AgriVisor Market Recap

Thursday, January 21, 2021
Sellers took a break in the market today which allowed futures to rebound. Conflicting weather reports out of South America were also beneficial as even though rains are currently moving through the countries, outlooks indicate these will breakdown and we will see dry conditions return. Thoughts that potential transit issues in South American will bring more export demand to the US were also supportive, as was a drop in the US dollar. The decline in futures did entice buyers to show up for US offerings with flash sales for 2020/21 of 136,000 metric tons of soybean to China, 163,290 metric tons of soybeans to Mexico, and 336,500 metric tons of corn to an unknown. We also had a 138,000 metric ton sale of wheat to Nigeria for 2021/22. 

We continue to see wide ranges of estimates on the Brazilian soybean crop. On the low side we are seeing projections at 125 million metric tons (mmt) and on the high side near 136 mmt. We are gathering more yield data as harvest progresses though with several coming in from 60 to 65 bushels per acre. If this trend continues, we will likely see a total crop size on the top side of estimates. 

One of the primary reasons we have seen soybeans rally in recent sessions is the need for rationing. What is surprising to trade is that even after soybeans broke 80 cents from their highs, the only flash sales we have seen was today, and not what would be considered a large volume. The question now is if soybeans need to remain elevated to continue to deflect importers or if enough demand has already been shifted away from the US for now. Given the projection that soybean stocks to use is to remain at 3% next year, the need for rationing will continue. 

After several weeks of light movement we are starting to see elevated commodity movement out of South America. One reason for this is the end of the labor strike at Argentine ports which is increasing movement of soy products into the global market. Argentine farmers are also increasing their sales which is making more product available. Brazil will also be exporting soybeans in the near future as harvest progresses and stocks build. Now a transit strike is being planned for early February, but how long it will last is questionable. 

Energy market economists are becoming more optimistic on futures demand, including for renewable fuels. The current short-term outlook on energy products is negative as travel restrictions and concerns over the spread of Covid-19 are limiting energy demand. In turn this has weighed heavily on renewable fuel demand and processing margins. It is believed that once more of the US population receives the Covid vaccine travel will increase, especially once we get to the summer months, and profits will return. 

Global demand for wheat is on the rise. One indication of this was China selling all of the grain that was offered at auction last week. Not only was all of the wheat sold, but at a 7% higher value than the previous auction. Ukraine is also selling wheat for export at a higher value, with offers up $3.00 per metric ton in the past week. The largest increase has been to Russian wheat which is up $23.00/metric ton. These higher values will likely bring the US more export demand than currently projected. 

The supporting factor for these elevated wheat values is export restrictions. The leading one is Russia who is indicating it may extend its high tax rates on exports into the next marketing year. Ukraine is also considering taxes that would limit sales. Australia has plenty of wheat to export but port space is limiting their ability to make timely shipments. This comes as the global demand for wheat is rising as more countries want to ensure adequate food supplies, including China, who has doubled its imports in the past year. 

We continue to see private firms release acreage estimates for the upcoming planting season in the United States. A set of these indicates US farmers will increase plantings by 3.4 million acres on corn this year, 7 million acres on soybeans, and 1.1 million on wheat. These increases would put total US acres at 94 million on corn, 90 million for soybeans, and 45.3 million for wheat. The additional acres are expected to come from a decrease in prevent plantings, lower CRP acres, and an increase in double cropping on soybeans. 

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.