Editor's note: Catch Randy Martinson and AgweekTV's Michelle Rook every Friday after markets close on the Agweek Market Wrap at agweek.com.
Producers got an early Christmas present this year as the grains rallied sharply higher the week of Christmas. But as the saying goes, what goes up must come down and the week before New Year’s had the Grinch taking back most of the previous week’s gains.
As we go into the winter the market focus narrows to U.S. export demand and South American weather. So far this marketing year U.S. exports have been disappointing to say the least. A lot of analysts are comparing this year’s export pace with last year, which is not fair. It is better to compare the export pace to the five-year average. For headline purposes, compared to last year, U.S. exports are 20% to 30% behind. But compared to the five-year average, exports are tracking right around the average pace. Looking at the individual crops, wheat exports are at their second lowest pace for this time of year in history. Corn and soybeans were running near average and should be able to make pace.
The export inspections estimate for the last week of December was negative to the grains. The report put wheat shipments below expectations and the lowest pace in nine weeks. Corn’s shipments were at 15-week lows. And soybeans shipments pace came in at 13-week lows.
But the market doesn’t seem to be as concerned with export demand as they are with weather. South American weather continues to put its influence on the U.S. grain markets. And so far, the weather in Brazil has been interesting to say the least. As expected, the early planting progress has made it possible for Brazil to start harvest about 20 days ahead of last year. But their harvest hasn’t been without issues. The northern regions of Brazil have been seeing heavy frequent rains, which has resulted in harvest delays and decreased quality of the early soybeans. The rains are also delaying the planting of the second corn crop, but at this point there is not much concern on this front as it is still very early in the season.
At the other end of the country, dry conditions continue to cause concern. Southern Brazil and Argentina continue to miss forecasted rains and although it is still early in the crop development stages, forecasts are calling for the hot, dry conditions to continue into the first half of January. At that point some of Argentina’s soybeans will be in a critical crop development stage. Private analysts are already starting to cut their production estimates for both Brazil and Argentina.
StoneX updated their corn production estimate for Brazil at 117.5 million metric tons, 2.5 million metric tons below last month. Dr Cordonnier lowered his Brazilian corn production estimate 1 million metric tons to 113 million metric tons. The U.S. Department of Agriculture's current estimate is 118 million metric tons.
For soybeans, the StoneX production estimate came in at 134 million metric tons, a decline of 11.1 million metric tons. Dr. Cordonnier also lowered his estimate for Brazil by 2 million metric tons to 138 million metric tons. CONAB estimates Brazil’s soybean production at 142.8 million metric tons. USDA’s soybean production estimate remains at 144 million metric tons.
As for Argentina, Dr. Cordonnier left his corn estimate unchanged at 52 million metric tons while USDA is at 54.5 million metric tons. For soybeans, Dr. Cordonnier lowered his estimate by 3 million metric tons to 45 million metric tons. USDA’s current soybean estimate is at 49.5 million metric tons.
The bright areas for corn and soybeans continue to be ethanol production and crush demand. U.S. ethanol production continues to hold above 1 million barrels per day, due to strong plant margins and improving demand. Gas demand has consistently remained in the upper end of the five-year average and last week broke above the five-year average. Crush demand has been a little more erratic. The October USDA crush pace was above expectations, but the November crush at 190 million bushels was lower than the average trade estimate of 191.7 million bushels and lower than last November’s 191 million bushels.
Corn and soybeans have been able to push back to the upper end of their trading ranges and are flirting with testing contract highs. This has made advancing sales attractive. On the other hand, wheat has not seen the same enthusiasm. Chicago wheat scored a technical reversal toward the end of December, as did Minneapolis, and the wheat market has not performed well since. The possibility of both Argentina and Australia seeing record production has pressured the wheat markets.
Several states released their December monthly Crop Progress report this past Monday. The report was friendly winter wheat as all but one of the major wheat producing states saw large declines in crop conditions. Kansas’s winter wheat crop saw a 18% decline in ratings and is now rated at 33% good/excellent, 42% fair, 25% poor/very poor. Colorado’s crop dropped 13% to 25% good, 42% fair, and 33% poor/very poor. Oklahoma’s crop dropped 28% to 20% good/excellent, 36% fair, and 44% poor/very poor. Montana’s wheat crop improved 5% to 12% good, 17% fair, and 71% poor/very poor. Illinois’ wheat crop dropped 7% to 75% good/excellent, 15% fair, and 10% poor/very poor.
It’s always a little fun to look back and see just how the markets performed for the year as it helps give a little perspective on what could occur in the following year. Looking back at 2021, its unlikely we can replicate the market performance or trading ranges of the grains, but it certainly gives producers an idea of just how big the market can trade given the right scenario.
For the year, March Minneapolis wheat saw a trading range of $4.435 from high to low and posted a yearly gain of $3.56. March corn saw a trading range of $2.0925 from high to low and posted a yearly gain of $1.53. March soybeans saw a trading range of $3.765 from high to low and posted a yearly gain of $2.4775. February live cattle saw a trading range of $21.775 from high to low and posted a yearly gain of $18.025. January feeder cattle saw a trading range of $24 from high to low and posted a yearly gain of $14.375 for the year. Impressive performance from all.
How does that relate to 2022? It shows just how big the price swings can be when adversity steps in to affect potential production. 2022 is going to be another interesting year as every market needs to try and buy acres or at least attempt to hold onto projected acreage.
Cattle pushed higher in December but has since faded those gains slightly. A late surge in the cash market late in 2021 helped cattle push higher, forcing a majority of the deferred contracts to new contract highs. The lack of a cash trade to start 2022 has allowed for the market to fade some of those gains, along with rumors of restaurant closures due to the omicron variant (due to staffing shortages). Supplies are expected to tighten into 2022 and that along with strong demand and a surging stock market should help put support under the cattle.
“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.”