Phyllis Nystrom

The following marketing analysis is for the week ending Jan. 15.

CORN — The new year has gotten off to a stellar start for growers with corn, soybean, and wheat prices soaring to multi-year highs. Corn locked up the 25-cent daily limit (a 5 percent daily move) on Jan. 12 report day. Gains continued through the balance of the week with March corn trading to a new contract high of $5.41.5 per bushel. And not to lose sight of new crop, December 2021 corn reached $4.65.5 per bushel. On the continuous chart, corn traded to its highest level since July 2013 during which the front-month hit $7.30 with a monthly trading range of $7.30 to $4.88.25 per bushel. Talk about volatility! Nearby corn has closed higher for six straight weeks. New daily sales were announced during the week and weekly export sales were above expectations signaling that we are not done rationing yet.

The 2019-20 balance sheet showed one change this month with a cut to feed/residual of 76 million bushels. This reduction was reflected directly in ending stocks which increased to 1.919 billion bushels. This was an unexpected revision.

The 2020-21 balance sheet was the focus of the reports. Beginning at the top, planted acres were lowered 200,000 acres to 90.8 million acres and yield was slashed 3.8 bushels per acre to 172 bu./acre. This was a tremendous surprise since the trade was anticipating a small .5 bu./acre decrease to 175.3 bu./acre. This yield decline was a record from the November to final crop report.

Production came in at 14.182 billion bushels which was below the lowest pre-report estimate and the biggest miss ever by the trade on this report. This was a massive 325 million bushel production cut when production expectations were for 14.47 billion bushels. Minnesota’s corn yield was sliced 10 bu./acre to 192 bu./acre; Illinois down 3 bu./acre to 192 bu./acre; Iowa lowered 6 bu./acre to 178 bu./acre; and Nebraska down 4 bu./acre to 181 bu./acre.

On the usage side, feed was down 50 million, and ethanol usage was 100 million lower at 4.95 billion bushels. Exports were decreased 100 million to 2.55 billion bushels. Ending stocks slipped 150 million bushels to 1.552 billion bushels. The trade was anticipating ending stocks at 1.599 billion bushels with a huge range of trade estimates from 1.4 to 1.782 billion bushels. The ending stocks-to-use ratio fell nearly 1 percent to 10.6 percent month on month and the smallest since 2013-14. The average farm price for the 2020-21 crop year increased 20 cents to $4.20 per bushel.

The January U.S. Department of Agriculture reports also included Grain Stocks as of Dec. 1. This report showed on-farm corn stocks of 7.046 billion bushels (62.2 percent of the total) and 4.276 billion bushels (37.8 percent) held off-farm for a total of 11.322 billion bushels. These percentages did not surprise anyone since this fall’s markets favored holding corn on the farm and selling soybeans. The average trade estimate was 11.951 billion bushels and Dec. 1 stocks in 2019 were 11.327 billion bushels.

World ending stocks were 283.83 million metric tons compared to the estimate for 283.53 mmt and 288.96 mmt last month. China’s corn imports were raised 1 mmt to 17.5 mmt which still seems too low given that they have already purchased more than that from all sources. Private estimates range closer to 25-30 mmt. China’s estimate is only 10 mmt. Argentina’s corn was pegged at 47.5 mmt, in line with estimates and down 1.5 mmt from last month. Brazil’s corn was lowered 1 mmt to 109 mmt and above the 107.74 mmt trade expectation. The Rosario Grains Exchange is pegging Argentina’s corn crop at 46 mmt.

Weekly export sales topped expectations at 56.6 million bushels and were the highest in the last month. We need to average 22 million bushels of sales per week to reach the new 2.55 billion bushel USDA forecast. Total commitments at 1.78 billion bushels are 70 percent of the target.

Weekly ethanol production was up 6,000 barrels per day to 941,000 bpd. Production is meeting the average needed to meet the USDA’s forecast.  Ethanol stocks rose 408,000 barrels to 23.7 million barrels. This was a 35-week high and a record for this week. Gasoline demand at 7.5 million bpd is down 12 percent from the same week last year and 11 percent on the four-week average.

Outlook: Bull markets can have setbacks and not change the direction of the trend. Corn raced to 7.5-year highs in post-World Agriculture Supply and Demand Estimates report trading. The next upside target is in the $5.50-$5.60 and beyond range for March corn. The trade may now need to consider tighter supplies to go along with excellent demand after this week’s numbers were released.

The uptrend is alive and well, but be on the lookout for signs if it’s running out of steam. If the market can’t rally on friendly news, demand numbers begin to be disappointing (basis retreats significantly), funds exiting long positions, or any sign South American production is increasing. Argentina lifted their corn export license ban after farmers staged a strike this week. None of these signs are present, but I thought I’d point them out as a caution.

Yes, it seems everyone is leaning to one side of the boat, but you could have said that anytime over the last few months. U.S. corn is the cheapest on the world scene until at least the summer. We’ve shown we can bend this bull market, but so far it hasn’t been broken. 

