GRAINS CHRISTMAS REPORT

December 26, 2020

Usually, the holidays bring in a sloppy performance to the grains, but not so much this year. It is likely the grains will see some sort of retracement going into the holiday, especially after posting strong gains and new highs consistently last week.

 |The grains gave producers an early Christmas present with corn and soybeans trading to new contract highs this past week. 

The soybean complex has become the Energizer bunny, consistently trading to new highs as supply and demand concerns build. It is not just U.S. supply and demand issues that are pushing soybeans, but issues across the world.

The grains have seen a reduction in trading volume each day this past week which is adding to the volatility of the market. 

The week of Christmas was a short week with the markets only trading 3.5 days, closing at noon on Thursday and remaining closed until Sunday night at 7 p.m.

 Next week will see similar trading as the market will trade regular hours Thursday, but will be closed from Thursday afternoon to Sunday night.

Weather concerns remain in the forefront of the market. 

Although Brazil is seeing decent rains in the north and hit and miss showers in the central regions, the southern region of Brazil remain dry as does Argentina.

This is helping to give the soybean complex support.

Rumors that Brazil’s early January/February export sales to China are being switched to U.S. added to the buying frenzy early in the week.

A sharply higher palm oil market added to the strength as palm oil traded to highs not seen since 2012.

To add to the push in the U.S. soybean complex is the ongoing strike in Argentina. 

The groups that are on strike are the crushers and shippers. Usually strikes in Argentina last a day, maybe two days at the longest, but this strike has been going on 14 days. 

Reports had Argentina’s December commitments for soybean meal export at 25% shipped and soybean oil exports at 14%. 

This is forcing users to switch to other destinations to get their needs met.

This means that the U.S. has the ability to capture a lot of soybean meal and soybean oil demand at the expense of Argentina.

So, South American weather is causing the market to push higher and will likely limit the scope of any retracement, at least until production can be more defined. 

That strength is being enhanced by Argentina’s strike.

And to add to those two issues, traders are expecting the U.S. Department of Agriculture to decrease U.S. soybean production and increase soybean demand in their Jan. 12 Final Crop Production report.

The likelihood of USDA lowering soybean stocks 75 million to 100 million bushels is good in this report.

That leads to the need for soybeans to add acreage in 2021. 

But at the expense of what crop?

Wheat could afford to lose acreage, but even wheat’s supply and demand numbers are looking flush in 2021. 

Corn certainly can not lose acreage, and I would argue that corn needs to add acreage in 2021.

It is also likely cotton will try and add acreage.

This will lead to an acreage race in 2021 as all of the crops need to add or maintain acreage.

Corn does not have the same bullish outlook as soybeans, but soybeans are not going to be able to stage any rally without corn moving in tandem.

Demand remains strong for corn, but USDA has already pushed corn demand as much as possible in the last report. 

Production could see a slight reduction in the January Final Crop Production report, but it looks like most of the attention in the January report will be soybeans. 

The key for corn will be South American production.

Weather forecasts are concerning as it is likely both Brazil and Argentina will see more production cuts moving forward.

The big question will be the production of Brazil’s second corn crop.

Usually, the holidays bring in a sloppy performance to the grains, but not so much this year. It is likely the grains will see some sort of retracement going into the holiday, especially after posting strong gains and new highs consistently last week.

The biggest concern right now is how China will respond to the latest round of sanctions from the Trump White House. 

This week, President Donald Trump blacklisted another 100 Chinese and Russian companies by placing them on the Treasury’s Entity list. 

China has promised retaliation for the last round of listings.

Congress has passed both the stimulus package and spending bill. Both are now sitting on Trump’s desk waiting to get signed.

Trump is threatening to veto both bills, the stimulus bill because it has too much pork in it and not enough of a direct payment to taxpayers.

He is also threatening to veto the Defense budget. 

The bills have to be signed by midnight Dec. 28 to prevent a government shutdown.

Wheat got a shot in the arm from reports that Russia will be looking to implement an export tax on grain exports as well as implement an export quota. 

The tax and quota are not expected to go into play until the middle of February and last until the end of June. 

Traders tried to downplay the announcement by saying Russia will just increase their sales between now and February to make the attempt to reduce exports a moot point. 

But the Russian government is slowing down approvals of exports as what Russia is really trying to accomplish is to lower the price of grain in country, not increase exports.

Russian officials lowered their wheat export pace to 37.5 million metric tons versus USDA’s 40 million metric tons.

Wheat continues to play the follower and likely will follow the other grains through next February/March when the winter wheat starts the break dormancy

Last week’s wheat export shipments pace was estimated at 14.4 million bushels and sales were estimated at 14.5 million bushels.

After 29 weeks, wheat shipments were at 53% of USDA’s expectations versus 54% last year while sales are at 75% of expectations versus 71% last year. 

With 23 weeks left in wheat’s export marketing year, shipments need to average 20.3 million bushels and sales need to average 10.8 million bushels to make USDA’s projection of 985 million bushels.

Like soybeans, corn was able to trade to new contract highs late last week.

Technical selling was triggered once corn traded to new contract high, but the gains in soybeans helped corn recover and end at highs not seen since July 2019.

Corn is looking for direction and as of now soybeans are giving corn the strength it needs to remain strong.

Traders are expecting USDA to cut corn production in their January Final Crop Production report, which is adding support.

China sold 103,000 metric tons of reserve corn (the first since Sept) at a price of $9.68 per bushel versus $7.70 last September.

Last week’s corn export shipments pace was estimated at 30 million bushels and sales were at 25.6 million bushels.

After 16 weeks, corn shipments were at 19% of USDA’s expectations versus 17% last year while sales were at 63% of expectations versus 39% last year.

With 36 weeks left in corn’s export marketing year, shipments need to average 59.7 million bushels and sales need to average 27.4 million bushels to make USDA’s projection of 2.65 billion bushels.

Soybean export sales have been slowly decreasing from week to week, but shipments have not. 

The impressive point about the shipments, which have averaged between 80 million to 95 million bushels a week, is a signal that not only is the U.S. selling soybeans, whoever is buying the soybeans is taking the soybeans.

Any break in soybeans is met with aggressive buying, which has been evident in most of the overnight sessions this week. 

That has pushed soybeans to new highs each session and to highs not seen since August 2014.

Last week’s soybean export shipments pace was estimated at 93.1 million bushels and sales were estimated at 12.96 million bushels.

After 16 weeks, soybean shipments were at 58% of USDA’s expectations versus 43% last year while sales were at 90% of expectations versus 64% last year. 

With 36 weeks left in soybean’s export marketing year, shipments need to average 25.7 million bushels and sales need to average 5.8 million bushels to make USDA’s projection of 2.2 billion bushels.