Have the grains recovered or is this a pre-holiday rally?
The grains have been back and forth the past two weeks as it moves to a short week of trading due to the Thanksgiving holiday.
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The grains closed out the second week of November posting solid gains. Support came from the November Crop Production report , which was surprisingly bullish. It’s always interesting when the market is expecting the U.S. Department of Agriculture to come out with numbers one way and when finally released, the numbers are opposite of what was expected. That is how soybeans traded on Nov. 9 and for the rest of the week.
On the flip side, the darling of the grains, Minneapolis wheat, started to fade on Nov. 12, and the retracement advanced on Nov. 15. Most of the direction was in response to spread trading as traders tried to bring the spread between the classes of wheat more in line. It is tough for Minneapolis wheat to hold more than a $2.50 premium over winter wheat for a length of time, and that seemed to be what the market was correcting in wheat.
The Nov. 14 session had wheat supported by news Russia will be implementing an export quota. Reports out of Russia state the plan is to implement an export quota after the first of year through June. This would coincide with the second half of Russia’s wheat export marketing year. No other details were known at this time.
What was interesting was that wheat rallied sharply higher with all of the new crop 2022 contracts in all three exchanges pushing to new contract highs, while the U.S. dollar was also rallying sharply higher and hitting highs not seen in 15 months.
Corn pushed higher with support spilling over from the higher wheat complex as well as from weather forecasts calling for wintery weather to move into the Northern Plains and western Corn Belt. Although harvest is running ahead of the five-year average, there are some key corn producing states lagging behind their five-year average.
Soybean gains were kept in check from reports Brazil sold eight cargoes of soybeans to China for December/February/March delivery, which is usually the time frame the U.S. exports soybeans to China. With the rapid planting progress in Brazil and good growing conditions, it is likely Brazil will be harvesting in January, which means the U.S. soybean export year could likely shrink in length.
The Nov. 12 session had the grains open and trade with strong double-digit gains within the first hour of the day session but then spent the rest of the day session fading the gains. By the time the session ended wheat was holding onto half of its gains, corn had reversed and closed lower, soybeans closed with small gains, and oats closed sharply lower, ending 10 cents lower after being as much as 20 cents higher at one point.
Wheat started the session higher and rallied to touch pre-report levels before running into a sell stops. Support came from continued talk out of Russia on how they are going to start to limit exports. Light support came from Australia’s weather forecast, which is calling for rain to continue. The rain is delaying harvest activity and resulting in lower quality grain. This helped to push Paris milling wheat to another new contract high, which helped push Chicago and Kansas City to new highs. Profit taking and spread trading pulled wheat off its highs late in the session.
Corn followed the wheat exchange on Nov. 11, posting double digit gains early. But like wheat, corn faded its gains and actually went into the red by the close. Corn was able to trade close to pre-report highs before running into sell stops. Farmer selling was also evident. Corn started to come under pressure once released CONAB released their latest production estimate. CONAB increased their corn crop production estimate for Brazil by 400,000 metric tons to 116.7 million metric tons. Reports that South Korea was in and bought another jag of corn from either South Africa or South America added to the pressure. CONAB also increased Brazil’s soybean production estimate 1.2 million metric tons to 142 million metric tons. Their wheat production estimate dropped 500,000 metric tons to 7.7 million metric tons.
The third week of November started with a little bit for everyone. The wheat exchanges traded mixed with Minneapolis under heavy pressure while the winter wheat exchanges pushed higher. Spread trading as the main feature in wheat as traders were trying to keep the spread price between Minneapolis and Chicago in line.
Corn traded back and forth but closed with small losses. Corn was stuck in a hard place between the lower wheat and higher soybeans. The demand outlook for corn looks promising. Ethanol margins remain a some of the best levels ever, so expect corn basis to hold or improve.
Soybeans started the session firm and held onto its gains throughout the session on Nov. 15. Soybeans were led by the strength in the soybean meal market as tight supplies of lysine are resulting in an increase in demand for meal. Tie that to the strong shipments pace and a better-than-expected NOPA October crush report and you have the recipe for soybeans to rally.
