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Morning Market Review for December 2, 2021

scyther5/Thinkstock Markets-122316-scyther5-ThinkstockPhotos-2000
Chicago wheat tops $8 per bushel on global buying frenzy. (Comments are updated by 7:30 a.m. Central Time.)

Plus – a look at yesterday’s Farm Income forecast from USDA

  • Corn up 3-6 cents
  • Soybeans up 3-5 cents; Soymeal up $1.10/ton; Soyoil up $0.68/lb
  • Chicago wheat up 8-15 cents; Kansas City wheat up 15-16 cents; Minneapolis wheat up 11-12 cents

*Prices as of 6:55am CST.

Corn

Corn prices rose $0.03-$0.06/bushel overnight as dry weather in Argentina and Southern Brazil garner global concern for corn supplies. Rising energy prices in the wake of Tuesday’s market selloff also contributed to corn’s upward price march this morning.

Corn consumption for ethanol in October 2021 rose to its highest level since January 2020, according to fresh data released by USDA yesterday afternoon. Over 469.3 million bushels were consumed to produce ethanol during October 2021 as high energy prices increased demand for the cheaply produced fuel additive.

As I had previously predicted, the volume was considerably lower than my very rough estimate of 520.2 million bushels derived from U.S. Energy Information Administration weekly ethanol production data. But it marked a solid return to pre-pandemic production volumes the industry has eagerly – and at times painfully – awaited over the past two years.

Soybeans

Export prospects lifted soybean prices slightly this morning, with Chicago futures registering a $0.03-$0.05/bushel gain at last glance. But despite some dry weather in South America, rainfall in top Brazilian soybean producing state Mato Grosso have been adequate so far this week, keeping a cap on soybean gains.

After yesterday’s market selloff, Chinese buyers booked several bulk soybean cargoes from both the U.S. and Brazil to take advantage of low prices. Industry sources told Reuters that around 8.8 million bushels of soybeans were booked, which could be confirmed – at least in part – by USDA later this morning by way of a large daily flash sale announcement.

"With the dive (in prices) that we had, they are looking to secure more soybeans. Their crush is profitable," said Don Roose, president of U.S. Commodities, told Reuters yesterday. "They've been buying from South America and the U.S., but our window for sales is closing so we've got to get busy. Come February, we are not the main exporter any more. It starts to switch pretty heavily over to South America."

October soybean crush rates in the U.S. surpassed analyst expectations following USDA’s release of its monthly Oil Crushings report out yesterday afternoon. Over 196.9 million bushels of soybeans were crushed in October 2021, setting a new monthly volume record for soy crushings along the way.

Analysts had pegged the volume in yesterday’s report between 194.5 million to 196.3 million bushels prior to the report’s release with an average guess of 195.6 million bushels. The new record volume bested the previous high of 196.5 million bushels, set a year ago in October 2020, by a scant 0.2%.

The results from yesterday’s report show that despite slow crush volumes in the months leading up to October and prime harvest activity, U.S. soy processors are engaging in stiff competition with export buyers for any available soybean supplies on the market this fall.

Wheat

A global buying frenzy sent wheat prices rallying higher overnight. Rain damage during harvest in Australia continues to flood the market with concern about tightening protein quality availability, deterring other global market fears about the omicron variant.

Saudi Arabia issued a tender for 19.7 million bushels of hard wheat with 12.5% protein overnight for delivery between May and July 2022. Traders speculated early this morning that Tunisia is likely to have purchased 3.7 million bushels each of soft wheat and barley and 3.4 million bushels of durum overnight. Jordan and Japan also received offers on previously issued tenders overnight.

"The supply shortfall in the northern hemisphere is pushing buyers to go for more Australian wheat," Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney told Reuters overnight. "But we have more lower quality wheat crop."

Looming export restrictions expected from top global exporter Russia continue to hold supply concerns at high levels, especially with early quality concerns for U.S. and Russian winter wheat crops floating in the market.

Wheat prices soared $0.08-$0.17/bushel higher across the Chicago, Kansas City, and Minneapolis market, with March 2022 Chicago futures breaking past the $8/bushel benchmark on the news.

Inputs (Global)

China’s National Development and Reform Commission (NDRC), a state planning agency, assured fertilizer producers across the country it would ensure the companies have enough energy supplies to continue production for spring planting.

The move is widely seen as an effort to curb domestic prices and safeguard the farming community’s capabilities to expand acreage this spring. Urea production in China has fallen this year as new emissions regulations and rising energy costs have tightened production margins for Chinese fertilizer producers.

This likely means that export bans the Chinese government has enforced on its urea and phosphate industries will likely remain in place through at least June of 2022. China produces and supplies about 30% of the world’s phosphate.

