Phyllis Nystrom

The following marketing analysis is for the week ending Dec. 31.

CORN — Corn jumped higher to start the week as South American weather took center stage. Dec. 28 saw a key reversal lower, but mid-week action was flat as we neared the end of the month, quarter and year.

The soybean market plowed the way higher on a lack of rain and the way lower when forecasts for southern Brazil and Argentina increased the chances of rain. The change in the weather outlook, in tandem with the thin holiday trade, slashed prices. Brazil’s first corn crop only accounts for approximately 25 to 30 percent of its total corn crop. The safrinha or second corn crop provides roughly 70 to 75 percent of the total corn production and won’t be planted until after soybeans are harvested. So there’s plenty of time for further production adjustments, but the market will still trade the current forecast.

Lending support to the agriculture sector during the week and helping to limit the downside was the U.S. dollar index that dropped to a four-week low.

Weekly export sales were above expectations at 49.1 million bushels. This is the biggest number for this week since 1994. Total commitments are 1.6 billion bushels. We need to average 24.3 million bushels of sales per week to achieve the U.S. Department of Agriculture’s current 2.5 billion bushel export projection. The USDA is calling for year-on-year exports to decline 9.2 percent, but we are only 6 percent behind last year. Since November, our biggest customers for corn are Mexico and Canada. 

Weekly ethanol production was supportive with production up 8,000 barrels per day to 1.060 million bpd. Production is up 13.4 percent from the same week last year.

One new export sale was announced early in the week of 10.6 million bushels to unknown. Weekly export inspections at 719,000 metric tons were the lowest in the last seven weeks. We are falling further behind what is needed weekly, which we haven’t hit yet this marketing year. China has purchased 484.2 million bushels of U.S. corn this year compared to 456.7 million bushels last year. They have 397.6 million bushels of unshipped U.S. corn purchases on the books vs. 267.7 million unshipped bushels last year on this date. We haven’t seen a significant Chinese corn buy in over six months. The USDA predicts China will hold 69 percent of world corn reserves in the first half of 2022.

Ethanol stocks fell 29,000 barrels to 20.7 million barrels. This is the lowest stocks number for this week in five years!  We have 19.5 days of use on hand. Gasoline demand jumped to a 21-week high at 9.724 million bpd. This is up 19.6 percent from last year. Ethanol crush margins fell again, down 28 cents to a positive 60 cents per gallon. Although ethanol margins are sharply lower than just a couple of months ago, margins are still attractive enough to keep production at high levels.

The Buenos Aires Grain Exchange rated its corn crop at 58 percent good/excellent, down from 76 percent the previous week. Corn planting was estimated at 71 percent complete vs. 80 percent on average.

Outlook: If rain chances prove accurate, we should see weakness in corn prices from these levels. However, if conditions return to hot and dry, prices should stay supported and add risk premium back into the market. From a technical standpoint, the soft close for the week after rallying to a nearly seven-month high could be problematic. The $5.90 to $5.80 per bushel area will act as support. This week’s high in March corn at $6.17.75 per bushel will be the first resistance, then the June high at $6.33 per bushel. Political events may intrude on our weather watching, so they bear watching as well. We have a lot of crop calendar left to navigate, so manage your risk. And don’t forget about new crop pricing. This may be a chance to set a benchmark, even if prices swing higher.

On the continuous corn chart, on Dec. 31, 2020, nearby corn closed at $4.84 per bushel. This year it closed at $5.93.25 — or $1.09.25 higher for the year.

For the week, March and July corn settled 12 ½ cents lower at $5.93.25 and $5.93.5 per bushel respectively. December corn fell 7.5 cents to close at $5.46 per bushel.

SOYBEANS — Soybeans entered the last trading week of the year with a bang! Drier, hotter conditions over southern Brazil, Argentina, Uruguay and Paraguay shot prices higher after the Christmas holiday. Heavy fund buying was noted on the rally. March soybeans had a string of nine higher closes before pulling back slightly. March soymeal posted contract high closes two days in a row. Decreasing private estimates for South American production supported the next leg higher, but a change in forecasts sent prices tumbling lower and erasing early week gains. March soybeans traded to their highest since July 20 before the pull back. 

What goes up, must come down and a change in rain chances for southern Brazil and Argentina certainly proved that old adage true. In the second half of the week, the weather outlook was more favorable for rain and prices reacted sharply. This was a good reminder that we are at the whim of Mother Nature and her prognosticators at this time of year.

Soybean harvest in top-producer Mato Grosso, Brazil began during the week which is 20 days ahead of last year. Early reports suggest a 53.5 bushels per acre yield from Amaggi, a large Brazilian conglomerate that planted 434,905 soybean acres this year. This early harvest will allow the safrinha corn crop to be planted in the ideal planting window. Mato Grosso is expected to grow 38 mmt of Brazil’s projected 144 mmt soybean crop.

In Parana, Brazil’s second-largest soybean producer, conditions are very dry. Will the expected rain make a dent in the stress levels? The BAGE pegged Argentina’s soybean crop at 56 percent good/excellent, down from 71 percent the previous week. Soybean planting was 81 percent complete vs. 88 percent on average. Temperatures in Argentina surpassed 110 F in some areas and emphasize the need to see timely rains throughout the growing season.

Weekly export sales were the lowest of the marketing year for the second week in a row. This week’s sales were a dismal 19.3 million bushels. Total commitments stand at 1.52 billion bushels. We are running 24 percent behind last year’s exports when the USDA is projecting a 9.5 percent year-on-year cut in exports. This category will likely be lowered on the Jan. 12 World Agriculture Supply and Demand Estimates report. We need 15 million bushels in weekly sales to hit the current 2.05 billion bushel export forecast. China has purchased 859.8 million bushels this year vs. 1.187 billion bushels last year. They have 176.4 million bushels left to ship compared to 227.8 million bushels left to ship last year. With Brazil’s soybean harvest beginning our window of export opportunity is swiftly closing. Weekly export inspections were the lowest in the last 12 weeks at 1,577,000 metric tons. Approximately half of the inspections went to China.

The trade guess for the November National Agricultural Statistics Service Oilseed Crush report out on Jan. 3 is 191.7 million bushels. Soyoil stocks are estimated at 2.391 billion pounds.

Outlook: Will the expected rain in South America only provide temporary relief? Or will it pave the way for timely rains to feed the record crop? We can’t outguess the weather, whether it’s in the United States or South America. What you can do is position yourself for the unexpected. If you have unsold bushels, consider a strategy to manage your risk if prices pull back. Know where your risk lies. And don’t forget about new crop planning and selling. Price direction will hinge on every forecast update. The first line of support in the March soybean contract is $13.00 per bushel, then $12.83 per bushel. First resistance is this week’s high at $13.84.5 per bushel, then $14.00 per bushel.

On the continuous soybean chart, nearby soybeans on Dec. 31, 2020, closed at $13.15.25. This year the nearby January contract closed at $13.28.75 per bushel of 13.5 cents higher for the year.

For the week, March soybeans closed 1.5 cents lower at $13.39.25, July gained 3 cents at $13.55, and November was 4.25 cents higher at $12.69.25 per bushel.

Weekly price changes in March wheat: Chicago crumbled 44 cents to $7.70.75, Kansas City plunged 60 cents to $8.01.5, and Minneapolis dove 50.5 cents to $9.82 per bushel.  

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

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