AgriVisor Market Recap

Tuesday, December 01, 2020
Trade started firm as values corrected from yesterday’s losses in today’s session, but advances were limited. Buyers have started to surface on breaks which has helped put a floor under values, but the inability to post a recovery after yesterday’s key reversal was a negative signal. Traders are searching for a reason to extend their long positions though and churning the same fundamental news will not accomplish this. Rains in several regions of South America overnight added to market pressure. Managed money traders are hesitant to liquidate their long positions though which is keeping a floor under the market. 

The price spread between corn and wheat is starting to again garner market attention. At the present time this price spread is nearly $1.60 per bushel. Previously this had widened to well over $2.00. Even with a spread that wide buyers were booking wheat as a feed grain as it is more readily available. This has since leveled out and buyers are again showing interest in corn. This was evident in Chinese wheat auctions where only minimal amounts of bushels offered were sold. 

The most interest in this scenario is on feeding. Several of the world’s leading feed grain importers have started to shift towards alternatives to corn, even with corn values receding. We are also seeing buyers shift to sorghum as a feed grain, especially China. Sorghum does not have an import quota, nor does it have GMO issues, and this makes it a favorable alternative to corn. This demand has pushed US exports on sorghum up 450% from a year ago. 

More interest is starting to be placed in Chinese corn import potential. According to current data, China has imported 7.82 million metric tons of corn this marketing year. This is already above the 7.2 million metric tons prediction for yearly imports set by the Chinese government. While it is obvious China is too low in their yearly projection, the question is how far off they may be. The International Grains Council predicts China will eventually import 16 million metric tons, putting stress on an already tightening global corn reserve. 

The commodity market is starting to show signs of becoming top-heavy. While we have seen buying bring us to contract highs on several contracts recently the market has started to struggle to find additional interest at these levels. This does not mean that futures will recede, as they now indicate they may form collective, sideways patterns until additional buying interest surfaces. Speculative funds have actually shown little interest in the recent rally which leaves plenty of room for advances to take place. 

The market is starting to receive mixed signals on South American weather. Much of Brazil remains dry which is starting to take its toll on developing crops. Sources in Brazil claim that unless rains develop in the near future, yield estimates will be scaled back. Conditions have improved in Argentina recently though as rains have brought stabilization to the crops. Heavy rains are forecast for Brazil for next week though, which is tempering market enthusiasm. 

World wheat crop expectations are starting to increase. Australian officials have increased their wheat production estimates. Australia is now projecting a wheat crop of 31 million metric tons this year but are quick to claim it could be higher. Some forecasts indicate a 34 million metric tons crop which would be just under the record of 35 million metric tons set in 2016. Even Russia is giving the indication their wheat crop is larger than thought as they are considering an increase to their export quota. 

Much of the North and South American weather continues to be driven by the La Nina event. Forecasts now indicate this pattern will remain in place through January. If correct, this will dictate South American weather into the Brazilian harvest and could impact final crop development. This is especially the case in the state of Mato Grasso where rainfall since September 1st has only totaled 10 inches compared to the normal 23 inches. If the La Nina lasts longer than January it could easily impact double cropping as well. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.