AgriVisor Market Recap

Friday, December 04, 2020
Corn, soybeans, and wheat all favored the downside today as sellers once again outnumbered buyers. This has some analysts thinking yesterday’s spike in soybeans may have been a proverbial “dead cat bounce.” Fundamentals remain unchanged with favorable weather being forecast for South America and demand for US commodities not as high as earlier in the marketing year. That said, we did see Mexico listed as a buyer of 182,020 metric tons of corn in the daily sales report. Sellers were hesitant to push futures too far into negative territory ahead of next week’s WASDE report which offered market support. 

Trade is waiting for China to start their new crop corn purchases to see if demand will be as great as stated. Chinese officials have stated their corn imports for the 2021/22 marketing year will total 30 million metric tons. This is a considerable increase from the 7.2 million metric tons predicted for this year, although we have already seen imports surpass this number. Some doubt is rising on the Chinese estimate given their recent shift to alternative feed grain imports, mainly sorghum. 

One factor that may elevate China’s commodity buying on a whole is a plan to increase the country’s food security. Currently china has had its food reserves determined by state owned firms. This is now being passed back to a more local level across a wider span of the country. Hopes are by doing this China will be able to better stockpile reserves, especially in areas where shortages tend to happen. 

Food values around the world are starting to increase. In the month of November global food values hit a six-year high, increasing 3.9% during the month. This was the largest monthly jump in food values since July 2012 when drought was causing shortages. The leading reason for the current increase is from vegetable oils which appreciated by 14.5%. Much of this was from elevated demand into the Asian market. 

Wheat values are also contributing to elevated food prices. Global wheat values have recently traded to the highest level since 2018 as regional droughts caused elevated buying interest. Production fears have eased though, and wheat values are starting to correct. It is now likely the world wheat supply will increase this year causing even less buying interest in the market. 

Planting rates continue to be monitored in South America and used as a barometer for yield potential. In Argentina we are seeing planting paces that are equal to last year but under the five-year average. Thoughts are this has taken the top end off crops even if we do see favorable weather for the rest of the growing season. The planting pace is faster in Brazil, but there are numerous reports of replanting due to poor germination, which may also limit yield potential. 

Basis values across the interior market are starting to show more volatility. Many of the earlier sales that were made are now being delivered and buyers are backing off basis as a result. This is especially the case on soybeans where basis values have widened considerably. Corn basis is not as weak but is definitely showing signs of softening as processing margins are fading, mainly on ethanol. 

We are seeing a large amount of inventory moving directly to export channels which is helping keep interior basis values firm. Rail movement of grain and soybeans is currently up 13% from a year ago. Barge movement of inventory is up 9%. Strong export loadings are keeping the deliveries flowing right through export terminals as well, further removing pressure from basis values. 

The Census export totals for October have been released with favorable numbers for corn and soybeans. Corn exports in October totaled 145 million bu, a 59% increase from October 2019. Soybean exports reached a record 420.3 million bu during the month, a large 94% increase on the year. Wheat exports were not as strong, declining 23% from a year ago to a 64 million bu total. On a whole the US ag trade balance in October hit a positive $3.5 billion, the largest gain since 2016. 

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.