Phyllis Nystrom

The following marketing analysis is for the week ending Nov. 27.

CORN — The shortened Thanksgiving trading week ushered in new contract highs to begin the week followed by modest profit taking. Fresh news on a daily basis was thin with the market focused on unwinding of corn/wheat spreads and the approach of first notice day for December contracts.

The U.S. Department of Agriculture had two corn daily flash export sales of 13 million bushels to unknown and 12 million bushels to Mexico. There were no export sales flashes for soybeans this week. The Dow traded to record heights on news that a Covid-19 vaccine may be ready for the public as early as mid-December if emergency approval is obtained.

China has imported 7.8 million metric tons of corn so far in calendar 2020, above the 7.2 mmt tariff rate quota and 97.3 percent above last year. There has been talk that another 5 mmt of tariff-rate quotas has been released, but there has been no official announcement. The International Grain Council raised their Chinese corn import number from 8 mmt to 16 mmt. The USDA is predicting they will import 13 mmt of corn. We will monitor political events concerning China. The United States has discussed restricting 89 Chinese aerospace and other companies from accessing U.S. technology due to their military ties. There was trade chatter during the week of China’s interest in U.S. corn for April-June. The United States has the cheapest corn through at least May on the world stage.

A closely-followed and well-respected private consultant cut their U.S. ending stocks forecast to 1.542 billion bushels. This would be the lowest ending stocks since 2013-14. They accomplished this by raising exports to 2.8 billion bushels (USDA at a record 2.65 billion bushels) and lowered feed to 5.75 billion bushels. The USDA is projecting ending stocks at 1.702 billion bushels. Rabobank is predicting Brazil’s corn crop at 107.2 mmt vs. USDA at 110 mmt. Argentina’s corn planting is 50 percent complete, just 1 percent behind the average.

Weekly export sales were excellent at 65.6 million bushels (1,666,000 metric tons) to bring total commitments to 1.435 billion bushels. This is 159 percent above last year and 56 percent of the total year’s expectation. This week’s largest buyer was Mexico with 556,000 metric tons. We need sales to average 29.3 million bushels per week to hit the USDA’s record 2.65-billion-bushel export outlook. China has 433 million bushels or 11 mmt of U.S. corn on the books.

Weekly ethanol production increased 28,000 barrels per day to 990,000 bpd, the highest in 35 weeks. However, ethanol stocks rose to a 12-week high at 20.8 million barrels. Gasoline demand continues to struggle. It fell to a 23-week low at 8.1 million bpd. Gasoline demand is down 11.7 percent from the same week last year and is down 10.5 percent on a six-week average from last year.

The Dow hit a record at mid-week when it traded through 30,000. In the interesting column: it took the Dow 18 years to go from 10,000 to 20,000, but less than four years to go from 20,000 to 30,000. 

Outlook: Nothing new in the headlines as demand and South American weather, along with managed money, continue to drive the uptrend. An improving macro-economic outlook is contributing to the upside as well. A stronger energy market helps promote ethanol production, but in the short-term there has been an increase in state lockdowns. The U.S. dollar has slid to a two-and-a-half month low which is generally supportive to commodities. Corn has closed higher for four straight weeks. South American forecasts will be watched closely for any sign of relief.

For the week, December corn was 2.25 cents higher at $4.15.5, March gained 5.5 cents at $4.33.75, July was 6.5 cents higher at $4.37.25, and December 2021 rallied 6.25 cents to close at $4.14.5 per bushel.

SOYBEANS — The January contract punched up to $12 per bushel to start off the week on less-than-expected weekend rain and heat returning to South America; and news that a vaccine is progressing rapidly. Other old crop soybean contracts made new highs on Nov. 23 and again on Nov. 25 when the March contract hit $12.00.25 per bushel. This is the first time we’ve seen a spot soybean contract trade at $12.00 since it traded to $12.08.5 on June 10, 2016. Meal contracts set new contract highs as well.

Trading into Thanksgiving ran into resistance when weather forecasts for Argentina and southern Brazil showed better chances for rain through the weekend. However, Mato Grosso in Brazil was expected to stay dry. Mato Grosso produces 27 percent of Brazil’s soybeans. The weather in South America is the focus for short-term trading. There was talk that a few soybean acres in Mato Grosso, Brazil were being replaced with cotton acres. 

There were several rumors of Chinese crushers “washing out” of U.S. soybeans for December/January shipment as their crush margins constrict. This is thought to be smaller crushers which had booked the basis, but had not locked in the futures portion of their price. Some surmise these bushels may have already shipped and are changing hands enroute. Late in the week, rumors surfaced of Chinese interest in U.S. soybeans for January shipment from both the Gulf and Pacific Northwest. In October, China imported 3.4 mmt of U.S. soybeans and 4.3 mmt of Brazilian soybeans.

Brazil’s soybean planting was 74 percent complete vs. 76 percent average as of Nov. 23. One weather forecaster noted that in the last 40 years, monsoons have never been so poor in October and November in Brazil. Temperatures are beginning to rise. There is some rain in the forecast as of this writing, but it is not expected to alleviate concerns about dryness. Crop estimates for Argentina are beginning to slip for both soybeans and corn due to a lack of widespread rain. Rabobank has Brazil’s soybeans at 130 mmt vs. USDA at 133 mmt.  Agroconsult predicts Brazil’s soybean production at 133.2 mmt.  Mato Grosso, Brazil’s biggest producing region, is expected to have only 4.5 mmt of soybeans available by the end of January vs. 10.9 mmt available last year. Argentina’s soybean crop is 43 percent planted, right on the average.

One private, well-respected consultant is pegging U.S. soybean ending stocks at an extremely tight 65 million bushels. The USDA’s November estimate was 190 million bushels, although we are seeing private estimates falling closer to 100 million bushels or lower. Rabobank said that $15 soybeans are possible IF a strong La Niña cuts South American production and U.S. stocks fall below 100 million bushels. 

Weekly export sales were a marketing year low at just 28.2 million bushels (768,000 metric tons). New sales to China amounted to 251,000 metric tons, bringing their total U.S. purchases to 29.2 mmt or 1.073 billion bushels. Total export commitments are 1.9 billion bushels and 106 percent ahead of last year. Total sales equate to 87 percent of the USDA’s outlook. We need to average just 8.2 million bushels of sales per week to achieve the USDA’s 2.2-billion-bushel export forecast. There were some whispers late in the week of possible political tensions between China and Brazil over 5G technology. Any issues which could possibly affect relations will need to be monitored.

Outlook: South American weather is front page news, but the market would also like to see fresh Chinese buying. The huge length being held by managed money in soybeans may pose a risk for prices to go straight up, but they have held big length for weeks. Soybeans have closed higher for four consecutive weeks and had a strong close this week. The U.S. dollar is soft and fell to a two-and-a-half month low late in the week. A weak U.S. dollar is usually supportive for commodities. The trend is higher until it isn’t. 

For the week, January soybeans rallied 10.75 cents to $11.91.75, July jumped 13 cents to $11.86.75, and November was 7.75 cents higher at $10.57.25 per bushel.

Nystrom’s notes: Contract changes for the week as of the close on Nov. 27: Chicago December wheat was 3.25 cents higher at $5.96.5, Kansas City surged 11.25 cents to $5.61.5, and Minneapolis rose 6.75 cents to $5.50.75 per bushel.    

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

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