Corn hit 7.5-year highs this week. The March contract climbed to $5.41.5 before settling 35.25 cents higher for the week at $5.31.5 per bushel. July corn did even better, up 37.25 cents at $5.32 per bushel. The December corn rose 19.5 cents to $4.40.5 while setting a new contract high at $4.65.5 per bushel.

Markets were closed on Jan. 18 for Martin Luther King, Jr. Day.

SOYBEANS — The soybean WASDE report was neutral to bullish this month, but buyers were eager to extend the uptrend as they pushed prices to fresh 6.5-year highs. U.S. ending stocks for soybeans were cut 35 million bushels to 140 million bushels. This was in line with trade expectations, although many believe this number is still too high.

Weather in South America saw improvement during the week with rain in Argentina and Brazil. Argentina’s weather forecast for the last half of January turns hotter and drier than normal, but Brazil’s outlook continues to show rain in most areas except for southern regions. Argentina has settled all their strikes but a trucker’s strike is scheduled to begin Jan. 16 in Brazil. The trucker’s union is warning this strike may be worse than the one in 2018.

The monthly WASDE report didn’t hold any major surprises — either for the bull or the bear this month. The 2019-20 balance sheet saw a 2 million bushel increase in ending stocks to 525 million bushels (accounting for rounding). This was accomplished by reducing the residual 7 million bushels and increasing exports 6 million bushels.

The 2020-21 balance sheet began by lowering the yield by .5 bu./acre to 50.2 bu./acre and slightly lower than the 50.5 bu./acre pre-trade estimate. Acreage was unchanged. Production at 4.135 billion bushels was down 35 million from last month and vs. 4.158 billion estimated. Imports were raised 20 million to 35 million. No shock from this as we know supplies will be tight.  The crush was increased 5 million to 2.2 billion, exports were raised 30 million to a record 2.23 billion, and residual decreased 13 million (to keep the carryout from moving even lower?).  Ending stocks at 140 million bushels were down 35 million from last month. This was in-line with the 139 million bushel estimate. Ending stocks-to-use ratio at 3.1 percent is the lowest since 2013-14 and the second-lowest on record. The average farm prices jumped 60 cents to $11.15 per bushel. There was nothing in these numbers that was a shock, but they did confirm how tight our stocks are.

Dec. 1 soybean stocks were 2.933 billion bushels. Last year we had 3.252 billion and the average trade guess was 2.92 billion. Again, no surprises. Of the total, 1.3 billion bushels were on-farm and 1.625 billion were held off-farm.

World ending stocks were 84.3 mmt vs. 82.66 mmt estimated. Argentina’s soybean production fell 2 mmt to 48 mmt, slightly lower than the 48.44 mmt estimate. Brazil’s soybean production at 133 mmt was unchanged from last month and despite the estimate that was down at 131.42 mmt. The Rosario Grains Exchange expects Argentina to produce 47 mmt soybeans.  Conab updated their Brazilian soybean production outlook to 133.7 mmt, down from 134.5 mmt last month. China’s imports were unchanged this month at 100 mmt. China’s soybean import outlook was raised this week to 98.1 mmt from 95.1 mmt.

Weekly export sales surpassed expectations and hit an eight-week high at 33.4 million bushels, bringing total commitments to 2.05 billion bushels. This equates to 91.7 percent of the 2.23 billion bushel export outlook for the entire marketing year!  We need to average just 6.1 million bushels of sales per week to achieve the forecast. Meal export sales were the largest of the marketing year at 337,000 metric tons. For the 2021-22 marketing year, we saw 11.9 million of new soybean sales to bring the total to 44.7 million bushels. This compares to just 6.7 million bushels of new crop sales on the books last year at this time.

The December National Oilseed Processors Association soybean crush report on Jan. 15 was 183.2 million bushels compared to 185.2 million expected. This is the largest crush on record for December and the second-largest for any month. Soyoil stocks were at a six-month high at 1.7 billion pounds compared to 1.71 billion estimated. 

Outlook: The role of the market is to ration demand. We saw daily export sales flashes for old crop soybeans for four straight business days ending Jan. 13. Brazil’s trucker union is on tap to begin a strike on Jan. 16. At a time when the market can’t afford any glitch in logistics to get new crop soybeans to the market, this situation will be monitored closely. There was a lot of chatter this week about Chinese interest in U.S. February and August soybeans, keeping the market supported. U.S. soybeans are the cheapest in the world through February-March and we have seen no signs of rationing yet.

March soybeans flew 42 cents higher to close at $14.16.75 with a new contract high at $14.36.5 per bushel. July soybeans rallied 43 cents to $14.01 per bushel. November soybeans hit a new contract high at $12.03 before settling 36 cents higher for the week at $11.97.75 per bushel.

Nystrom’s notes: Contract changes for the week as of the close on Jan. 15: Chicago March wheat rallied 36.75 cents to $6.75.5, Kansas City soared 48.25 cents to $6.43, and Minneapolis gained 35.5 cents at $6.43.25 per bushel. New contract highs were seen on all March wheat contracts.

Phyllis Nystrom is a market analyst with CH S Hedging in St. Paul. 

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