Weather

It will be another December day of unseasonably warm temperatures and mostly clear skies across the Heartland, according to NOAA’s short-range forecasts. Scattered snow showers are expected to pop up across the Northern Plains and Upper Midwest over the next 24 hours, but any accumulation is likely to be light.

Financials

USDA’s Economic Research Service (ERS) released its 2021 Farm Sector Income Forecast yesterday morning, offering its third projection of 2021 financial indicators for the U.S. farm economy. The 2021 forecast offers more profit potential than in 2020, with several underlying trends worth noting.

ERS forecasts calendar year 2021 net farm income at $116.8 billion, a 23% increase from 2020 profits and the highest inflation-adjusted profit level farmers have earned since 2013. Net farm income forecasts increased nearly $4 billion from earlier 2021 forecasts issued by ERS in September 2021 due largely to corn markets.

USDA-ERS senior economist and Farm Income Team program leader Carrie Litkowski cited updated 2021/22 corn production and price estimates as well as modified corn usage data from the National Agricultural Statistics Service’s (NASS) Quarterly Grain Stocks report as compounding reasons for the upward revisions in a webinar reviewing the tri-annual financial estimates.

The chief driver of the uptick in farm incomes relative to 2020 levels is due in large part to higher commodity prices in 2021. Rising crop prices added nearly $41 billion to 2021 profits while another $28 billion was added to the value of livestock receipts.

Forecast rise in net farm income following higher cash receipts

Litkowski dug further into cash receipts for the 2021 calendar year, observing that quantities of crops and livestock sold in 2021 closely matched 2020 volumes. Thus, price has been the primary driver of higher net farm incomes across the Heartland.

“Essentially all of the higher receipts are derived from higher prices,” Litkowski stated.

Indeed – corn prices in 2021/22 will be the highest since 2012/13 and soybean prices are slated to notch the second-highest price on record for this year. High broiler and hog prices were the top contributors to the first annual increase in total animal product receipts since 2017, though dairy cash receipts are expected to decline after inflation adjustments.

Higher prices driving up total cash receipts

Corn (+47%), wheat (+21%), and soybean (+16%) receipts account for the biggest share of increasing crop cash receipts in 2021 relative to a year prior. While higher commodity prices drove soybean and wheat gains, higher volumes sold in addition to high prices powered corn receipts to a staggering $71 billion in 2021, up from just under $50 million in 2020.

Wheat has a chance to notch higher price and quantity gains for 2022 receipts, however. The ERS dataset only gathers data through September 2021, so current high wheat prices – and potentially higher acreage for next year – are not likely to be reflected in net farm income estimates until 2022 projections are issued in February 2022.

All told, the farm financial outlook is largely positive for the U.S. farm economy. Despite a 40% annual drop in government payments and a heady rise in production expenses, farmers are poised to end 2021 on a high note due in large part to strong commodity prices. Enjoy the margins now, because 2022 is likely to bring higher expenses and more potential for lower commodity prices based on current futures price spreads.

S&P 500 futures rose 9 points (+0.2%) to $4,517.50 on a round of technical buying after yesterday’s late selloff after reports surfaced that positive cases of the omicron coronavirus variant were discovered in California.

But early reports that omicron is likely to be no deadlier than other past strains of COVID-19 suggest that some of the market hype following yesterday and last Friday’s selloff may have been overplayed. A note from J.P. Morgan Chase & Co. suggested that this trait would fit with the virus’s historical patterns and that markets are more likely to be susceptible to changing economic outlooks from the Federal Reserve than this new variant.

