The prospect of record-breaking production in South America, where soybean harvest has already begun in some areas, cooled prices considerably this week.
In fact, the South American continent has seen rains arrive which, even if they are late, augur an improvement in the condition of the plots.
A poll of 13 analysts shows Brazil is expected to harvest 4.858 billion bushels of soybeans this season – a record, if realized.
In add, Argentina will can finish sowing corn and soybeans, as 93.4% complete according to the Buenos Aires Grains Exchange, that also increasing its ratings for “good to excellent” corn by nine points (28%), and raised its ratings for soybeans by three points (21%).
Wet weather is returning to the central U.S. too– especially in parts of the Ohio River Valley, which could see as much as 2” of additional moisture between Saturday and Tuesday, per the latest 72-hour cumulative precipitation map from NOAA.
Better weather conditions, are shaping up for the next few days also in the Black Sea area.
In eastern Europe, after the cold spell potentially damaging to crops due to heterogeneous snow cover, the thermometer started to rise again, greatly limiting the risk of damage.
A primary Russian agriculture consultancy, raised its 2021/22 Russian wheat production forecast from 76.8 MMT in December, to 77.7 MMT in January, on improved weather conditions through the winter.
In the meantime, US Ag’s latest export sales report, covering the week through January 14, held mostly bullish data for traders to digest.
Evene if corn export sales were nearly identical from a week ago, with 56.6 million bushels in old crop sales, plus another 1.8 million bushels in new crop sales, sorghum export sales jumped another 54% higher week-over-week, reaching 11.6 million bushels.
Soybean export sales were up noticeably too from a week ago, reaching 66.8 million bushels in old crop sales plus another 30.5 million bushels for a total tally of 97.3 million bushels.
Wheat export sales improved by 49% from a week ago, to 12.1 million bushels.
However, traders have shrugged off positive export sales data from USDA yesterday as they continue to back off of a historically large net long position.
So, corn prices concluded a bad week, capping off the first weekly loss since early December and tumbling more than 4% lower.
Soybean prices took a dramatic spill too, finishing the session more than 4% lower.
And wheat prices, of course, followed corn and soybean prices lower, with worries about increased overseas competition that created additional headwinds, ledding to significant selling.
Well, when the market makes so a quick move down like it did yesterday, we always must remeber that markets don’t move in straight lines never.
There are always several reasons for corrections.
The market either runs out of buyers as it makes a new high as well as those long in the market begin to take profits, thus exiting the market.
But we also can have fresh sellers coming in, believing the market has peaked.
All of this, of course, is healthy in an uptrend.
But, we still continue to have an uptrend market?
This is the real question.
We try to give a reading of the reality of things.
Really, no major news prompted the sell-off.
While weather seems to keep improving in South America, most feel the situation is less-than-ideal, similar to how in some parts of the U.S. situation is viewed due to drought conditions in the western corn-belt.
China talked of ASF creeping back in late in the week, but most felt it was more of an isolated situation.
In all honesty, we didn’t see the type of news that would correlate to such a sell-off.
However, as soon as the market reacted poorly to huge export sales of both corn and beans as well as another sales announcement for beans on the morning wire, the market seemed intent on looking for sell stops –and it obviously found them.
With panic selling occurring, several corn contracts touched limit down while beans were 60+ lower late in the session.
So, this panic profit-taking pressured all grains and oil seed futures prices.
In this context, CBOT soft red winter (SRW) futures fell 41 cents on the week to close at $6.34/bu.
KCBT hard red winter (HRW) futures dropped 30 cents to end at 6.13/bu.
MGE hard red spring (HRS) futures lost 31 cents to close at $6.12/bu.
CBOT corn futures fell 31 cents to end at $5.00/bu.
CBOT March soybe an futures dropped $1.05/bu to end at $13.12/bu.
Euronext ended the week with heavy losses, in a market marked by concern, with wheat which fell by almost € 9/t!
However, from the last week’s reports that USDA had lowered exports for corn lowered, lowered feed usage and lowered ethanol, we had already starting to dropp the importance on supply side.
So, now we are watching several factors for price indications:
- The Chinese trade policy;
- The international demand;
- The South American final real yields;
- The U.S. acres.
According to Reuters, China imported a record 8.38 MMT of wheat in calendar year (CY) 2020, up 40% from 2019.
Domestic Chinese corn prices remain high.
“We will continue to buy alternatives [for feed] including imported corn, wheat and barley,” said a manager with a major feed and pig producer in southern China.
As of Jan. 14, Chinese imports of U.S. wheat total 2.45 MMT, more than 12 times greater than this time last year.
