels of soybeans, or roughly 3.7 million bushels per week. To add 100 million bushels to the soybeans export sales pace would result in the need to sell another 3.1 million bushels per week, for a total of 6.8 million bushels per week. Now the argument is always cancellations. To date, USDA is reporting shipments at 71%, so there are only 532 million bushels of soybeans that have been sold that have not been shipped.
The case to increase soybean exports is there, but it hasn’t been for corn (until maybe now) and wheat. Although corn sales are strong, they are not as strong as soybeans, and shipments have not been as strong. But we are starting to enter into the time frame when soybean shipments slow while corn shipments increase.
In wheat news, USDA released its January Crop Progress report late Monday afternoon. The report showed a slight decrease in wheat conditions in most of the major producing states. As of Jan 24, Colorado’s winter wheat crop is rated 17% good/excellent down 2% from last week, Kansas’ winter wheat crop dropped 3% to 43% good/excellent, Montana’s crop improved 3% to 68% good/excellent, Oklahoma’s crop improved 15% to 61% good/excellent, and Texas' crop declined 12% from November to now be rated 20% good.
Look for the grains to start trading in a more defined trading range over the next four to six weeks. That will give the market time to sort out just where South American production will be this year and it will give traders a chance to see just where U.S. planting intentions fall. Then we start dealing with the buying of acreage and any U.S. weather issue.
Other market moving news last week that took some of the wind out of the rally sails was Informa’s acreage estimates. They are expecting U.S. producers to plant 94.2 million acres of corn in 2021, up 3.4 million from last year, 90.1 million acres of soybeans, up 7 million from last year, and 45.3 million wheat acres, up 1 million from last year. Spring wheat acreage is expected to drop 200,000 acres to 11.49 million. In all, they are estimating 11.4 million more acres will be planted over 2020. That might be a stretch. With 10 million going to prevented planting last year, it appears that the U.S. would more likely be in line to add 8 million more acres in 2021.
Another interesting news item was NOAA’s long term weather forecast. NOAA is expecting the spring and summer for the Northern Plains to be normal, maybe a little cooler than last year. The Corn Belt, on the other hand, is expected to be warmer than normal and wetter. That means the Northern Plains could end up with average to below average crops while the Corn Belt has the potential for above average crops.
Cattle posted a decent recovery before the release of USDA’s monthly cattle on feed report. The report was slightly negative, and cattle reacted accordingly. Additional selling was tied to the rally in the grains. The slow pace of COVID-19 vaccinations and a negative cold storage report all added to the pressure. Last month's cold storage report estimated beef in freezers at 534.3 million pounds, up 11% from last year and 5% above the five-year average.
The lack of a cash trade was mostly offset by a stronger boxed beef market, which signals at least decent domestic demand. Cattle were also influenced by position squaring ahead of the USDA Cattle Inventory report. The report is expected to continue with the trend from the semi-annual inventory report six months ago that showed no herd expansion and a slight reduction in the herd size.
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