The Nov. 15 Crop Progress brought nothing new to the table, which will add to the bearish side of the equation. Corn harvest was estimated at 91% complete, 5% ahead of average but 1% lower than expected. There are only 3 states trailing behind average harvest progress (Indiana: 2% behind, Kentucky: 5% behind, and Tennessee: 2% behind). Soybeans are 92% harvested, 1% behind average but as expected by the trade. As was the case last week, all states except for the Northern Plains and western Corn Belt are reporting slower than average harvest progress. The winter wheat crop rating improved 1% to 46% good/excellent, which was also 1% better than expected by the trade. All of the major states showed ratings improve.
The grains took the path of least resistance Nov. 16 as all of the grains closed with sizable losses. Cooler heads prevailed overnight though as the grains opened higher and most have been able to hold gains throughout the session.
The Nov. 16 session was another risk off session with all of the grains participating. A stronger U.S. dollar started the market on the defense but the lack of news and fund selling kicked in to put additional pressure on the grains. Technically all of the grains were trading up against recent highs, but the market lacked the ability to push through recent highs, which uncovered sell stops which brought in a round of heavy fund selling. Long liquidation was also evident as some traders started to take profits ahead of the Thanksgiving Day Holiday.
Corn fell victim to fund selling and profit taking after hitting a four-month high. The charts were looking pretty bullish corn and it appeared corn was on its way to test the $6 level once again. If the demand picture (exports) for corn improves as expected, then corn could easily make a test of the $6 level. Corn isn’t ready to sell off hard yet though as this market will need to hold strength or face losing acreage next year due to high input costs. IHS Markit updated their 2022 acreage estimate for corn yesterday, dropping it 1.6 million to 90.78 million acres.
Soybeans also took the path of least resistance Nov. 16. But the reason for the pullback in soybeans was due to spill over pressure from the lower soybean meal market. Soybean meal has emerged as the leader. It was interesting that soybeans pushed higher for the five days after what was expected to be negative November Crop Production report. Of all the grains, the soybean outlook is the most concerning as it appears U.S. soybean acreage will increase in 2022 due to high input costs. Shorter term, Brazil continues to see close to ideal growing conditions and that along with their early planting, will make their soybean crop available for export much earlier than expected. IHS Markit’s 2022 U.S. acreage estimate increased slightly this month, now estimated at 87.94 million, up 600,000 acres.
Spread unwinding, profit taking, and fund selling gripped the wheat market the past few days. Although U.S. wheat supplies continue to be at 14-year lows, the lack of export demand has weighed on the U.S. wheat exchanges. Light selling was tied to IHS Markit’s acreage estimate for U.S. wheat acres for 2022. They are estimating wheat acreage at 49.37 million, up another 240,000 acres.
The grain markets have been like the weather in North Dakota, wait a minute and it will change, and that is exactly what the grains did Nov. 17. Soybeans continue to be the leader posting solid double-digit gains. At one point on Wednesday soybeans were posting 35 cents gains and most of the front month contracts were at or above the $13 level. Quite a different picture than from where soybeans were a week ago. In addition, corn rallied to post solid gains, although corn did give back half of the day’s strength. Strong ethanol demand continues keep the corn market from falling apart. Wheat continued to be a follower, posting solid gains and enough strength to push the new crop Minneapolis and all of the Chicago and Kansas City contracts to new contract highs.
Next week will be a short trading week due the Thanksgiving Day Holiday. Trading will be normal through Wednesday, but then closed until Friday morning at 8:30 a.m. Friday will be a short session as the markets will close at noon.
Cattle have put in a disappointing performance. Cash bids have increased with activity taking place between $130 and $132 but the futures market seems to be stalled out. Exports continued to be above expectations, but domestic demand seems to be lagging slightly. Seasonally this is normal as beef is not the featured product this time of year.
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