AgriVisor Market Recap

Wednesday, November 11, 2020
Futures were mixed for much of today’s session with soybeans on the plus side and the grains under pressure. Much of the bullish news in yesterday’s balance sheet update favored soybeans which took the steam out of the grain rally. All contracts were pressured by improved weather conditions in South America and thoughts that even with supportive fundamental news the market is becoming technically overbought. It is also possible that with the recent run-up in futures farmers in Brazil will expand plantings helping ease the global balance sheet worries. 

Trade is still sifting through yesterday’s balance sheets, with most interest on the demand side changes, or the lack thereof. This is especially the case on soybeans where US exports were not altered despite recent sales. The main reason for this is that soybean ending stocks are already at a minimal level and rationing will prevent them from dropping further. There are also thoughts that if soybeans rally further buyers may resell bookings, dampening demand. 

The same questions are being asked on corn. The USDA made its largest cut to US corn stocks in November in 21 years yesterday, but thoughts are reductions should have been even larger. The USDA only increased China’s corn imports to 13 mmt, much less than the Chinese attache has indicated their imports will actually be. Given the lack of competition the US is likely to see elevated demand for the next several months. The unknown in this is if China has enough corn until other sources will be able to make exports, mainly South America. 

Brazilian farmers have already sold a large 56% of their soybean crop that is still being planted. Typically by this time of the marketing year sales are only 35% of intended crop size. Record returns have prompted these early and large sales. That said, sales have slowed considerably in recent weeks as farmers want to weigh production potential versus existing coverage. As anywhere else, farmers in Brazil also want to hold out for even higher values if possible. 

Much of the recent strength we have seen in futures recently has been from weather and production issues around the world. Demand for US commodities has also been supportive, especially for soybeans. An underlying source of support has been fund buying though, and this activity has stalled in recent sessions. In fact, funds have actually started to reduce their long position in the grains. If this builds it will pressure futures, even if we do see supportive fundamentals. 

An indication of how tight the soybean supply is in Brazil came earlier this week the country announced it would be altering its GMO soybean policy to align with that of the United States. What this means is if GMO soybeans are approved in the United States, they will be in Brazil as well. What this does is make it easier for Brazil to import US soybeans if need be. This does not mean Brazil will import a large volume of US soybeans but makes it easier to do so if needed. 

One source of support the United States continues to see is minimal grain sales out of Ukraine. Total grain sales out of Ukraine are down 14.5% from a year ago. The greatest decrease remains in corn, where sales only total 2.8 mmt this year compared to 4.57 mmt a year ago. While this has benefited US corn sales into Asia, we have seen more feeders shift to wheat over corn, which is tempering price potential. 

Once again, the Russian government has indicated it will limit grain exports. Russian authorities have stated they will limit grain exports in the last third of the year to 15 million metric tons to ensure adequate domestic supplies, which is not a substantial reduction. This also does not mean Russia will not make exports, especially on wheat. What may be more of a factor for Russian exports is elevated competition from Australia in the global market, as buyers have started to source more coverage from there than Russia given the wide price spread between the two. 

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