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Volatility increases in the grains

Volatility in the market is a sign that the market is getting closer to changing its trend. That was a real concern toward the end of the second week of February.

Soybeans
Soybeans have been on a big run since mid-January.
Agweek file photo.

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

The volatility is starting to increase in the grain complex. Not that there wasn’t volatility before, but the moves are starting to become a little more erratic and the size of the moves are increasing. This is a sign that the market is getting closer to changing its trend. That was a real concern toward the end of the second week of February.

On Wednesday Feb. 9, the U.S. Department of Agriculture released its February Crop Production/Supply and Demand report. For the most part, the report was uneventful to the grains, but there were a few nuggets found in the numbers.

On the U.S. wheat estimates, USDA made no adjustments to the 2020 numbers, which was as expected. For 2021, USDA left production unchanged but did lower demand 20 million bushels. The decrease in demand was due to a 3 million bushel cut in food demand, 2 million bushel cut in seed demand and a 15 million bushel cut in exports. That put U.S. wheat ending stocks at 648 million bushels, up 20 million bushels from the previous month and 16 million bushels above expectations. It’s hard to argue with those numbers as wheat exports have been poor at best. The national average price for wheat did increase 15 cents to $7.30.

On the world stage, world wheat stocks were estimated at 278.2 million metric tons, 2.1 million metric tons above expectations but 1.8 million metric tons lower than the previous month. Some of the adjustments in world wheat numbers were a 500,000 metric ton increase in Argentina’s exports, a 200,000 metric ton increase in Canada’s exports, and a 200,000 metric ton decrease in Ukraine exports.

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USDA made no changes to corn’s numbers. U.S. corn ending stocks were left unchanged at 1.54 billion bushels, 42 million bushels above expectations. This was neutral to negative corn.

On the world stage, corn world ending stocks were estimated at 302.2 million metric tons, 2.8 million metric tons above expectations but 900,000 metric tons lower than last month. USDA made only minor adjustments to South America’s production. Brazil’s corn production estimate dropped 1 million metric tons to 114 million metric tons, 800,000 metric tons above expectations. Argentina’s corn production estimate was left unchanged at 54 million metric tons, which was 2.3 million metric tons above expectations. This was a little negative corn.

Only minor adjustments were seen in the soybean numbers as well. For old crop 2020, USDA made some minor adjustments within the estimates, dropping exports 4 million bushels and increasing residual by the same, leaving old crop stocks unchanged. For new crop 2021, USDA made only one adjustment, increasing crush 25 million bushels which followed through to decrease ending stocks by the same 25 million bushels putting stocks at 325 million bushels, 17 million bushels above expectations. The national average price for soybeans increased 40 cents to $13.00. The report was neutral to friendly soybeans. What was disappointing was that USDA made no adjustments to exports, which most were expecting. Since Jan. 18, the U.S. has sold almost 5 million metric tons of old and new crop soybeans to China, Mexico, and an unknown destination. Clearly that is a signal that the world is worried about late summer South American supplies and that U.S. exports will be strong.

On the world stage, world ending stocks were estimated at 92.8 million metric tons, 1.8 million metric tons above expectations but 2.4 million metric tons below last month. South American production was trimmed, but USDA did take the conservative route. Brazil’s production was estimated at 134 million metric tons, 1.1 million metric tons above expectations, but 5 million metric tons below last month. Argentina’s production was estimated at 45 million metric tons, 800,000 metric tons above expectations but 1.5 million metric tons below last month.

Overall, the report was a nonevent, and the trade went back to trading weather soon after the report was released. And weather forecasts continue to be bullish to the grains.

Thursday, Feb. 10 was when the volatility really increased. The grains started firm, rallying sharply higher with all corn and soybeans contracts breaking to new contract highs, but then retreating sharply lower only to stabilize and end the session with modest losses.

The grains were able to open Thursday’s session with gains but once the CONAB estimates were released the grains rallied sharply higher, pushing both corn and soybeans to new contract highs and through major resistance. CONAB dropped Brazil’s soybean production estimate 15 million metric tons in a month putting it at 125.5 million metric tons. In comparison, USDA only dropped Brazil’s production 5 million metric tons to 134 million metric tons in their February Crop Production report. On top of that, Argentine officials lowered their corn production estimate 6 million metric tons to 51 million metric tons versus USDA’s February estimate of 54 million metric tons.

The rally was short lived though as once corn and soybeans traded above resistance, hedge selling pressure and sell stops were triggered. This started the ball rolling down hill and once the market broke through the previous day’s high, weak longs started to liquidate positions which pushed the grains into sell stops and computer-generated sell orders. By the time the dust settled, March soybeans had traded in a 67.5 cent trading range.

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The run in March soybeans has been nothing but impressive when you look at the numbers, and it sort of explains why we are seeing such volatility. Between Jan. 18 and Feb. 10, soybeans only traded lower in four out of 18 sessions and rallied from $13.4975 to $16.33, or roughly $2.8325. In the same time frame, March Minneapolis wheat gained $1.0625 and March corn gained 77.5 cents.

Wheat was supported by U.S. drought concerns. The Feb. 17 Drought Monitor map continues to show an expanding drought in the U.S. southern Plains. As of Thursday, the amount of winter wheat in some stage of drought has increased 2% to 71%. Kansas is now showing 86% of its state in some stage of drought while Oklahoma has 98% in some stage of drought and Texas is estimated to have 88% in some stage. The winter wheat crop is in dire need of moisture and there is very little in the forecast.

Dr Cordonnier updated his production estimates for South America yesterday. For corn, Dr Cordonnier left Brazil’s production unchanged at 112 million metric tons but lowered Argentina’s corn production 1 million metric tons to 50 million metric tons. For soybeans, he lowered Brazil’s production estimate 6 million metric tons to 124 million metric tons and lowered Argentina’s production 2 million metric tons to 40 million metric tons. He was not the only analyst releasing production estimates as AgroConsult lowered their Brazil soybean production estimate 8.4 million metric tons to 125.8 million metric tons.

Weather continues to be supportive as rain is expected to remain in the northern regions of Brazil until the end of the third week of February. Warm and dry conditions are expected to continue to dominate the southern regions of Brazil and Argentina through that time frame as well. But then the trend is expected to change in the fourth week of February, bringing drier conditions to the northern regions of Brazil and rain to the southern regions and Argentina. Confidence in this forecast started to decline toward the end of the week, but the bigger question is will the rain be in time to make a difference? The rain will certainly help the second corn crop in Brazil, as that is just being planted. But most are not expecting the rain to improve the soybean crop, which is why most analysts continue to release lower production estimates.

The January National Oilseed Processors Association crush estimate was a little negative to soybeans coming in at 182.2 million bushels versus expectations of 186.7 million bushels. On a positive note, soybean oil stocks were lower than expected.

Wheat continues to get most of its direction from the on again/off again tensions between Russia and Ukraine. At last report, Putin had made the comment that troops were going to be leaving the area as Russia wraps up the training. But instead, NATO reported a slight increase in troops. It will be interesting to see what occurs after the Olympics are done.

Cattle continue to push higher with cash bids the main driver. Most of the live cattle contracts and feeder cattle contracts have been able to stage new contract highs, but the road to the top has not been easy. Although cattle are sitting at or new highs, concerns about the economy are still keeping the market on edge. Most are expecting beef demand to start to decline once the Federal Reserve starts to in increase interest rates in March. Tight supplies and strong exports will need to continue to be strong to keep the cattle market from retracing.

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