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Morning Market Review for Jan. 27, 2021

scyther5/Thinkstock Markets-122316-scyther5-ThinkstockPhotos-2000
Corn hits two-week high on fresh Chinese sales. (Comments are updated by 7:30 a.m. Central Time.)

Soybeans recover losses on Brazilian harvest delays

  • Corn up 6-10 cents
  • Soybeans up 14-21 cents, soyoil up $1023/lb, soymeal up $4.1/ton
  • Wheat up 2-6 cents

*Prices as of 6:50 am CST.

Corn

Corn futures rose 1% - 2% higher this morning, buoyed by Chinese export demand and optimism for ethanol exports as the nearby contract flirted with a two-week high. Continued concerns about a potential crop shortfall in South America also underpinned the morning’s gains.

Despite a rally from a 53.5-million-bushel old crop corn order from China yesterday – the largest international corn export purchase since last July – corn growers across the country continue to hold out for price highs notched earlier this month before further booking any new cash corn sales.

A USDA attaché in China reported that corn imports are expected to hold steady at the attaché’s previous estimate of 866.1 million bushels. The estimate remains nearly 177.2 million bushels higher than USDA’s January 2021 WASDE estimate of 688.9 million bushels.

Growing feed demand and increased corn ethanol production, coupled with a crop shortfall in 2020 has tightened Chinese corn stocks in recent months.

China surpassed its 283.5-million-bushel tariff-rate-quota (TRQ) during 2020. A 65% out of quota duty is expected to be applied to incoming corn shipments for volumes over the TRQ benchmark, but there is little evidence to suggest this has been applied.

There is market chatter that additional TRQ’s were issued and that a “special TRQ” will be issued so China can meet its Phase 1 purchasing commitments. However, the Chinese government remains quiet on the issue.

2020 was a rare year in which selling bushels off the combine was more lucrative than using a spring or summer hedge, Farm Futures contributing analyst Bryce Knorr points out. Indeed, growers with storage options had infinitely more profit potential this year compared to past years. Knorr dives into the most profitable options and hedging strategies thus far in the 2020/21 marketing year in the latest Ag Marketing IQ column.

In a quarterly earnings call, ADM CFO Ray Young alluded to increasing Chinese ethanol purchases from the U.S. Young estimates China has bought around 200 million gallons of U.S. fuel ethanol to be delivered in the next five months.

Ethanol purchases were a lofty target in the Phase 1 trade agreement negotiated between the U.S. and China over a year ago. China implemented a 10% ethanol blending policy in 2020 to improve carbon emissions, though the policy quickly depleted domestic corn stocks.

Over the past couple years, China was not a regular importer of fuel ethanol. But rising corn prices amid a 2020 crop shortfall and increased demand for renewable fuels has made international ethanol purchases a lucrative option for the country.

News of the Chinese ethanol purchases could encourage weekly ethanol production slightly higher in today’s weekly ethanol updates from the U.S. Energy Information Administration (EIA). Bids for corn at ethanol plants across the country rose between $0.09 - $0.26/bushel yesterday, pointing to increased output after coronavirus restrictions and a sluggish holiday travel season sent weekly gasoline demand and ethanol output plummeting to seven-month lows.

Last week’s report saw a slight uptick in weekly ethanol production, up 0.4% to 39.7 million gallons/day. Inflated ethanol stocks fell 0.3% to 992.4 million gallons, the first time in 9 weeks weekly inventories have declined, signaling increased ethanol usage.

Indeed, ethanol blending at refineries picked up 4% on the week after gasoline demand soared nearly 8% higher. At 340.7 million gallon/day of gasoline demanded by consumers for the week ending January 15, fuel demand sought to climb back to last fall’s pandemic era-highs.

Two of the three biofuel blending waivers issued by the outgoing Trump EPA last week were awarded to two Sinclair refineries in Wyoming. Sinclair issued a court filing yesterday defending its position against the Renewable Fuels Association to keep the exemptions for 2019 blending, which totaled 115,000 barrels per day of biofuels. The recipient of the 2018 waiver remains unknown.

A USDA attaché in Buenos Aires, Argentina reported updated corn forecasts on Monday. Drought damage is expected to cause production forecasts to drop 1% from USDA’s January 2021 estimates to 1.85 billion bushels.

The South American country will likely reduce domestic consumption to account for the crop shortfall with the attaché projecting a 23.6-million-bushel reduction in 2020/21 to 566.9 million bushels. Argentina is the world’s third largest exporter of corn.

