Morning Market Review for Jan. 19, 2021

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Wheat rally continues. Plus – a deep-dive from last Friday’s Commitment of Traders report. (Comments are updated by 7:30 a.m. Central Time.)

Soybeans fall as Brazilian soy harvest picks up.

  • Corn mixed – trading sideways in a $0.01/bushel-range
  • Soybeans down 13-16 cents, soyoil down $0.76/lb, soymeal up $4.4/ton
  • Wheat up 8-12 cents

*Prices as of 6:50am CST.

Corn

Corn prices were mixed this morning on a round of profit-taking. Losses were limited by a record volume of Chinese imports of U.S. corn in 2020. March corn futures traded $0.0075/bushel higher to $5.3225, May futures were unchanged at $5.3475, and July futures were down $0.005/bushel to $5.315.

Last Tuesday’s USDA reports reignited a bull run in the corn market after a smaller than expected 2020 U.S. corn harvest tightened stocks to the slimmest margin since the 2013/14 marketing year. The news, coupled with concerns about crop shortfalls in Brazil and Argentina, increased buyer interest in the corn market.

The tightened supply outlook sent March 2021 Chicago corn futures up $0.2475/bushel to $5.1725, according to Commitment of Traders data released from the CFTC last Friday. Speculators added 21,740 long positions over the January 6 – 12 reporting period, boosted by the USDA-induced rally. Managed money funds swelled its net buying position on corn to 374,714 contracts – the highest point since February 2011.

Fund interest in ag commodities will play a significant role in price movements over the next few weeks, at least until more definitive information about the South American crops hit the newswires.

Producer sales increased in intensity following USDA’s reports last Tuesday. In fact, an ethanol plant in Iowa had to restrict deliveries late last week because it could not keep up with rapid farmer sales amid the rally.

For the week ending January 12, commercial firms added 79,898 short positions to their net selling position on corn, which swelled to a new all-time high of 774,381 short contracts. The new record volume beat out last week’s record producer short on corn by 13,327 contracts.

However, many corn buyers began slashing cash offerings for corn as futures prices climbed near eight-year highs. It may an early sign of demand rationing, which USDA hinted at last week by slashing demand estimates for exports, livestock feed, and ethanol. The lower futures prices threaten to slow farmer sales as producers hold out for higher cash offerings.

Federal Reserve officials fully expect inflation rates to increase as the economy recovers from the pandemic. While Fed officials are not likely to move interest rates anytime in the next couple years, increasing inflation could keep speculator interest in ag commodities strong for the foreseeable future.

Soybeans

Soybean futures prices also fell victim to profit-takers overnight as soybean harvest progresses in Brazil. Losses are limited by strong Chinese export demand, as evidenced by Chinese customs data released yesterday. March soybean futures fell $0.16/bushel to $14.0075 wile May futures traded $0.17/bushel lower to $13.9775. March soyoil futures shed $0.76/lb lower to $41.09 while March soymeal futures gave up $4.4/ton to $458.80.

USDA lowered 2020 U.S. soybean production estimates to nearly 4.14 billion bushels. It resulted in 2020/21 stocks-to-use ratio shrinking from 3.9% to 3.1% - the second tightest U.S. soybean supply on record, following a 2.6% rating in 2013/14. The market had priced in the slightly reduced crop, so last Tuesday’s rallies were more closely tied to the rally in the corn market, increased export targets, and a smaller Argentine soybean crop.

But overbought concerns continue to weigh heavily in the back of speculators’ minds, especially as harvest begins on the behemoth Brazilian crop. Managed money remains hesitant to buy back into soybean futures and options at the same levels during November 2020 peaks, as prospects about Chinese loading paces over the next few months remain unclear.

A year ago, Chinese imports of U.S. soybeans came to a grinding halt as the cheaper Brazilian crop came to the market. Shortly after the Phase 1 trade agreement was signed, U.S. soybean exports to China virtually dried up until Brazil had over exported its soybean crop by the summer of 2020.

The lingering uncertainty overpowered the recent rallies, leading managed money funds to trim 6,223 long positions on soybeans from their portfolio, shrinking their net buying position to 166,485 contracts. It marked the third straight week of speculators weakening their long position and led to the tightest long on beans for hedge fund managers since late August 2020.

Waning speculator interest in soybeans did little to deter farmer sales of the crop. The rallies promoted producer and commercial funds to add 12,184 long positions on the week. While producers shrunk their net selling position on soybeans to 297,117 contracts for the week ending January 12, farmer sales remain steady across the Heartland.

However, producer soybean sales have stalled quite a bit over the past several weeks. It could point to early signs of farmers running out of soybean bushels to sell as domestic and international demand remains strong.

