The grain market is starting to look a little tired. It’s not likely that the rally is over, but maybe more like at intermission. We saw very strong export demand over the past few weeks. But it is likely demand will start to decrease as South America’s harvest starts to pick up.

The month of February brings in a bunch of different items for the market to focus on. The biggest influencer is South America’s harvest activity and their aggressive approach to exporting. But that has not been the case this year. Heavy rains have resulted in a delay in harvesting soybeans and the planting of safrina corn, which has helped to increase the demand for U.S. grains. But it is likely that once the weather improves and the combines roll, Brazil will capture most of the short-term soybean and corn demand. In addition, China will be going on holiday as the Chinese New Year starts mid-February.

February is also the month that sets the 2021 crop insurance projected prices. The projected price used for crop insurance is based on the average trading price for the harvest month of a crop for the month. So, this month, market activity takes on an added meaning.

Wheat continues to retreat as it has no news of its own to trade. It appears that wheat is willing to lead the grains in the selloffs but lacks participation in the up days. World wheat stocks continue to be more than adequate and even with the recent announcement from Russia that it will be implementing an export tax Feb. 15, U.S. wheat demand has not seen any improvement.

China was back at trying to auction off more wheat out of its reserves, but this time the sale was not as successful. China was able to auction off 2.2 million metric tons versus 4.03 million metric tons being offered (at $9.99). It appears that the recent corn imports have reduced the demand for feed wheat.

Newsletter signup for email alerts

On the export front, South Korea bought 32,000 metric tons of Canadian and U.S. wheat. Japan is tendering for 87,000 metric tons of wheat with 57,000 metric tons being U.S. Ukraine officials are reporting they have reached the 74% level of intended wheat exports.

Corn has been hit by a round of fund selling. Although demand remains strong and corn’s price has to increase to slow down export demand, it is likely China will be out of the import market soon as the Chinese New Year celebration starts this weekend. Support continues to come from reports that Brazil’s soybean harvest continues to advance at a snail’s pace, which in turn is slowing planting of the second corn crop. First crop corn harvest is estimated at 15% complete versus 9% average but second crop corn planting is at the slowest pace since 2011. Weather forecasts are starting to call for a drier pattern for Brazil. Rain is still expected but some regions have had the amount of rain decreased. Argentina is expected to remain dry for 14 days.

Corn exports slowed down this past week with only a few sales being reported on the daily export sales report. Early in the week, Mexico bought 126,000 metric tons and Japan bought 110,000 metric tons. Midweek saw Mexico returning to buy 115,000 metric tons of U.S. corn and South Korea bought 60,000 metric tons.

Last week’s ethanol report put ethanol production at 936,000 barrels per day, up 3,000 barrels per day from the previous week. Stocks were estimated at 24.32 million barrels, up 714,000 barrels from the previous month and a 39-week high.

Soybeans are also seeing fund selling and profit taking ahead of the Feb. 9 USDA report. Usually, the February Crop Production report is a placeholder, but this year it will have meaning. It will be interesting to see how honest USDA will be with soybean ending stocks. Demand is expected to slow down over the next few weeks because of China being on holiday. The market is overbought but can’t really sell off hard as that will likely increase demand.

In South American news, Brazil’s soybean harvest is at 5% complete versus 27% average and is the slowest pace in 10 years due to recent heavy rains. Brazil is scheduled to export 8.5 million metric tons of soybeans in February, but only about 2.5 million metric tons have been harvested so far (versus 11.7 million metric tons at this time last year). Brazil exported just 49,000 metric tons of soybeans in January, the lowest monthly total since December 2013.

USDA’s crush report put December crush at 194 million bushels, which was a record for the month of December, the second largest monthly total, and the fourth straight month of new records. This has many believing that USDA has no choice but to increase the U.S. soybean crush pace in the February Crop Production report.

Look for the grains to continue to trade sloppy and likely test recent support lines. But those levels should hold, as any little drop in price results in an increase in export sales. A return to the upper end of the trading range is expected after the Feb. 9 Crop Production report.

The last week of January’s daily export sales reports stole the show with China being an aggressive buyer of U.S. corn. By the time the dust settled, China had bought 230 million bushels of U.S. corn and a good jag of soybeans. Rumors have China switching January/February purchases from Brazil to the U.S. as they are concerned about further delays in getting product out of Brazil.

Because of the strength in exports, the trade is doubling down on their expectations that USDA will not only increase soybean crush and export demand in the February Crop Production report, they expect USDA to also increase corn exports sales. Traders are looking for corn stocks to drop to 1.1 billion to 1.2 billion bushels, which now has corn starting to get into concerning levels as that relates to a national average price for corn of about $6. Soybean exports are also expected to increase 30 million to 50 million bushels and crush is expected to see a 10 milion to 20 million bushel increase. That could result in soybeans stocks dropping 40 million to 70 million bushels to end between 70 million and 100 million bushels.

What is even more impressive, corn set new contract highs, and yet China never blinked on its buying. That tells us price is not high enough to ration supply as of yet.

The big news the past week was Reddit trying to take control of the silver market. Reddit moved their attention to silver and tried to recreate the experience of GameStop, but they soon learned the commodities are a little different animal. They did manage to push silver up 9% for the day, but as the group was aggressively buying silver, the funds who have been long silver for the past year were selling it to them, taking profits on earlier trades. They might come to realize the commodities are harder to control because of the amount of contracts and value of contracts traded daily. It seems the attention of the Reddit crowd is decreasing. Game Stop lost 30% of its value on Feb. 1 and another 60% Feb. 2. Silver plunged 25%.

The cattle market spun its wheels again this past week, posting only small changes. The back-and-forth trading in the grains did not bring such direction to the cattle markets. Neither did sloppy cash trade, which bounced higher to close out this past week. USDA Cattle Inventory report was neutral to negative cattle as although the all cattle and calves’ numbers were close to expectations, the beef heifers kept for breeding was higher than expected. The long-term outlook for cattle is strong, we just might have to go through a few issues first.

For more market news throughout the week, visit agweek.news/markets.

“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.”