Soybeans

Soybean futures are posed for a third straight day of gains after rains in Mato Grosso, Brazil further delayed harvesting activity in the world’s largest soybean producing country. Global supply concerns continue to underpin strength in the market in the short run.

"The near-term underlying bullish sentiment is still very much in place. We still have two to three months at least before we have confirmation that the new crop of global grain or oilseed will be adequate," Ole Houe, director of advisory services at agriculture brokerage IKON Commodities told Reuters overnight. "Until then, the market is likely to continue upwards, with China demand as the key driver."

New cash sales were slow yesterday as growers across the country are waiting for signs of another rally that would replicate earlier prices highs recorded this month.

Export demand for soymeal shipped out of the U.S. Gulf weakened yesterday. Livestock and poultry producers were increasingly pushed out of the market amid high soymeal futures prices yesterday, limiting demand. Futures gains were supported by concerns about supply availability from South America, which overpowered any signs of weakened demand in overnight trading.

As U.S. soy stocks begin to dwindle, processors are rapidly snapping up any extra soybeans on the market. Reports of processors across the Midwest buying record forward purchases as far out as May are not uncommon in today’s trading environment. It suggests that processors could start to reduce crush rates, compete for bushels with exporters, and/or import South American soybeans – at a premium.

Increased soymeal exports in 2020 following an atypically slow shipping season from top global soymeal exporter, Argentina, as well as an increase in soy diesel powered 2020 crush volumes to the highest on record. But the near future is less certain.

"They've got a program in place that will keep crush rates strong until maybe about May. Thereafter there is some openness to it," Dan Basse, president of Chicago-based consultancy AgResource Co told a reporter with Reuters.

Harvest on the Brazilian soybean crop is experiencing early-season rain delays. The Brazilian soybean growing season was already playing catch-up after dry soils delayed plantings last fall. AgRural, an ag research firm in Brazil, estimates only 0.7% of Brazil’s planted soybean acreage has been harvested as of January 21, down from 4.2% during the same period last year due to the rain delays.

Estimates peg January 2021 soybean export out of Brazil at a mere 8.3 million bushels, down from last week’s forecast for the month, which was estimated at 37.7 million bushels. The rain delays compounded with last fall’s planting delays continue to keep the lucrative Brazilian soy crop from reaching export terminals as quickly as international buyers would like.

While the showers will benefit late-planted soybeans in Brazil’s more parched Southern regions, the additional delays will limit acreage and yield potential for the second corn crop, known in Brazil as the safrinha crop. The safrinha comprises 75% of Brazil’s corn production, most of which is sent into export channels upon harvest.

The Brazilian currency, the reais, tumbled to new lows last year as the pandemic sent foreign investors flocking to the U.S. dollar. But the drop benefited farmers, AgroBravo’s CEO Julio Bravo points out, as the exchange rate against the dollar led Brazilian farmers to their most profitable year on record. Bravo reflects that consumers have borne the burden of a weak currency as basic goods increase in the latest South American Crop Watch column. But as long as Chinese demand for soybeans remains steady, farmers could see another lucrative year.

Wheat

Wheat futures followed corn and soybeans higher this morning, with additional support gleaned from global supply uncertainty due to Russia’s looming wheat export tax. Gains were capped by a rising dollar, as the ICE Dollar Index strengthened $0.357 overnight to $90.505.

Winter weather conditions are forcing several Ukrainian shipping terminals on the Black Sea to reduce operations. Freezing rain, wind, and snow are expected to slow loading paces in three key ports in the Odessa region, including the Kherson, Mykolayiv, and Reni terminals. The winter storm conditions are expected to last until next Tuesday, with a brief bout of clear skies on Friday, which could help speed up shipping paces.

Wheat harvest has largely finished in Argentina. Local estimates peg the 2020/21 crop at 624.6 million bushels, down 18.4 million bushels from USDA’s January 2021 estimate and 14% lower than the prior year’s crop.

A USDA attaché report from Argentina expects wheat exports from the South American country to fall 6% from January 2021 estimates after a dry growing season due to La Niña weather patterns scorched the 2020/21 wheat crop. The attaché forecasts Argentina's 2020/21 wheat exports to total 415.2 million bushels. Argentina is the world’s seventh largest exporter of wheat.

