I hope everyone had a great Thanksgiving and was able to take at least a little bit of time off. The markets can do some strange things over the holidays because sometimes the volumes are much thinner and that means that if someone wants to try to throw some weight around it will move the market more than if there was normal volume of trade. You have to be careful reading too much into moves over a holiday week. Monday is first notice day on the December contracts and we will be back to full volume on the trade so we will get a better idea of the direction of the markets.
The market has encouraged more corn relative to soybeans the last few years. This has contributed to a corn heavy allocation in many crop rotations. For those of you who have been corn heavy and need to rotate, the market is giving us a gift here. Anytime the ratio of the price of new crop beans vs corn is above 2.5, it favors soybeans. The ratio recently hit a high of 2.72. Soybeans also seem to have more upside potential than corn with the corn balance sheet more comfortable than beans right now. If you have been corn heavy and can switch to beans, this upcoming growing season looks to the the right time to do it.
Exports this week were on the low end of expectations and there were rumors of China cancelling some US bean cargos. I would not read too much into these cancellation rumors yet since a lot of these beans were bought well below where the market is now. They may be slowing down buying in the short term, but we knew the pace they have been buying at was not sustainable. The market will be looking for additional signs of cancellations and that is a risk for soybeans if it does happen but there is still a lot of growing season left in South America to get through. Exports of corn and wheat were well above expectations with Chinese purchases being the big driver on both.
There remains large areas of dryness in South America. Brazilian soybean areas have only seen 59% of normal precipitation over the last two weeks and Argentina has only seen 62% of normal. The forecasts for the next two weeks are wetter, but there may be some areas that miss out. One thing that the market is not sure how to read is that the areas that are dry are not the same areas that are typically dry during a strong La Nina year. The weather patterns are moving differently than normal and that is concerning. That should help add to the production risk premium the market wants to see in the market.
The dollar is weaker, South America is still dry and crush margins are still good on beans in the US. Basis remains at near historic highs in the Southeast for harvest. Beans did fail to push through $12 but the bears have been unable to push them much lower either. Market will be closely watching Chinese demand and South American weather. New crop acreage is shaping up to be a fight in the US for the first time in a few years. Competition is good for prices!
Corn also failed to push up through the old highs but the bears have been unable to push it lower similarly to beans. China is buying more US corn but the balance sheet is not nearly as tight as it is on beans. We still have the ethanol demand component that has not recovered and that is 40% of our demand. Basis is still very strong in the southeast.
Wheat had the most volatility this week with a big move higher on Tuesday then giving it all back and more on Wednesday. There was not a big fundamental change to cause the move, it seems to be mostly caused by thin holiday trading. Exports were better than expected due Chinese purchases. There are a lot of acres planted in Russia, but questions about production size as the crop did not get rain until very late. The wheat balance sheet is not as tight as beans or corn, but there are still some questions about production.
Cotton has had a few big setbacks but still trying to maintain a trend up despite harvest pressure. With how strong the outside markets are with the dow making new highs it is a little disappointing that cotton cannot put together more of an uptrend but may be caused by harvest pressure.