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Market outlook for the week of Dec. 23, 2019

After a week of highs, markets calm going into the holidays.

  • Low trade volumes and little news through Sunday indicate the markets are relaxing for the holiday season
  • Speculators were less bearish on corn, soybeans, and wheat late last week
  • Quiet export demand will likely make few changes in Friday’s export report from USDA

Corn: March futures started last week with a rally on a record sale to Mexico and optimism over global trade as they soared through resistance to hit a seven-week high to $3.90 on Tuesday. As enthusiasm over the trade deal waned and traders began adjusting their positions ahead of year end, prices settled at $3.8775 on Friday, up over four cents on the week. Weekend trading tipped March futures slightly higher by a penny.

Contract volumes peaked at 180,896 on Monday but dropped to 68,692 by Friday, indicating traders are reducing activity before the holidays. This will likely make for a quiet Christmas week for corn futures prices.

Cash markets were steady last week, with several Illinois processors weakening prices ahead of the holidays. Basis strengthened slightly at river terminals in Illinois and Iowa but any upward momentum was capped by low export demand through the week.

Quiet export demand for corn this week will likely have little impact on prices following USDA’s weekly export report on Friday. No major corn sales surfaced from USDA through Sunday.

China and Brazil placed long bets on corn ethanol this week. Brazilian energy company, Raizen, and soybean behemoth Amaggi teamed up with Chinese commodity trader COFCO to announce construction of a new corn ethanol plant in Brazil. Raizen obtained 800 million reais ($196.5 million) in financing this week, less than half of the $477 million expected investment in this project. Earlier this year, Conab estimated 2019/20 corn ethanol production to top 1.4 billion liters. Brazil aims to increase corn ethanol output to 8 billion liters by 2028, adding to concerns about sustainable ethanol demand in U.S. markets as 2020 U.S. biofuel mandates were finalized this week without support to struggling farmers.

Soy: January futures hit their highest price since October 24 on Tuesday on favorable trade news from the “phase one” trade agreement with China. Concerns about the deal’s validity wavered prices through the week, though January futures ultimately gained six cents on the week as traders adjusted positions ahead of the new year.

January futures volume hit 534,878 contracts on Friday. This was the highest volume traded all week, suggesting a higher chance for price volatility compared to corn and wheat heading into the holiday week.

The price rally stimulated a few cash sales through the Midwest last week as river terminals saw basis strengthen though prices were mostly firm across the Corn Belt.

A 4.6 million bushel sale to China announced by USDA on Thursday was a good sign of export demand but will likely not be enough to significantly impact futures prices ahead of Friday’s weekly export report. An official with the Chinese Foreign Ministry publicly acknowledged difficulties in trade and North Korea negotiations with the U.S. Friday. While the statement did not seem to affect markets, it was not necessarily a step forward for trade relations either.

China needs at least 39.4 million bushels before the South American soybean harvest begins, but trade waivers from China were cancelled without reason in November as stockpiles are plentiful, according to traders. U.S. soybean prices are currently competitive on the world market through mid-January, but as the South American harvest begins, U.S. prices lose in favor to South American soybeans. Lower export demand from the Chinese in U.S. markets could be a function of reduced demand for hog feed, but some traders suspect the Chinese are simply waiting for the lower-priced Brazilian soybeans to come to market.

Soyoil will likely remain bullish as competing Malaysian palm oil futures prices rise on low stocks and decreasing output estimates. India is heading into its busiest season for edible and non-edible oils – wedding season – as global demand for vegetable oils remains insistent. January soyoil futures were unchanged in weekend trading at $33.79.

Wheat: In Chicago, March wheat futures danced with their highest prices in 5.5 months on Tuesday before profit-taking settled in. March wheat gained seven cents on the week. Kansas City March futures rose nearly 18 cents on the week, while Minneapolis futures rose over 10 cents. The rally was fueled by optimism over trade with China, an increase of Argentina’s export tax on agricultural products, and short-covering before year end.

Wheat contract volume mirrored corn, topping out at 95,740 contracts exchanged on Monday while 42,735 contracts traded Friday. The nearby Kansas City and Minneapolis futures volumes followed a similar pattern. Pending global sales, the wheat market should remain quiet this week.

The early week rally on the “phase one” trade agreement stimulated cash sales through the Midwest as basis strengthened five cents in Chicago.

Export sales last week included a 2 million bushel sale to Japan and a 3.9 million bushel purchase from Taiwan.  Traders do not expect these sales to significantly impact export volume ahead of Friday’s export report, but they are a good omen for global demand as the increasing Argentinian export tax increase makes U.S. wheat more attractive in a competitive global market in the coming weeks.

Russia made moves to strengthen their position as the world’s leading wheat exporter last week. Russian financier VTB will to pair with an international trader to market Russian grain directly to end users. The Middle East, Africa, and Vietnam buy most Russian grain. VTB is the second largest bank in Russia and rapidly expanded into Russian grain markets, trading, and infrastructure this past year. VTB became the largest exporter of Russian grain after purchasing a grain trader in August, with no plans to slow expansion as they look to purchase grain terminals along the Black Sea. Executives plan to sell the grain division after two to three years of expansion and the Russian government’s blessing.

Weather: The Midwest will welcome warm, clear weather through Christmas – a brief reprieve from a cold and wet fall. Temperatures early in the week could feature highs in the 40s and 50s. The warmth may not be enough to melt snow in the northern Plains where farmers are still finishing 2019 harvesting and the heat wave will end when a snow system moves into the Upper Mississippi Valley on Wednesday night.

A snow system developing in the Central Rockies throughout the week will push snow and rain across the south-central Plains by Thursday evening and cover most of the Grain Belt by Friday evening into the weekend.

South American corn and soybeans will enjoy cooler temperatures and rainfall over the next week as well as favorable yield bumps as a result. Wet weather will persist across key wheat-producing areas of Europe this week, causing concern as cooler forecasted January temperatures threaten the wheat crop’s health.

Financials: The Dow Jones Industrial Average bested Thursday’s record high on Friday, gaining 1.1% on the week. Low and stable interest rates, calming trade relations with China, and improved consumer and business spending in the U.S. and China in November supported the Dow’s rally as investors begin to restore faith in global economic growth.

Oil markets traded lower this week as markets do not expect global demand and OPEC production cuts to offset global oversupply and increasing output from other nations. The nearby light crude futures hit a three-month high Thursday on optimism over global economic growth before settling at $60.44 on the week.

Reports due out this week:

  • Monday
    • Cold Storage
    • Hogs and Pigs
  • Friday
    • Weekly Export Sales
    • Agricultural Prices
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