The 2020/21 Australian wheat crop thrived amid rains that quenched a three-year drought in the land down under, according to a USDA attaché in Canberra. The attaché reports Australian wheat output will likely top 1.139 billion bushels – the second-largest Australian crop on record, behind 2016’s 1.169 billion bushels. Current USDA estimates peg the Aussie’s crop at 1.102 billion bushels, suggesting an increased likelihood for an upward revision in the February 2021 WASDE report.

Weather

The second of two winter storms this week will shift into the Eastern Corn Belt this evening, according to NOAA’s short-range forecasts. The Heartland will enjoy clear skies for the next couple days, though temperatures will briefly trend cooler today, in stark contrast to the unseasonably mild temperatures of the past month.

Updated 6 to 10-day weather outlooks from NOAA point to some much-needed relief to parched soil conditions across the U.S. For the January 31 – February 4 reporting period, NOAA expects a 40% - 50% chance of above average precipitation across a large swath of the continental U.S.

012721PrecipProbability770.jpg

While the West Coast will likely dry out during the first week of February, much of the Heartland will continue to see a 33% - 50% chance for above average precipitation, providing a little relief to depleted soil moisture conditions.

Even with the increased chance for moisture accumulation, temperatures across the Midwest and Plains will remain unseasonably warm. For the beginning of February, NOAA predicts a 33% - 60% chance of above average temperatures in the region, while temperatures on the West Coast dip below normal.

012721TempProbability770.jpg

In the days that follow through the first week of February, unseasonably warm temperatures will cool off, with normal chances to a 33% chance of above average warmth expected in the Midwest from February 2 – 8.

Financials

Coronavirus cases in the U.S. rose slower than the previous day, up by 146,836 to 25,445,241 cases as of this morning according to the Johns Hopkins Coronavirus Resource Center. The death toll increased by 4,011 lives to 425,250 deaths as of press time.

Certain types of communication skills and strategies can be more helpful when managing problems or conflicts. To put it more simply, it’s good business to know how to have a constructive fight. K Coe Isom’s Davon Cook recommends setting aside a time to discuss the issues and then focus on the driving forces behind the conflict.

While consulting for family farms, Cook has found that most problems stem from the outcomes of a possible decision, how a decision was made, or simply long-standing assumptions about the relationship. For more of Cook’s tips on how to handle family farm conflicts proactively, check out the latest Family Farm Success column.

As a new administration takes office, many questions loom for the future of ag policy. Farm Futures policy editor Jacqui Fatka speculates on how a Biden presidency will impact climate change policy in the fifth installment in the multi-part series what a Biden administration means for farmers.

U.S. stock futures pulled back from record highs overnight, pessimistic about slow COVID-19 vaccine distribution rates. Investors are expecting earnings results from AT&T, Blackstone, Boeing, Apple, Facebook, and Tesla today. The tech stocks are expected to pull in strong earnings in Q4 as more consumers remained at home as the pandemic surged through the winter. S&P 500 futures shed 1.10% to $3,800.50, with the favorable earnings results limiting losses.

