Weekly Market Update – November 5, 2021

In contrast to last week, the grain markets struggled all week this week. Last week was a reminder that corn can trade like an energy commodity. Corn gained most of its strength last week due to the strength in the energy market and made it attractive for fund money. This week energies were weaker most of the week as the US tried to convince OPEC to raise output to keep a lid on prices. When it became clear near the end of the week that OPEC was not going to raise production, energies rebounded but corn was unable to shake off other bearish factors to follow.

The other bearish factors in corn this week were lack of exports, strength in the US dollar, resumption of harvest this week as the Midwest dries out, and the looming USDA report next Tuesday. This report will be the last change in crop size until Jan as they will not make any more changes on the December report. Bottom line is the crop got bigger than we expected with the late season rains and we have questions about export demands as we are falling behind on pace. Ethanol demand is the biggest bright spot we have left.

Weakness going into a USDA report is not necessarily a bad thing as hopefully it will allow the market to price in additional corn yield we may see next week. After anecdotal harvest reports from the Midwest, everyone is expecting a bigger yield from USDA next week. New crop corn remains near the highs as corn knows it cannot afford to give up too many acres to soybeans for next year with the inflated input prices. Rail basis has weakened but trains continue to struggle to execute. There should be ample opportunities for train delay basis even with such a big local crop. I would be scaling in sales on old crop but being a bit more patient on new crop.

Soybeans have more negative factors than bullish right now but the biggest bright spot (or maybe the only one) soybeans have is domestic demand as crush margins are very good in the US. That is helping support basis as processors are trying to get all the beans they can right now. USDA added bushels to last year’s crop and this year’s crop is also getting bigger. The crop in South America has gone in the ground at a rapid pace which usually correlates to higher yield and also means there will be more Brazilian beans on the market earlier. That narrows the window of time where the US has a competitive advantage. It is also a very negative factor that Brazilian beans are cheaper than US right now when we have new crop and they are almost out. We need to see sales to China start soon to have any chance to hold. The market is looking for USDA to raise yield next week.

New crop soybeans are going to have an easier time getting acres next year with inputs so high. I would be much more aggressive pricing old crop beans now on any positive move we get. When you price old crop, you also need to be getting some new crop beans priced as well. Basis is a lot stronger than we have seen at harvest so make sure you shop basis this year.

Wheat gave back some of its gains this week as the Minneapolis wheat futures contract, which has been the leader, fell off its high. Wheat is getting more headlines in the world press as the price increases are passed down the supply chain. Wheat is a very political crop in many areas of the world. In the Southeast, I do not see wheat acres being up much if at all in any area except those markets very close to a flour mill. Inputs are too high to grow feed wheat. I am hearing reports of wheat seed being returned in many areas.

If you are growing wheat and need to move some to the flour mill in June/July, I highly recommend getting some basis sold. New crop basis bids are still historically fairly strong. You do not need to be too aggressive getting it sold to a home, but get some on the books. Hedging still gives much more flexibility. Sell new crop wheat around $8 if you are growing it! Old crop basis is very strong after January.

Cotton has been a story of demand. Exports in cotton continue to be the only good export news we have. That is in spite of the stronger dollar. A growing US economy is also bullish cotton but a lot of the new demand has been coming from overseas and reflected in the export number. Merchants are lining up to bid on cotton right now. There is a big inverse from Dec to March cotton so if you have cotton ginned, get bids on it now! Scale in sales for new crop above 90 cents. Cotton is poised to pick up a lot of acres next year too.