The grains traded in a back-and-forth fashion the third week of February. The grains started the week off with solid gains because of U.S. weather concerns as most of the U.S. Southern Plains, Corn Belt and Eastern Seaboard began to experience their worst winter in over 30 years.
The grains gapped sharply higher to start the week. but faded back to trade at session lows by the time the day session started Feb. 16. The strength was due to the adverse weather conditions across the Southern Plains. It is interesting that the Southern Plains, Corn Belt and East Coast got hammered with winter storms (extreme cold and heavy snow) while the Northern Plains only saw extremely cold temps. It seems like the moisture weather pattern is avoiding the north.
South American weather continues to cause issues as well. Brazil is still seeing rains which continue to delay soybean harvest activity and has continued to hamper planting of the second corn crop. Brazil’s soybean harvest is estimated at 7% complete versus 20% average. First corn crop harvest progress is estimated at 23% complete versus 20% average. Planting of the second corn crop is at 8% complete versus 30% average. Forecasts are calling for a short window of no rain (or limited rain) which will allow for harvest to gear back up. But the six-to-10-day forecast has general rains returning, so the window will be small.
Argentina picked up some unexpected rain over the weekend, which was beneficial, but the forecast is still calling for the region to be dry over the next 10 days. But if these just in time showers keep popping up, Argentina might see average yields.
The adverse weather in the Southern Plains has caused some issues with the winter wheat crop. Early estimates have 25% of the soft red crop seeing some sort of affect while 15% of the hard red winter wheat crop will be vulnerable. Driving through Texas, Oklahoma and Kansas in the middle of February was an eye opener. We did not see much wheat in Texas, but there was a lot in Oklahoma. The crop was spotty with a lot of holes in the fields. Kansas was a little better. All of the fields were green and starting to come out of dormancy. There was very little snow cover.
February is the month that sets the projected crop insurance prices for the year. We are about halfway through the reporting timeframe and prices are tracking sharply higher than last year. This will bring sticker shock to most producers. But it’s not so much the price increase that is causing the high premiums; it’s the market volatility factor. After two weeks, hard red spring wheat’s price is estimated at $6.46, up 90 cents from last year, corn is at $4.51, up 63 cents from last year, and soybeans are at $11.66, up $2.49 from last year.
The markets that have been on fire are soybean oil and canola. Both traded to another new round of contract highs with most of the surge continuing to come from the Malaysian palm oil market, which surged 4% this week. The huge price increase in canola is starting to result in talk of increased acreage, especially in Canada where acreage is expected to jump 6%. Acreage will also see an increase in the U.S. Sunflowers, on the other hand, have not seen the same huge price increase, and if they want to hold acreage, sunflowers will have to become more competitive.
The news this week has been dominated by the cold wintery conditions that hit the Southern Plains. The extreme weather conditions continue to push the energy markets higher. Natural gas rallied over 10% to start the week as Texas reported temps at 30-year lows. Production for natural gas dropped over 25% Wednesday alone due to the cold, putting production at a four-year low. Of course, that means price has to increase and boy has it. Price for next day delivery natural gas in in Oklahoma soared from $9 per thousand BTU the previous week to $1,250 per thousand BTU last week. To top that off, crude oil production has been trimmed by 40% due to the cold temps as well.
To add to the push in the energies, the economy is seeing improving signs. January retail sales and manufacturing production were both better than expected. The expectation of solid numbers sent the Dow to new contract highs on Feb. 16 and has put pressure on gold as traders run from the safe haven of gold to the stock market. Inflation and expectations for infrastructure building is starting to increase. Lumber and copper are good indicators of inflation. Lumber has rallied to new highs while copper has soared the past two weeks.
In world wheat news, ABARES is now estimating Australia’s wheat production at 33.3 million metric tons versus 31.17 million metric tons last month and U.S. Department of Agriculture’s 30 million metric tons projection. Russia’s wheat export quota and export tax went into effect Feb. 15 and now we will see if U.S. exports will increase. Import interest in wheat has increased this week with tenders from the Philippines, Syria, Japan, Pakistan, and Tunisia. South Korea bought 55,000 metric tons of optional origin wheat.
Last week’s ethanol production was estimated at 911,000 barrels per day, down 26,000 barrels from the previous week. Stocks were estimated at 24.297 million barrels, up 501,000 barrels from the previous week.
January’s National Oilseed Processors Association report put January crush at 184.654 million bushels, higher than the average trade estimate, a new record for January, and the second highest of any month on record. This marks five months in a row of record crush pace. It seems USDA will be forced to increase soybean’s crush estimate as well as exports. For China’s marketing year to date, U.S. soybean imports are at 35.8 million metric tons versus 12.2 million metric tons last year (and 1.6 million metric tons are still listed as “unknown”). The record for U.S. soybean exports to China is 36.1 million metric tons in 2016-17 and that record could be broken this year.
The USDA’s Ag Outlook Forum on Feb. 18 estimated all wheat acreage at 45 million versus 44.35 million last year, 46 million from USDA’s October estimate, and expectations of 45.3 million. With that in mind, the January Winter Wheat Seedings report put all winter wheat acreage at 31.99 million, which would equate to other spring wheat and durum acreage for 2021 at 13.01 million versus 13.93 million last year. Corn acreage was estimated at 92 million versus 90.82 million last year, 90 million from the Ag Forum’s fall estimate and expectation of 92.9 million. Soybeans acreage was estimated at 90 million versus 83.08 million last year, 89 million from the Ag Forum’s fall estimate and expectations of 89.8 million.
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