Weekly Market Update – February 18, 2022

Sometimes the winter months can feel like we are stuck on repeat in the grain markets. This winter has way more volatility but we have still been trading on the same things for the last several weeks. I really feel like a broken record. The market is trying to arrive at a consensus on several major things: How bad is the damage in South America and will it get worse? How many soybeans is China going to buy? Is Putin going to attack Ukraine? We need more acres of everything to be planted, what is going to win acres and what is going to lose acres? These are the same questions we have been asking for weeks now.

The crop loss estimates for South America keep growing. There have been some rains over parched areas and some areas that have had too much rain during harvest. I think the market still does not have a good handle on how bad the losses are yet. That is adding to the volatility. There are many questions about the second crop corn as well. There are also many analysts that say that the loss estimates are already higher than reality but i think what the market is watching is Chinese activity. They continue to buy higher priced beans from the US every other day or so. They seem to be very worried about originating enough from down there and so the market is taking that as evidence of more write downs coming.

Is Putin going to attack Ukraine? Maybe he is going to keep his troops on the border so long everyone gets numb to the headlines that an attack is coming imminently. I cannot even count the number of those I have seen this week. One day they report he has pulled troops back, the next they discover he added troops. The market is getting weary of trying to price in the risk. I do not think we have much of a weather premium so when (if) we get this behind us, that will be the major focus.

USDA released 10 year baseline acreage forecasts this week. We cannot even estimate what acres are going to be for this year yet much less 10 years out so these estimates are not gospel, but we do need numbers as a starting point. They put corn at 92 million down 1.3 from last year and average farm price at $5.45 vs $4.80 for last year. Soybeans 87.5 million acres which is up 300k from last year and ending stocks to 300 million from 320 mln this year. The puzzler is they have the average farm price declining to 10.50 from $12.35 for this year. Why they have a lower price on a smaller carryout must mean they project South American production sharply higher. These predictions are just baseline estimates and may not be worth mentioning but the market has to digest things like this.

We will get USDA’s outlook conference next week which will be the first look at predictions for new crop. The next big report will be the March 31st planting intentions report which is based on surveys.

Not any changes from guidance last week.

I have not seen anything to make me change my direction. To manage risk, I still think you need to be scaling in bean sales until you get around 85% priced. Hold the last bit for gambling. Scale in new crop sales on beans above $14. I would get at least 25% sold on new crop beans. Obviously if you want to take more risk, price less and roll the dice. If we add any Northern Hemisphere weather problems to the South American issues, we are going to have to go to levels to slow demand and we have not been there yet. These markets will be explosive but there is no guarantee of that. There is a lot of risk on the table. Everyone has to find the level he is comfortable with. There are good profits to be locked in right now.

I would be scaling in old crop sales but being a bit more patient on new crop. We got near $6 today on Dec corn but were not able to get through. Keep working orders on old crop and looking for good basis. Basis is extremely strong in the Southeast.

On wheat, I would not be making any sales below $8 on old or new crop. Basis on new crop is staying a bit firmer than many had expected with wheat acres in the western part of North Carolina. I do not mind scaling in sales or hedges above $8.

Cotton took a hit when the equity markets had a big selloff. Weekly exports were also lower than expected and traders are uncertain (like everyone) about the Ukraine Russian situation. Today saw a recovery as we did in all markets.

If you have any old crop cotton left, you are much more brave than most. I still think we need to be scaling in sales on new crop. There is profit being offered with any kind of yield.