Private exporters reported to USDA the sale of 5.0 million bushels of soybeans for delivery to China during the 2020/21 marketing year, which began September 1.
China also bought 4.8 million bushels of sorghum, half of which is for delivery this marketing year, with the other half for delivery in 2021/22.
Soybean export sales were up noticeably from a week ago, reaching 66.8 million bushels in old crop sales plus another 30.5 million bushels for a total tally of 97.3 million bushels.
That bested all trade estimates, which ranged between 40.4 million and 77.2 million bushels.
Cumulative totals for the 2020/21 marketing year are still far exceeding last year’s pace, with 1.594 billion bushels.
Soybean export shipments inched 9% ahead of the prior four-week average, with 87.4 million bushels.
China was by far the No. 1 destination, with 49.6 million bushels.
In add, pork prices in China continue to trade at similar levels and close to peak levels.
US corn export sales were nearly identical from a week ago through January 14, with 56.6 million bushels in old crop sales, plus another 1.8 million bushels in new crop sales.
That was above all trade estimates, which ranged between 23.6 million and 47.2 million bushels.
Cumulative totals for the 2020/21 marketing year are still well ahead of last year’s pace, reaching 693.2 million bushels.
Corn export shipments slid 39% lower week-over-week and landed 24% below the prior four-week average, in contrast. Mexico led all destinations, with 7.8 million bushels.
Ethanol production firmed slightly for the week ending January 15, moving from a daily average of 941,000 barrels the prior week up to 945,000 barrels per day last week.
However, as per Jan 22, Ukraine exported 11.053mmt of corn.
There are 10 vessels in ports loading 474k.
This week’s US wheat commercial sales of 330,000 metric tons (MT) for delivery in 2020/21 were up 49% from last week’s 222,000 MT and in line with trade expectations of 250,000 MT to 600,000 MT.
Year-to-date commercial sales now total 21.4 million metric tons (MMT), 5% ahead of last year’s pace.
USDA forecasts total U.S. wheat exports will reach 26.8 MMT in 2020/21, 2% ahead of last year, if realized.
The Baltic Dry Index (BDI), an assessment of the average cost to ship raw materials like grains, coal and iron ore, increased slightly on the week to end at 1,837, even if Pacific Northwest (PNW) HRS and HRW export basis for March and April deliveries fell on the week due to increased elevation availability, while Gulf HRW and HRS export basis are unchanged for nearby and deferred deliveries.
The January EU export estimate at 25.1 million tonnes, leaving just over 11 million tonnes available to ship to the end of June.
Just under 18 million tonnes were shipped in the same period last year.
The EU will need to ship in excess of 475,000 tonnes a week to meet that target, but whether importers have the appetite for current high prices to make that happen remains to be seen.
Jordan bought wheat this week for August shipment at the equivalent of $250/t before shipping costs, which is a near $50/t discount to old crop wheat supplies.
Between July and December, Russia has exported around 25 million tons of wheat, nearly two-thirds of the forecast for the year and almost exceeding the full-year forecast of the United States, the next largest global exporter.
Russian exporters have already sought to increase shipments in advance of mid-February, and shipments thereafter are expected to decline seasonally.
In the meantime, we must note that input costs for fuels and fertilizer are on the rise, with some outpacing the rally in 2021 crop corn futures.
Urea led the charge last week.
Swaps at the Gulf jumped $32 a ton to $300, a one-week increase of 12% as buyers scrambled to secure barges, with supplies limited by a slow pace of imports.
International sellers had been focused on big tenders from India over the fall and early winter, along with demand from South America.
Overall Gulf prices are up around 40% from early October lows and are 65% off the COVID-19 bottom last spring.
And still, the union of Brazilian motor carriers announced a strike for indefinite period from 1 st February to protest against fuel prices.
The movement could thus disrupt the country’s soybean exports if the situation were to persist.
The function of the market is to get prices high enough to where you start to curb demand of some magnitude to where the supply and demand will come into balance.
There was some concern about having enough new-crop soybeans, but now we have some analysts saying there’s going to be 89 million or maybe 90 million acres of beans, so that’s kind of spooked the market.
Maybe, market prices will overdo the upside and also go beyond what is reasonable.
The difficulty is trying to ascertain at what point did we cross the line and get prices too high?
The market kind of told us that this week.
The market giveth and the market taketh away, and sometimes it takes it away twice as fast as it gave it to you.
We may have a dead cat bouncing, given the South American crop forecast, but we’re already looking ahead.
Fortuna Eruditis Favet
(“Fortune favours the prepared mind”).
