AgriVisor Market Recap

Tuesday, March 02, 2021
Futures were on both sides of unchanged today as early selling was met with fresh buying interest. Conflicting crop reports and weather conditions in South America were the main factors in the choppy trade, as were mixed outside markets, including the equities. Wheat was the leader today, taking support from a sharp drop in crop ratings from the Plains. Concerns are building in the market that drought is going to impact production in this region all growing season, and the recent freeze added to crop loss. Corn found support today from a flash sale of 175,000 metric tons to Japan for the 2021/22 marketing year. Soybeans uncovered technical buying interest which erased losses in that complex as well. 

The soybean crush report for the month of January came in just over expectations at 196.5 million bu (mbu). This was also the 2nd highest monthly total on record. Cumulative soybean crush is now up 5.71%, well above the 1.6% increase being forecast by the USDA. The monthly crush report also indicated soybeans continue to yield more meal and oil than a year ago. Soybean oil stocks decreased more than expected in the month but were still an adequate 2.3 billion pounds. 

Corn usage for ethanol in January was also released, and to no one’s surprise, demand was down. A reported 415.8 mbu of corn was processed into ethanol in January, a 3.7% decrease from December. This was also an 11.43% reduction from January 2020 as plants remain idled. Distiller grain output also decreased in the month to 1.75 million tons, down from 1.79 million in December. 

Trade is becoming more optimistic on the Argentine corn crop. Weather conditions have improved in Argentina and the rating of the country’s corn crop has risen as a result. There are now thoughts only 2 million metric tons (mmt) of corn production may have been lost from drought compared to earlier estimates of 6 mmt. 

Less optimism is being shown over the state of the Argentine soybean crop. Conditions in the Argentine soybean production region are dry and now temperature have started to rise. For the month of February this area only received 25 to 30% of its normal precipitation. While this was enough to benefit corn, thoughts are it cut the country’s soybean crop by 3 to 4 mmt. 

Trade is becoming increasingly concerned with the volume of unshipped US corn sales on the books. There is currently 1.3 billion bu of corn sales that are unshipped at this time. This is a record and compares to just 500 mbu a year ago. Given the wide price spread we are now seeing between the US and other corn sources, mainly Argentina, cancellations of US purchases are becoming more likely. 

Of these outstanding sales, the most interest is on China. Of the unshipped US corn sales nearly one-third is to China at 430 mbu. China has announced it will try to expand its domestic corn production this year, mainly by elevating plantings  by 1.65 million acres. This will add an estimated 162 mbu of corn to China’s annual production. While this may not eliminate China’s need for imports, it will allow the country to be choosier in where it is sourced from. 

Trade is also monitoring soybean demand developments with China. Chinese soybean values have reached record values in recent weeks as stocks dwindle ahead of South American deliveries. Traders are also monitoring the expected increase to corn plantings in China this year and how that may reduce the country’s soybean production in future years. China does have a record volume of soybeans to arrive from South America though, and this is limiting soybean potential. 

Another factor that is being closely monitored when it comes to Chinese demand is the ongoing cases of African Swine Fever in the country. New strains are being reported which is making the virus harder to contain. This is why experts in China now claim it will be closer to the end of 2022 before the country’s hog herd is back to pre-outbreak levels. The concern with this is what it means for feed grain imports. It also raises questions on the possibility of additional beef and pork exports rather than grains. 

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.