Morning Ag Commodity Prices - 1/27/2021
Contract Units High Low Last Net Change % Change
MAR '21 CORN $ / BSH  5.425 5.32 5.4225 0.1 1.88%
MAY '21 CORN $ / BSH  5.4375 5.335 5.435 0.0975 1.83%
JUL '21 CORN $ / BSH  5.3625 5.27 5.3575 0.0825 1.56%
SEP '21 CORN $ / BSH  4.7775 4.7 4.77 0.065 1.38%
DEC '21 CORN $ / BSH  4.515 4.445 4.5075 0.0625 1.41%
MAR '22 CORN $ / BSH  4.5675 4.4975 4.5525 0.05 1.11%
MAY '22 CORN $ / BSH  4.5925 4.53 4.5825 0.05 1.10%
MAR '21 SOYBEANS $ / BSH  13.9375 13.75 13.9 0.1975 1.44%
MAY '21 SOYBEANS $ / BSH  13.925 13.73 13.885 0.19 1.39%
JUL '21 SOYBEANS $ / BSH  13.7275 13.5575 13.6775 0.1525 1.13%
AUG '21 SOYBEANS $ / BSH  13.2075 13.0625 13.17 0.1475 1.13%
SEP '21 SOYBEANS $ / BSH  12.1825 12.06 12.1525 0.13 1.08%
NOV '21 SOYBEANS $ / BSH  11.6425 11.505 11.6 0.115 1.00%
JAN '22 SOYBEANS $ / BSH  11.57 11.445 11.53 0.1025 0.90%
MAR '22 SOYBEANS $ / BSH  11.2925 11.175 11.245 0.0775 0.69%
MAY '22 SOYBEANS $ / BSH  11.2 11.0975 11.0975 0.0125 0.11%
MAR '21 SOYBEAN OIL  $ / LB 45.15 44.06 45.09 1.18 2.69%
MAY '21 SOYBEAN OIL  $ / LB 44.19 43.18 44.14 1.02 2.37%
MAR '21 SOY MEAL $ / TON 442.1 436 440 3.5 0.80%
MAY '21 SOY MEAL $ / TON 439.2 433.2 436.6 2.8 0.65%
JUL '21 SOY MEAL $ / TON 434.2 428.7 431.7 1.9 0.44%
AUG '21 SOY MEAL $ / TON 418 413.8 416 1.1 0.27%
SEP '21 SOY MEAL $ / TON 398 394.7 396 1.1 0.28%
MAR '21 Chicago SRW $ / BSH  6.7275 6.6325 6.7125 0.06 0.90%
MAY '21 Chicago SRW $ / BSH  6.7025 6.6175 6.6875 0.045 0.68%
JUL '21 Chicago SRW $ / BSH  6.51 6.445 6.4975 0.0225 0.35%
SEP '21 Chicago SRW $ / BSH  6.4975 6.4425 6.49 0.025 0.39%
DEC '21 Chicago SRW $ / BSH  6.5325 6.4725 6.5225 0.0175 0.27%
MAR '21 Kansas City HRW $ / BSH  6.48 6.3925 6.465 0.055 0.86%
MAY '21 Kansas City HRW $ / BSH  6.5075 6.435 6.4925 0.05 0.78%
JUL '21 Kansas City HRW $ / BSH  6.47 6.3925 6.46 0.0475 0.74%
SEP '21 Kansas City HRW $ / BSH  6.475 6.41 6.47 0.0425 0.66%
DEC '21 Kansas City HRW $ / BSH  6.5175 6.465 6.5175 0.0425 0.66%
MAR '21 MLPS Spring Wheat $ / BSH  6.43 6.3625 6.4175 0.0375 0.59%
MAY '21 MLPS Spring Wheat $ / BSH  6.5125 6.445 6.5075 0.0425 0.66%
JUL '21 MLPS Spring Wheat $ / BSH  6.56 6.4975 6.5575 0.0375 0.58%
SEP '21 MLPS Spring Wheat $ / BSH  6.6075 6.55 6.5825 0.015 0.23%
DEC '21 MLPS Spring Wheat $ / BSH  6.6525 6.635 6.6525 0.04 0.60%
MAR '21 ICE Dollar Index $ 90.51 90.13 90.49 0.342 0.38%
 MA '21 Light Crude $ / BBL  53.12 52.49 52.65 0.04 0.08%
 AP '21 Light Crude $ / BBL  53.02 52.4 52.55 0.03 0.06%
FEB '21 ULS Diesel $ /U GAL 1.6085 1.5955 1.6 0.0016 0.10%
MAR '21 ULS Diesel $ /U GAL 1.6088 1.5956 1.6003 0.0019 0.12%
FEB '21 Gasoline $ /U GAL 1.5863 1.5693 1.5745 -0.0062 -0.39%
MAR '21 Gasoline $ /U GAL 1.5805 1.563 1.5695 -0.0053 -0.34%
JAN '21 Feeder Cattle $ / CWT 0 #N/A 135.65 0 0.00%
MAR '21 Feeder Cattle $ / CWT 0 #N/A 141.475 0 0.00%
 FE '21 Live Cattle $ / CWT 0 #N/A 117 0 0.00%
 AP '21 Live Cattle $ / CWT 0 #N/A 123.1 0 0.00%
FEB '21 Live Hogs $ / CWT 0 #N/A 70.45 0 0.00%
APR '21 Live Hogs $ / CWT 0 #N/A 76.95 0 0.00%
JAN '21 Class III Milk $ / CWT 16.14 16.14 16.14 0.01 0.06%
FEB '21 Class III Milk $ / CWT 15.37 15.29 15.37 0 0.00%
MAR '21 Class III Milk $ / CWT 16.62 16.51 16.62 0.06 0.36%
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