Also worth a read on our website, FarmFutures.com

Morning Ag Commodity Prices - 12/2/2021
Contract Units High Low Last Net Change % Change
DEC '21 CORN $ / BSH  5.7775 5.7 5.7775 0.0575 1.01%
MAR '22 CORN $ / BSH  5.785 5.695 5.7725 0.0575 1.01%
MAY '22 CORN $ / BSH  5.8025 5.715 5.7925 0.0625 1.09%
JUL '22 CORN $ / BSH  5.805 5.7175 5.795 0.06 1.05%
SEP '22 CORN $ / BSH  5.6 5.5275 5.5875 0.04 0.72%
DEC '22 CORN $ / BSH  5.5275 5.465 5.52 0.035 0.64%
MAR '23 CORN $ / BSH  5.5975 5.5375 5.59 0.0325 0.58%
JAN '22 SOYBEANS $ / BSH  12.36 12.21 12.335 0.0525 0.43%
MAR '22 SOYBEANS $ / BSH  12.43 12.285 12.41 0.06 0.49%
MAY '22 SOYBEANS $ / BSH  12.5075 12.3675 12.48 0.05 0.40%
JUL '22 SOYBEANS $ / BSH  12.575 12.44 12.5425 0.0425 0.34%
AUG '22 SOYBEANS $ / BSH  12.4925 12.4075 12.4875 0.0425 0.34%
SEP '22 SOYBEANS $ / BSH  12.3075 12.2 12.2975 0.0475 0.39%
NOV '22 SOYBEANS $ / BSH  12.195 12.08 12.17 0.03 0.25%
JAN '23 SOYBEANS $ / BSH  12.2 12.0875 12.185 0.03 0.25%
MAR '23 SOYBEANS $ / BSH  11.9925 11.915 11.9925 0.025 0.21%
DEC '21 SOYBEAN OIL  $ / LB 55.73 54.8 55.73 0.68 1.24%
JAN '22 SOYBEAN OIL  $ / LB 55.87 54.59 55.5 0.32 0.58%
DEC '21 SOY MEAL $ / TON 357.6 356.3 357.6 1.1 0.31%
JAN '22 SOY MEAL $ / TON 351.9 348.1 351.4 2.3 0.66%
MAR '22 SOY MEAL $ / TON 349.2 345.7 349 2.3 0.66%
MAY '22 SOY MEAL $ / TON 349.6 346.6 349.5 2 0.58%
JUL '22 SOY MEAL $ / TON 352.5 349.6 352.1 1.7 0.49%
DEC '21 Chicago SRW $ / BSH  7.8675 7.795 7.8675 0.0825 1.06%
MAR '22 Chicago SRW $ / BSH  8.0875 7.895 8.065 0.16 2.02%
MAY '22 Chicago SRW $ / BSH  8.1425 7.955 8.115 0.1525 1.92%
JUL '22 Chicago SRW $ / BSH  8.0275 7.865 7.9925 0.1275 1.62%
SEP '22 Chicago SRW $ / BSH  8.0175 7.8675 7.9925 0.1275 1.62%
DEC '21 Kansas City HRW $ / BSH  0 #N/A 8.1425 0 0.00%
MAR '22 Kansas City HRW $ / BSH  8.36 8.2 8.36 0.1675 2.04%
MAY '22 Kansas City HRW $ / BSH  8.355 8.2 8.355 0.16 1.95%
JUL '22 Kansas City HRW $ / BSH  8.2025 8.06 8.2025 0.15 1.86%
SEP '22 Kansas City HRW $ / BSH  8.185 8.05 8.185 0.145 1.80%
DEC '21 MLPS Spring Wheat $ / BSH  10.475 10.365 10.475 0.105 1.01%
MAR '22 MLPS Spring Wheat $ / BSH  10.3 10.22 10.2725 0.075 0.74%
MAY '22 MLPS Spring Wheat $ / BSH  10.1925 10.11 10.1825 0.0875 0.87%
JUL '22 MLPS Spring Wheat $ / BSH  9.84 9.775 9.83 0.07 0.72%
SEP '22 MLPS Spring Wheat $ / BSH  9.13 9.04 9.13 0.0875 0.97%
DEC '21 ICE Dollar Index $ 96.135 95.84 95.85 -0.174 -0.18%
 JA '21 Light Crude $ / BBL  67.36 65.17 65.39 -0.18 -0.27%
 FE '21 Light Crude $ / BBL  67.07 64.93 65.14 -0.23 -0.35%
JAN '22 ULS Diesel $ /U GAL 2.1281 2.0705 2.0835 0.0064 0.31%
FEB '22 ULS Diesel $ /U GAL 2.1173 2.0614 2.0739 0.0065 0.31%
JAN '22 Gasoline $ /U GAL 2.005 1.9493 1.9553 0.0042 0.22%
FEB '22 Gasoline $ /U GAL 1.9883 1.9344 1.941 0.0047 0.24%
JAN '22 Feeder Cattle $ / CWT 0 #N/A 165.825 0 0.00%
MAR '22 Feeder Cattle $ / CWT 0 #N/A 167.9 0 0.00%
 DE '21 Live Cattle $ / CWT 0 #N/A 136 0 0.00%
 FE '21 Live Cattle $ / CWT 0 #N/A 138.6 0 0.00%
DEC '21 Live Hogs $ / CWT 0 #N/A 73.625 0 0.00%
FEB '22 Live Hogs $ / CWT 0 #N/A 80.125 0 0.00%
DEC '21 Class III Milk $ / CWT 18.12 18.1 18.12 0.08 0.44%
JAN '22 Class III Milk $ / CWT 18.13 18.13 18.13 0.03 0.17%
FEB '22 Class III Milk $ / CWT 18.5 #N/A 18.54 0 0.00%

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