Some South American rain mixes up the markets

Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The third week of January saw a change in South America’s weather forecasts and what could result in a retracement in the grains, especially corn and soybeans.

The third week started with all of the grains posting gains and with corn and soybeans testing recent highs. Soybeans were within reach of testing contract highs at one point during the session on Monday and corn was within 15 cents of $7. But as has been the case the past few weeks, each short trading week has been met with the market ending mixed.

Wheat managed to stage a small recovery to end the week, but weather forecasts calling for a change in the weather pattern in Argentina brought selling pressure to corn and soybeans. Weather forecasts were calling for Argentina to see weekend rains and for more rain to fall in the six to 10 day forecast. The December National Oilseed Processors Association crush estimate came in lower than expected coming in at 177.5 million bushels versus expectations of 182.9 million bushels. By the time the week ended, Minneapolis wheat was steady, Chicago wheat was down 2 cents, Kansas City wheat was up 4 cents, corn up 1 cent, and soybeans down 21 cents.

The January Crop Production reports tightened up the supply of U.S. grains and now the market has to try and encourage rationing and the rebuilding of stocks. This will likely result in another bidding war for acreage in the U.S. as all of the grains are in need of at minimum maintaining acreage. The market will have to address the renewable diesel issue as well. With soybean crush plants being expanded and built, the demand for soybeans is going to increase, which means the need for more acreage. It is going to be another fun spring.

The grains were still seeing strength from the USDA data dump on January 12 as three out of the four reports were bullish to the grains. But another change in weather forecasts along with a fresh round of profit taking proved to be too much for the market to overcome. Losses were kept in check from reports that Argentina’s soybean crop condition rating dropped 8% this week to now be 4% good/excellent versus 33% last year.

As for conditions in the U.S., Thursday’s drought monitor map continued to show slight improvements. Three months ago 82% of the U.S. was in some stage of drought. Thursday’s report has only 65% of the nation in some stage of drought.

Courtesy U.S. Drought Monitor

Light selling was tied to another round of private analyst’s production estimate for Brazil. The firm estimated Brazil’s corn production at 125.5 million metric tons, up 1% from their previous estimate. Their soybean production estimate came in at 154.4 million metric tons, also 1% above previous estimate.

Technically wheat is back testing recent contract lows while corn and soybeans are testing minor support lines. USDA’s January report confirmed how tight U.S. grains supplies are and the market knows it still has to try and ration demand until there is more confidence in the 2023 crop potential.

But the recent change in Argentina’s weather forecasts has a lot of traders nervous.

Buenos Aries Grains Exchange released updated production estimates for Argentina’s corn crop. They are estimating production at 44.5 million metric tons. The corn crop condition rating dropped to 5% good/excellent and planting progress is estimated at 89% complete. The soybean crop rating dropped to 4% good/excellent with planting progress at 96% complete. Both the corn and soybean crops in Argentina are entering their pollination stage, so the current weather forecast calling for upwards of 3 inches of rain, and some areas seeing as much as 6 inches, is slightly negative.

Corn closed out the end of the third week in January steady. At the end of the week strength spilled over from the sharply higher wheat complex as well as from the highest export sales estimate in eight weeks. Can it be possible that corn exports will start to recover this late in the marketing year? It is possible, but it will take buying from China to accomplish that and at this point it appears that Brazil might have the advantage over the U.S.

Good rains were reported in southern Brazil over the weekend, which slowed down soybean harvest activity. Rain will encourage planting of the second corn crop as soon as the soybeans are harvested. Any delays in planting will result in China needing to buy U.S. corn to bridge the gap until Brazil’s second corn crop is available.

The market has also been distracted by economic concerns. The U.S. has hit its debt ceiling of $31.4 trillion. At this point, the government has exhausted its borrowing capacity. The Treasury can play a shell game through June to keep the government afloat. But Congress will have to address the issue by June or the U.S. government will start to default.

The fourth week of January started with the grains under pressure, all due to better than expected moisture over the weekend in both Argentina and the U.S. southern Plains. It’s hard to understand how wheat can trade with strong gains on Friday and then turn around and give half of it back Sunday night. But that is likely how wheat is going to trade over the next four to six weeks, or at least until more news on the winter wheat crop become available. Last week’s export sales report showed a much better than expected export sales pace for wheat, which in turn supported wheat. But reports of good moisture falling in parts of the southern Plains is pulling some of that premium out of the wheat.

Wheat is going to play a follower to the other grains until it starts to have news of its own, which likely will not be until the winter wheat breaks dormancy. The crop has improved since going into dormancy, but just how much is not known for sure. States will release their January Crop Production report January 29.

Cattle lost ground the third week of January with most of the selling tied to a weak cash trade and economic concerns. Position squaring ahead of Friday’s Cattle On Feed report was also evident. The report was friendly cattle and helped cattle push higher during the fourth week of the month. Estimates were: On feed: 97% (as expected and the largest year-over-year decline in 32 months); placed: 92% (1% above expectations); marketing: 94% (1% below expectations and the lowest in 23 months). The next big report for cattle will be the Cattle Inventory report on January 31. This report is also expected to be friendly and confirm tight supplies.

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