Editor's note: Catch Randy Martinson and AgweekTV's Michelle Rook every Friday after markets close on the Agweek Market Wrap at agweek.com.
December was a tough month for the grains, especially wheat. And January had not been too kind to the grains until the third week of the month. The U.S. Department of Agriculture did their data dump the previous week and it brought little in the way of new news to the market. In reality the reports were slightly negative wheat, neutral corn, and friendly soybeans. Now with the reports out of the way, the market has been focusing on South American weather and US export demand.
As expected, rain fell in South America over the weekend but amounts and coverage were less than expected. Southern Brazil received disappointing rains while Argentina was hit with heavy rains. The northern region of Brazil is also seeing drier conditions, which is helping to advance soybean harvest and the planting of the second corn crop. So far yields are being reported as variable with some regions poor while others are as expected. Quality has also been an issue.
The lack of rain in southern Brazil will continue to result in crop deterioration. But the rains in Argentina are not likely going to help the crop improve, though it will slow down or stop the deterioration. It will be interesting to see this week’s crop ratings.
The rains did not come soon enough to change the direction of crop estimates. Another analyst lowered their crop production estimate for Argentina, putting the corn crop at 48 million metric tons down from 56 million metric tons last month. Soybean production was estimated at 40 million metric tons versus 48 million metric tons last month.
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China wants to increase soybean production over the next four years with a goal of increasing production to become more self-sufficient. The problem with that is if they are increasing soybean production, they will be forced to reduce either corn production or wheat production and will end up importing that crop to meet needs.
Chinese officials also released reports of their need for less corn this year due to the lower pig prices and lower feed demand. Total corn consumption is expected to be near 287.7 million metric tons versus early estimates of 290.7 million metric tons. Feed demand is expected to decline to 186 million metric tons from 187 million metric tons.
Wheat led the grains to start the week, which seems really odd to say. Wheat has been under heavy selling pressure since December and finally traded to support levels low enough to encourage funds to return to the buy side. Of course, it did not hurt that the conflict between Russia and Ukraine increased over the weekend. It still looks a lot like Putin posturing, but you can never tell, and besides, if it can help out wheat price, I’m OK with that. Wheat needs help.
Fundamentally it is going to be interesting to see just what condition the US winter wheat will be in when it comes out of dormancy. Conditions have severely deteriorated since December and will likely will not see much improvement in January, especially with forecasts calling for adverse weather conditions in the U.S. southern Plains as frigid cold temps are expected to dominate much of the region later this week.
Corn was able to hop on the back of wheat and go along for the ride. Corn was able to pop higher due to spillover support from the higher wheat markets as well as from thoughts that the weekend rains were a little too late for Argentina’s corn crop. A sharply higher crude oil market added support as crude traded to highs not seen since October 2014, once again due to the escalation in the Russia/Ukraine tensions over the weekend.
Corn's trifecta came from last week’s export inspections estimate which put corn shipments over 1 million metric tons and at a new marketing year high. Seasonally corn shipments start to increase after the first of the year as soybean shipments start to slow down. That trend is starting now. By the close Wednesday, Jan. 19, old crop corn was able to close above the psychological $6 level while new crop posted a new high.
Soybeans were under pressure to start the week, gapping lower on the opening bell Sunday night, due to pressure from weekend South American rain events. The rains missed most of southern Brazil, but Argentina received good rains, and more is in the forecast for Argentina over the next 10 days. The rains are thought to have been too late to help a majority of the corn, but it will help the soybeans. This resulted in the selloff in both soybeans and soybean meal Tuesday, Jan. 18.
But it was not that soybeans did not have friendly news to help trim losses. Demand continues to pop into the soybean market as Mexico was in and bought two separate tenders of soybeans from the U.S. On Friday, Jan. 14, Mexico bought 100,000 metric tons of soybeans and on Tuesday, Jan. 18, they reportedly bought another 239,000 metric tons of soybeans. Support also came from forecasts that hot and dry conditions will return to southern Brazil and Argentina. Brazil’s soybean harvest has begun with harvest at 2% complete versus 2% average.
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National Oilseed Processors Association reported December crush at 186.4 million bushels versus the average trade estimate of 185 million bushels, setting a new all-time record. Stocks were higher than expected at 2.031 billion pounds versus the average trade estimate of 1.892 billion pounds.
Cattle traded on both sides of the fence this week. Light pressure was due to chain speed concerns as packers continue to be unable to operate plants at capacity due to worker shortages. The higher grain complex added pressure. Early support came from a steady cash trade as this week’s cash market looks to be lock step with the previous week. Light support came from adverse weather forecasts for the U.S. Midwest. Cattle were also influenced by position squaring ahead of January’s Cattle on Feed report and Cattle Inventory report, to be released on Jan. 21.
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