AgMarket.Net partner Brian Splitt wrote in last week's column “I will tell you next week what you should have done this week,” on preparing for the January WASDE and quarterly stocks reports that came out Tuesday.
Sometimes, even if you know the numbers, you do not get the market reaction you would expect.
With March soybeans rallying $2.17 and March corn rallying $0.71, from the day of the December WASDE report to the day before the January report, it felt like we were set up for a classic "buy the rumor, sell the fact" reaction to the market, without any shockingly bullish numbers. The main numbers that the trade looks at - ending stocks - came out right at the trade's expectations on soybeans at 140 million bushels (mb) while USDA’s corn stocks estimate was 50 mb shy of the average trade estimate.
It looked like the table was set to sell the fact, but that is not what happened. The price rally continued, and we ended the trading session with corn trading limit up 25 cents higher while soybeans were up 55½ cents.
The trade in disbelief
The market’s reaction to the report would suggest that the trade doesn’t believe USDA’s numbers. USDA chose to lower the corn export goal by 100Mb even though corn sales to date are already 70.1% of the export goal, which is way ahead of the 5-year average pace of 51.4% sold. Corn exports are up 72% compared to last year at this time, with China accounting for 80% of the increase.
We expect China will continue to buy as the Chinese Stats Bureau recently announced they have a corn deficit of 28.5 MMT this year. If weekly sales continue like this week's numbers, it will be just a matter of time before USDA will have to revise export demand higher. This week alone, the U.S. sold 56.6 mb of corn. We only need to sell 23.1Mb a week to hit the revised USDA export target.
USDA also lowered ethanol demand for corn. This was done even though the current average weekly corn consumption for ethanol is running above what is needed to hit the USDA target.
Corn used in last week's production is estimated at 95.07 million bushels. We currently need an average of 94.593 million bushels per week to hit the USDA demand estimate of 4.950 million bushels. The ethanol industry demand has been above the USDA average consumption target 9 out of the past 10 weeks. Marketing year (Sept. 1) to date, we have used 1.77 billion bushels of corn to make ethanol. We would argue if the current ethanol demand pace continues, it will be only a matter of time before these numbers are revised back up in future reports.
Revised crush estimates
As for soybeans, USDA chose to revise their crush estimate up by 5 million bushels and exports by 30 million bushels, but this also looks like it may not be enough. Even with the revision, the marketing year-to-date soybean sales are currently running at 91.7% of the USDA goal, way above the 5-year average pace of 74.4%. This week's sales report showed that the U.S. sold 33.4 million bushels of soybeans while we only need to sell 5.6 million bushels a week to hit the revised USDA export target. USDA’s export goal is 60.7 MMT compared to 45.7 MMT last year. China, the biggest buyer of U.S. beans, purchased 758,000 MMT last week alone.
China's commitments to date are 33.5 MMT and 4.5 MMT has been purchased as “unknown” which could be China as well. There is chatter China could take 38 MMT from the U.S. this year and 44 MMT in 2022. As for crush, it continues to be strong. According to data released by the National Oilseed Processors Association (NOPA) on Friday, December crush was the largest on record for December and the second-largest crush for any month, only behind October 2020. The association crushed 183.159 million bushels of the oilseed last month, up from 181.018 million bushels in November and 174.812 million bushels in December 2019.
We anticipate we will continue to see sweeping volatile market moves like we have recently seen until the market has seen evidence that rationing has been accomplished. Rest assured, we will reach that price level; picking the time and price is the million-dollar question.
Put in a floor
With profit margins at levels not seen in 8-plus years, we continue to encourage producers to use options to put in a floor on unpriced new and old crop bushels. We would suggest using call option strategies on sold bushels to keep upside potential open as what price it will take to ration demand is still to be decided.
Feel free to contact me directly at 815-665-0462 or anyone on the AgMarket.Net team at 844-4AGMRKT if you have any questions.
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