The grains have wrapped up the last full week of trading for 2020. At this point, there are only two short weeks of trading left in the year, which for the most part are quiet and uneventful weeks. But this year, who knows?
As the markets approach year end and as traders align their portfolios in preparation for the end of year, it’s a good time to make sure producers are also getting prepared for the start of the new year. At this point, it is hard to see the grains setting back a tremendous amount as the market continues to wrestle with a lot of fundamental concerns, not just in the U.S. but also in South America and Russia.
Russia helped to give wheat a boost the previous week, but wheat wasn’t able to capitalize on the news last week. Russia is looking to control the price of grain in country by imposing an export tax on all grain exports between Feb. 15 and June 30. In addition, Russia will be placing an export quota on exports for that time frame. What Russia is hoping to accomplish is to increase supplies of domestic grain enough to lower the price of food in the country. But it’s likely that all this will accomplish is that wheat importing countries will just speed up the time frame for buying a month or two to get their needs met by Russia.
The news coming out of South America continues to be mixed as Brazil is seeing rain in the northern and central regions, but southern Brazil and Argentina are only seeing spotty rains. That means the crop in South America is holding its own, for now. The weather in January will be of great importance as it will be the month that shapes production.
Demand is the main driver in the U.S. as we enter the holiday doldrums, and although we are not seeing a lot of exports on the daily report (sales over 100,000 metric tons), the weekly sales estimates have been OK for wheat, decent for soybeans, and strong for corn. The number to watch is shipments as soybean shipments have been strong while corn and wheat have been decent. It would appear that the soybeans we have been selling have been getting shipped almost as fast, reducing the possibility of cancellations.
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The biggest question the market will have to answer is what China will be doing with its import program after the first of the year. It is a given that their aggressive buying in October gave them the supplies they needed to bridge the gap until South America’s crop came online. But with delayed planting and dry conditions, Brazil’s crop will not be available in January/February like normal. This has China trading houses wondering how they will get their January/February/March needs met. The easy answer is to switch those purchases to the U.S., which will result in another surge in U.S. exports in early 2021.
To add to the chance of increased demand after the first of the year, the U.S. will likely start to see an emerging acreage race as wheat will need to try and hold onto planted winter wheat acres against corn, soybeans and cotton as all three battle it out to try and gain acreage. Supplies of corn, soybeans and cotton are tight, and all three need to increase acreage over last year. And the drought concerns are only adding fuel to that fire.
The Federal Reserve wrapped up its two-day meeting Dec. 16. The Fed decided to leave interest rates unchanged and to leave its quantitative easing program unchanged for now or until substantial improvements can be seen in the economy. Some were disappointed that the Fed did not make adjustments, which pressured the U.S. dollar. The Fed did comment that they are expecting a dramatic improvement in the economy during the second half of 2021.
The sharply lower dollar is supportive to the grains as it makes U.S. products more affordable as the value of the dollar decreases, the value of foreign currency increases. Hopefully, this will help improve wheat exports which have been disappointing all year.
Last week’s wheat export shipments pace was estimated at 9.6 million bushels and sales were estimated at 19.9 million bushels. After 28 weeks, wheat shipments were at 51% of USDA’s expectations versus 52% last year while sales were at 73% of expectations versus 68% last year. With 24 weeks left in wheat’s export marketing year, shipments need to average 20 million bushels and sales need to average 10.9 million bushels to make USDA’s projection of 985 million bushels.
Corn traded in a quiet, steady fashion last week as traders look for direction. The lack of deliveries against the December contract was supportive as was South American weather concerns and strong demand. Expectations that USDA will cut corn production in their Final Crop Production estimate in January added to the strength.
Last week’s ethanol production was estimated at 957,000 barrels per day, down 34,000 barrels from the previous week and at a seven-week low. Stocks were estimated at 22.95 million barrels, up 867,000 barrels from the previous week and the highest since mid-May.
Last week’s corn export shipments pace was estimated at 34.9 million bushels and sales were estimated at 75.8 million bushels. After 15 weeks, corn shipments were at 18% of USDA’s expectations versus 16% last year while sales were at 62% of expectations versus 38% last year. With 37 weeks left in corn’s export marketing year, shipments need to average 58.9 million bushels and sales need to average 27.4 million bushels to make USDA’s projection of 2.65 billion bushels.
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Soybeans were the bright spot of the grains this past week. After slipping lower the previous week, soybeans rallied to new contract highs to close out the week. Export optimism supported the market as there were Chinese buying rumors. Another strong week of export shipment added support. Last week’s shipments of 87 million bushels were in the range of trade estimates. Last week’s export shipments report showed 58.9 million bushels were shipped to China (68% of the total shipped).
Argentina is 62% planted versus 64% last year while Brazil is at 95% planted versus 96% last year. But the big news out of South America was the oilseed worker strike in Argentina which is ongoing after the latest round of negotiations failed. This continues to bring support to the U.S. soybean complex on the expectation of increased demand.
Support also came from the November National Oilseed Processors Association report that put November crush at 181 million bushels, higher than the trade expected and a new record for the month of November. Soybean oil stocks were estimated at 1.558 billion pounds, higher than expected and the highest stocks for November in eight years. The strong export demand and strong crush pace have traders convinced that USDA will have to trim soybeans stocks in their January report.
Last week’s soybean export shipments pace was estimated at 87 million bushels and sales were at 33.9 million bushels. After 15 weeks, soybean shipments were at 54% of USDA’s expectations versus 42% last year while sales were at 90% of expectations versus 62% last year. With 37 weeks left in soybean’s export marketing year, shipments need to average 27.6 million bushels and sales need to average 6 million bushels to make USDA’s projection of 2.2 billion bushels.
Canola also traded to a new contract high last week. Support came from the higher Malaysian palm oil market, strong domestic demand, and a weaker Canadian dollar.
Cattle continue to surprise traders as both cash and boxed beef prices traded lower for the week, but the combination of technical buying and support from COVID-19 vaccine rollout helped overshadow the selling pressure. Last week’s cash traded at a disappointing $103 to $105. Position squaring ahead of Friday’s cattle on feed report was also evident. Early estimates for the report are: On Feed: 100%, Placed: 92%, and Marketed: 98%.
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