Weekly Market Update – March 12, 2021

I hope everyone has been enjoying the nice weather to work on getting caught up on field work and not wasting much of their time looking at the markets this week. USDA report this week was basically nothing which is about what was expected. The big report comes out at the end of the month with the Quarterly Stocks and Prospective Plantings report on March 31st. As far as supply and demand, USDA has been backward looking instead of forecasting. They are not going to adjust Chinese imports until China approves their tariff reduction quotas. The Chinese government is not stupid, they are not going to announce those changes until the corn is already secured because they know that will make the price go up. The USDA Chief Economist basically admitted to this but his hands are tied.

It is too early for USDA to assess the weather damage in Brazil and Argentina. Even CONAB does not have a good handle on the damage to the Brazilian crop yet. There are rains forecasted for Argentina which contributed to the weakness this week but there is not good model agreement as to how much. Next week the market will assess the totals. Brazil keeps getting hammered by rain. Crops mudded in have to keep getting rain and it is even more so in South America where they cannot hold moisture in the subsoil like our Midwest. Brazil’s safrinha corn will be especially at risk since what is eventually planted will be late.

A few threats to our markets that need to be closely monitored. The US is kicking butt at vaccinations. We are vaccinating everyone and handing out money as fast as we can print it. Case numbers are dropping and our economy is ready to take off. Other parts of the world are not doing so hot. Europe faces the prospect of further lockdowns as they are not getting vaccinations fast enough and case numbers are not going down enough. Brazil is also having massive difficulties getting enough vaccines out and they also have some new variants that are running rampant. That has caused the Brazilian currency to weaken significantly vs the US dollar. For commodity prices, we would like it to strengthen as it was trending at the end of last year. An issue for the US may be this summer as our economy starts to really heat up, if the Fed needs to raise rates but Europe is still struggling it could create some issues for the macro economy. Despite all the dollars we are printing (and handing out) the rest of the world is in a much worse position than we are so our dollar is stronger relative to other countries. A stronger dollar is a headwind for commodity prices.

Chinese soybean meal prices have weakened on concerns about reinfection of African Swine Fever. I wrote a bit about this last week and it is something we need to be watching. Hungry people change governments and that is even more true if you are trying to lock those hungry people down. Chinese government has a lot of control, but they cannot lock their people down and make them change foods. The government’s very survival depends on them getting AFS under control. They do not have to worry about elections, but they do have to worry about uprisings.

What To Do
No changes from earlier this week. It is concerning when the market breaks lower but it cannot go straight up. I see no reason to change our objectives here. Scale in old crop as needed slowly when we get toward the upper part of the range. No need to sell on a down day. Be patient on new crop but if you want orders working, put them at $4.99 corn, $12.99 beans.

There are going to be huge early basis premiums for corn and beans this year! Keep that in mind when selecting varieties.

Plains have good soaking rains forecast over next week which is causing some pressure. No new problems anywhere in the world. There were some tenders this week for wheat when the price dropped. Talk of China buying wheat for feed should limit downside. I think we can be patient on wheat until we know more about what we have. I do not mind putting some more hedges on when we get a move back to upper $6.

The selloff in cotton was very concerning because it was hard to find an explanation. Dow is making all time highs which has been very supportive for cotton. The USDA report was a bit friendly so that does not explain the drop. Weekly exports were the strongest in a month. One thing we can be sure of is that if cotton continues to selloff, it is going to lose desperately needed acres since we have not gotten the crop in the ground. For that reason, we do not need to panic on this unexplained drop.

Pictures of Brazilian Soybeans