Indeed, last Friday’s National Oilseed Producers’ Association pointed to 183.2 million bushels of soybeans crushed at 95% of all U.S. soy handling facilities in December 2020 – the second highest crush volume on record and an all-time high for the month of December.

Amid record crush rates and high prices, Advance Trading’s Larry Shonkwiler makes the case that domestic soybean meal may be the first candidate out as soybean demand rationing takes hold in the latest Ag Marketing IQ column. Hot export paces paired with a weakening dollar will keep international soybean flows going, providing farmers basis opportunities near key shipping terminals. But high soymeal prices could deter U.S. pork and poultry expansion in the short run.           

Wheat

Contract

Price Change*

Price*

Chicago SRW – March Futures

+$0.1175

$6.8725

Kansas City HRW – March Futures

+$0.115

$6.545

Minneapolis HRS – March Futures

+$0.0825

$6.515

 

Wheat futures extended last week’s rally on the increased Russian wheat export tax due to go into effect on March 1. Chicago futures flirted with the highest price levels since 2014 on the prospect of reduced global wheat exportable supplies. A weaker dollar also boosted gains as the ICE Dollar Index fell 0.30% to $90.480.

USDA’s reports last week signaled increasing global wheat demand for livestock feed. Crop shortfalls in Argentina, dry winter wheat conditions in the U.S. Plains, and rising global food demand for wheat amid the pandemic continue to boost wheat futures prices to multi-year highs.

And despite the first increase in winter wheat seedings in eight years, speculators rewarded the news by adding 1,425 long positions to raise their net buying position on Kansas City hard red winter wheat futures and options to 55,062 contracts.

Similarly, hedge fund managers added 2,940 long positions to their net long on Minneapolis spring wheat. The net buying position swelled to 11,797 contracts for the week ending January 12 – the widest speculator net long position on spring wheat in three and a half years.

News of an increased export tax on Russian wheat announced late last week spurred more speculator interest in Chicago soft red winter wheat futures later in the week. For the week ending January 12, managed money funds added 4,283 short positions, shrinking their net buying position on Chicago wheat futures to 16,987 contracts.

Producer sales of the three wheat varieties slowed in the run-up to USDA’s reports last week, particularly for Chicago soft red winter wheat futures. But in the days that followed, merchandisers across the country reported an uptick in sales as growers sought to cash in on last week’s rallies.

Commitment of Traders data found producers and commercial firms setting a new record short position on Kansas City hard red winter wheat futures and options contracts for the time of year. For the week ending January 12, producer sales rose to 100,404 contracts – the widest producer selling position in over two years.

Similarly, producers and commercial firms widened their net selling position on Minneapolis spring wheat to 25,025 contracts. Last week’s total was the largest net short on spring wheat held by commercial firms since May 2014.

Weather

A winter storm system will linger over the Upper Midwest and Eastern Corn Belt for the next couple days, according to NOAA’s short-range forecasts. Snowfall totals in the region will be relatively light and could be minimized by warm temperatures.  

Temperatures are expected to remain unseasonably warm over the next couple days with highs in the 30’s and 40’s in the Northern Plains by Thursday.

Financials 

Coronavirus cases in the U.S. rose to 24,079,207 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased to 399,003 deaths as of press time. The U.S. will likely surpass the 400,000-death toll by lunch.

Making decisions based on projections is a tricky task. Without a crystal ball, farmers are left with limited evidence to support how future cash flows may develop to bankers and other stakeholders. But AgriAuthority’s Ashley Arrington has a few good tips to help your calculations. In the latest NextGen Business Insights column, Arrington recommends using conservative estimates, update figures as prices are locked in, and adjust expenses as they are paid to improve your farm’s financial forecasting.

Speaking of forecasting, Water Street Solution’s Darren Frye offers a few hot tips of his own for farmers looking to project their break evens in 2021. Frye cautions farmers to not forget machinery replacement costs, family living expenses, asset replacement costs, and debt servicing as part of the calculation in the latest Finance First column.

The Farmer’s Business Network has been pushing the boundaries of ag retail competition since its inception in 2014. Co-founder Charles Baron sits down with Farm Futures’ executive editor Mike Wilson to discuss FBN’s recent court cases that have major impacts for farmers seeking cheaper distribution options for crop chemical purchases. Read all about it here.

Over on Wall Street, earnings season kicks off today. Banks and tech companies are expected to release earnings reports throughout the week that could provide more insights to economic recovery in the pandemic era.

Former Federal Reserve chairwoman Janet Yellen is expected to testify before Congress today en route to being appointed Treasury Secretary in the incoming Biden Administration. Wall Street has largely hailed Yellen’s pending cabinet appointment. Yellen is expected to caution Congress that without more monetary aid, the pandemic-induced recession could continue longer, and cost even more than it already has for American citizens.

S&P 500 futures were up 0.70% at last glance to $3,788.75 on the two prevailing sentiments.

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