Heavy selling creates downturn in corn, wheat markets
Most of the selling was tied to money flow. The funds, who have been aggressive buyers of all the grains through the planting and growing season, have turned to be heavy sellers, according to Martinson.
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The transition from November to December was a rough one for wheat and corn while soybeans handled the flip of the calendar page a little better. The last few days of November had the grains trading in a back-and-forth fashion and not really going anywhere. That all changed in December when heavy fund selling hit wheat and corn, pushing both markets through support lines.
What started the major selloff and is it a signal that the party is over? Well, most of the selling was tied to money flow. The funds, who have been aggressive buyers of all the grains through the planting and growing season, have turned to be heavy sellers. The biggest task the funds are trying to accomplish by year end is getting flat in the grains without causing too much market movement. Guess that plan did not work out so well.
The other factor leading up to the mass exodus out of wheat and corn is demand concerns. Wheat exports continue to lag behind last year’s pace and at this point, with half of wheat’s marketing year behind us, it doesn’t appear that the U.S. wheat export pace will meet USDA’s already disappointing projection. This has led most traders to expect USDA will lower wheat exports in either the December or January Crop Production report.
Corn exports have also been a topic of choice lately especially with the recent statements coming out of Mexico. Mexico made the decision a few years ago to start to phase out buying GMO corn. Mexico is traditionally the largest importer of U.S. corn, to the tune of about 600 million bushels per year. Mexico refusing to buy GMO corn would be devastating to the U.S. corn export market. After a few back-and-forth discussions and visit from the U.S. Secretary of Agriculture (with a copy of the new United States-Mexico-Canada Agreement) Mexico will continue to buy U.S. GMO corn for the animal feed sector but none will be allowed for the human consumption sector.
That helped to calm some nerves, but the fact remains that U.S. corn shipments are 33% behind last year’s pace and sales are 50% behind last year’s pace. The missing link is China as China’s corn demand has been lackluster at best due to COVID-19 restrictions.
Now that China is officially reducing their COVID-19 restrictions that could help increase demand as once China gets over the speed bump from opening up, (short term increase in COVID-19 cases) demand for all products is sure to surge.
But traders are still convinced that corn demand is overstated, and that USDA will make adjustments. The trouble is all three of the major demand categories of corn demand are lagging. Ethanol production continues to run behind the pace needed to make USDA’s projections due to low energy demands. Feed demand is also slowing down due to the tightening up of the livestock sector. And exports are trailing last year. One can say high prices have done their job and trimmed demand.
Soybeans have been the bright spot, rallying to levels not seen since September.
Support continues to come from export demand as the past week (Dec. 1-6) China bought 530,000 metric tons of U.S. soybeans while an unknown destination bought 240,000 metric tons.
The other market on fire the past week has been soybean meal. The thought that the U.S. could capture some export business due to Argentina’s production concerns continue to support soybean meal. Argentina is the world’s leader in soybean meal exports, controlling almost 40% of the exports. Soybean meal was also supported by the unwinding of long soybean oil/short soybean meal spreads from this summer. A lot of traders were loading up on these spreads on the thought that the biofuels rush would push soybean oil higher while pushing soybean meal lower, and it did until the Environmental Protection Agency released their Renewable Fuel Standards proposal last week.
Now, this is just a proposal and will now be put out for public comments, but the overall biofuels production was increased slightly. But there was not a big increase for biodiesel, which resulted in the soybean oil market to come under heavy selling pressure. The biggest change in the proposal was that EPA is now going to allow canola oil to be eligible to be used and qualify for Renewable Identification Numbers ( RINs). This is extremely supportive of canola.
Light support for the grains, and livestock, came from Chairman Powell’s comments that the previous rate increases have helped trim inflation and that the Fed can now reduce the size of the increases. His comments have the trade now expecting the December rate hike to be between 0.25% and 0.5%.
The war in Ukraine has taken a bit of a back seat. Russia continues to attack certain targets, but it appears Russia’s intention now is to take out all of the power stations and energy sources in an attempt to force the Ukraine people out of the country.
The recent market selloff has done damage to the technical picture. At this point with thin light trading ahead of the holidays, it’s likely the grains will come under slightly more pressure, especially if Friday’s USDA Crop Production report comes with a few surprises. At this point, don’t expect USDA to make any huge adjustments in the demand estimates due to USDA’s releasing of a quarterly grain stocks estimate at the end of the month and the final crop production estimate next month. That is likely where some major adjustments will appear. Also, as past history tells us, China does not show up as a buyer of U.S. corn market until week 20, we are only 13 weeks into the marketing year.
Early estimates for Friday’s crop production report — which came out after deadline for this column — have wheat stocks at 576 million bushels versus 571 million bushels last month. Corn stocks are estimated at 1.24 billion bushels versus 1.18 billion bushels last month. Soybean stocks are estimated at 238 million bushels versus 220 million bushels last month.
Stats Canada released their latest crop production estimate on Friday, Dec. 2. The report was slightly friendly as most of the production estimates were below expectations. All wheat production was estimated at 33.8 million metric tons versus expectations of 34.8 million metric tons and versus September’s estimate of 34.7 million metric tons. This was the largest wheat production estimate for Canada since 2020 and the third highest on record, but still below expectations. Spring wheat production was estimated at 25.68 million metric tons versus expectations of 25.9 million metric tons.
Canola production was estimated at 18.17 million metric tons versus expectations of 19.2 million metric tons and versus September’s estimate of 19.1 million metric tons. Corn production came in at 14.5 million metric tons versus expectations of 14.8 million metric tons.
Corn’s production was a record for Canada. Soybean production was as expected at 6.5 million metric tons. The grains have seen a decent retracement over the past two months.
From their recent highs placed in October, March Minneapolis wheat has lost $1.395, March Chicago wheat has dropped $2.385, and March Kansas City wheat has retreated $2.1075. In that same period, corn has given back 76.75 cents. Soybeans have been the best performers, losing $1.50 between September and October but then gaining $1 of the losses back between October and early December.
Cattle traded mixed to close out the last week of trading in November. Live cattle were pressured by steady cash offers and a lower boxed beef market, which is a signal of decreasing domestic demand. Light selling was also tied to economic concerns as traders are not yet confident with what the Federal Reserve will do with interest rates in their December meeting. Feeder cattle traded with gains due to strong feedlot demand as well as from support from a weaker cash trade. Supplies remain tight, and likely will only continue to tighten moving forward.
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