Grains and oilseed values were range-bound last week after consecutive weeks of highly volatile prices.
Indeed, markets took off risk ahead of Tuesday’s USDA reports.
We’re one trading session away from the February WASDE report. Given the corn balance sheet impact of recent US corn sales to China, there’s more than normal interest in how the USDA will balance the figures.
Uncertainty going into Tuesday’s report will likely see markets take some more risk off in the next 24 hours.
Meanwhile, last week, having been limited the fundamental news to push prices in either direction, markets had only litle changed down.
Further moves in corn and beans will depend on the South American crop’s actual yield.
South American weather maps are starting to show a little bit of moisture on the extended run models for central Argentina into later next week, but dryness remains a concern.
Brazilian harvest is still slowly plugging along, though rain delaying harvest is still bringing major delays to exports.
Focus is shifting to the delayed safrinha crop planting.
In spite of the better moisture prospect being of general benefit, a long planting delay would raise concern about yield potential.
Other factors that will drive the market remain the same, i.e., fight for acreage between corn and soybeans and the total pace and extent of demand from china drawing down on domestic US stocks.
So, the current strong export pace would only make the ratio of long positions vs. short remains close to 90%, indicating a one-sided market, but which increases the chance of a sharp pullback if there is fundamentally bearish news.
Currently indeed, funds reduced position mainly in corn, while the rest of the positions were mostly unchanged.
Overall, however, given the supply and demand picture, any pullback in prices could be seen as an opportunity to add a trade, and a fund led liquidation could provide such an opportunity.
Additionally, we note that if the USD were to again continue weakening, there are chances that commodity continuesto see index funds buying as a hedge against weaker USD value.
However, USD has only strengthened over last week mainly due macro excitement about the new US stimulus package remains, with the attempts to push it through via budget reconciliation looking set to see it pass in the next 2 weeks – and could add US$1.9 trillion ($1.9 times 1012) in new liquidity.
Meanwhile, Chinese New Year this year is Friday 12 February.
The week of holidays from the 11-17 February will bring most of the country to a shutdown.
So, some are expecting to see more sales business in the next few days in a rush to get it across the line before the holidays.
On the other hand, Coronavirus concerns remain in play for global macro markets though, with reports over the weekend that the AstraZeneca vaccine is not effective against the South African coronavirus variant.
Russia announced further export duty on new crop starting from June 2, with the exporters will be obliged to register their contracts on the Moscow exchange.
This additional duty announcement, combined with the duty starting soon, triggered the farmer to sell pushing black sea prices lower.
Consequentially, all wheat market prices declined last week due to pressure from the decline in black sea prices.
US wheat and corn are still competitive in the world export destinations.
Wheat prices should again move in line with corn values as the current wheat supply and demand fundamentals do not suggest a strong move in either direction.
However, corn prices traded last week in a narrow range and closed almost unchanged over the previous week.
For wheat to move on its own fundamentals, the market needs to see potential issues with the Northern Hemisphere crop.
In fact, although StatsCanada stocks report as at 31 December 2020 pegged total Canadian wheat stock at 24.8 million tonnes (Mt) and canola at 12.1Mt, neither figure was a real shock to the market.
US export sales report shows that exporter has sold almost all of the USDA’s forecasted quantity of exports.
Also Russian and Australia exports are increasing.
We do not expect any significant slowdown in the export pace at current price levels.
The US likely estimated carryout would continue to reduce, as the export sales continue to outpace the estimated demand by USDA.
So, prices will only be a function of how the south American weather develops for Brazil second crop (between Mar 15- Apr 15 is the crucial yield sensitive period).
Like corn, soybeans will also be a function of how big is the current South American crop, and in case actual yield is higher than estimates, also soybean price could struggle to rally higher.
