Corn and soybean futures propelled higher during the month of December due to dry weather in Argentina, strong export demand for grains here in the United States, a lower U.S. dollar, and aggressive fund buying.
Earlier this week, March corn futures were briefly able to climb above the $5 per bu. level, posting a high of $5.02-3/4. A $5 price point had not been seen for corn futures since May of 2014! March corn is well supported at $4.65 with overhead resistance still at $5.
March soybean futures cleared the $13.50 resistance level this week, with a run up to $13.78-1/4. Next level of overhead resistance for March futures is a very solid $14 per bu. price point. Like corn, soybean futures have not seen these prices since 2014.
Corn and soybean futures have every reason to be at the price points represented now. Ending stocks continue to shrink, and global demand for grain remains strong.
The question facing traders now is, how much bullish sentiment is priced into the market already, ahead of the January 12th USDA report?
Corn and soybean supply
My eyes will be focused on the yield numbers and acres data. On the December report, the USDA pegged U.S. corn planted acres at 91 million, harvested acres at 82.5 million, with yield at 175.8 bushels per acre.
In the December USDA report soybean planted acres were at 83.1, harvested acres were at 82.3 with yield at 50.7 bushels per acre.
I can’t help but wonder if there may be some tweaking of acreage on Tuesday’s report. Specifically I think back to the prevent plant acres in the Dakotas last spring, as well as unharvestable acres from the Derecho storm that hit Iowa in August.
With the extreme heat in August, and with clients strongly suggesting that their yields were not ‘record,’ but rather more in line with a 5-year trend, I feel the yield numbers for both corn and soybeans on Tuesday’s report needs to be reduced.
According to research I shared with you in December, over the past 15 years, the USDA has reduced corn yield from the December to January report 9 out of those 15 years. The average reduction has been 1.5 bushels. In the 6 years where yield was increased, the average increase was 1 bushel from the December report to the January report.
On the demand side
Keep an eye on export demand. Corn use for exports in December was pegged at a record 2.65 billion bushels. Soybeans used for export were pegged at 2.2 billion bushels. Both of those number were not changed from the November report to the December repot, so I’m quite curious to see if there are changes to export demand considering the strong pace of sales on the books. Soybeans seem more likely to receive an increase in export demand than corn.
Ultimately it comes down to ending stocks
Can corn futures prices trade higher than $5? Can soybean futures prices trade higher than $14? It all comes down to the reduction anticipated for ending stocks.
Keep in mind, the industry is already anticipating a reduction in ending stocks for the January 12th report. Ending stocks for soybeans are currently at 175 million bushels. Ahead of the report, trade is expecting ending stocks to come in near 140 million bushels, with an exceptionally wide range of estimates (105 million bushels to 166 million bushels). If ending stocks come in near 140 million bushels, that is already priced into the market. If ending stocks are lower than 140 million bushels, then that would be supportive price prices and could provide the fundamental push needed to get prices above $14.00 futures for the March contract.
Corn ending stocks are currently at 1.702 billion bushels. For the report, trade expects a modest reduction of ending stocks down to 1.6 billion bushels. If corn ending stocks come in closer to 1.5 billion, that would be the fundamental push needed to accelerate prices higher. How aggressive of a cut to ending stocks is yet to be seen. More importantly, knowing how much of a cut is already priced into the market is another consideration.
Heading into this report you need to manage both the opportunities and risks in front of you. Some of you have said that corn cash prices are now $1 per bu. OVER your break even! Respect the value in front of you. Be aware of the opportunities that could lie ahead into 2021, and especially into summer. Work with your advisor for futures or options strategies that can help protect value, mindful of your risk tolerance. And if you need any assistance, please feel free to give me a call.