Each week seems to bring more excitement to the market and not always in a good way. It does not matter how many dollars we have rallied, looking at the market to see beans down 60 cents and corn down 23 is going to feel like a big gut punch. Since that big drop, corn and beans have managed to recover most of the losses and corn has even managed to make new highs. The straight up portion of this rally is over for a little while. Now we have to navigate this volatility. We have good underlying support still with low interest rates around the world and fears of inflation bringing money into all commodities at the same time we are tightening up the surplus stocks of grains and oilseeds.
We are getting another USDA report next Tuesday (Feb 9th). They will not be updating the US crop but since we have already exported more corn than they projected for the entire marketing year, it seems like they are going to have to make adjustments to demand.
Soybeans
Soybeans have been unable to break into new highs partially because some harvest pressure from Brazil. They should have already been harvesting some early group beans and there are many ships lined up in anticipation of the new crop arriving. However the crop was planted late and therefore will be harvested late. China has slowed down US purchases to wait and see how the Brazilian crop starts off. Also hindering harvest is the rains that the market reacted to have become excessive in parts of Brazil and are preventing timely harvest. Late soybean harvest means less second crop corn acres. What Brazil is trying to harvest now is just the early crop. Much more of the crop will be maturing in the next 45 days so weather is still critical to finish the crop. It is too wet in some areas and still too dry in others. Analysts have started to reduce the South American crop size, but not drastically yet. There is still enough growing season left that actual size has yet to be determined.
Container basis has fallen off some and the lines are longer at the processor than they were at harvest. Processor basis has remained firm but has not gotten any stronger in the last few weeks. I think it will remain here until the lines slow down. Processors have not been able to lower it any, even with the lines due to competition. You are not wrong to sell beans here. With basis in most markets you are still over $14. If you need cash, scale in small sales on up days. If you do not need cash, you can be patient. There is still a lot of bullish news to hold support and a chance of more highs. I would be more patient on new crop. There are big questions whether corn and beans can attract enough acres so the new crop contracts have a lot of work to do.
Corn
We have set some records the last two weeks for corn exports. The US has the only corn available in the world and China needs corn now (see chart below)! They can hold off on big new bean purchases until they see how Brazil’s early harvest goes but there is not a ready supply of corn coming from anywhere soon. Corn lagged the bean rally at first because of all the questions on ethanol demand. The market was not sure export demand would be able to offset that much demand, but it seems it has come close. With upward revisions of demand and downward revisions of US crop size, it looks like we are going to pull corn carryout down to pipeline supplies. It doesn’t really matter that much what the new administration does in regards to China. They need corn and we are the only country that has it right now. USDA will need to adjust export demand on the report next Tuesday because we have almost exported as much corn as they had estimated for the entire marketing year.
Basis has actually gotten a little weaker in the Southeast. As the market got to a place that shut down what few ethanol plants were still running, train values dropped and so did our local basis. There are still going to be great opportunities on any rail delay, but it may be a little while before posted basis levels resume their uptrend. Similarly to beans, if you need cashflow, scale in small sales. No matter what happens, you are not wrong to sell here. You are making a profit. If you can be patient, there should be good opportunities for waiting. Be patient on new crop as it fights for acres. I would have orders working close to $5 on the board. Basis will be strong for early bushels.
Wheat
Russia has taken some additional steps to try to curb domestic food inflation. It has not caused a major reaction because it was widely anticipated, but I think there are going to be some significant long term implications. It limits their access to export markets and should discourage continued expansion of production. That should open up markets to the US that we have not been competitive in a while. Wheat lagged the other commodities in this rally because we still have a buffer in wheat stocks. If the corn rally continues, it will take some of the wheat as a feed grain. With the steps Russia has taken that has also taken some wheat off the world market. We are starting to chew through that buffer that wheat had and that will make wheat more attractive to fund money as commodities keep rallying. Big freeze events are going to have more of a reaction by the market. Wheat has more upside potential than it did just a few months ago.
Just about the only way to hurt wheat at this stage in the Southeast is to put too much water on it and we have had way too much water. The wheat does not look great across the southeast. We have some acres this year, but yield is still a very big unknown. I would have orders working in the upper $6 range to get some hedged. That is still a stretch but at this time, it is still very possible. I would not get too much basis done until we know more about our crop.
Cotton
Cotton has finally shown some real strength with old crop trying to break through 85 and new crop above 80. The talk of direct stimulus and the resulting positive effect on retail sales has helped spark cotton. Along with all the quantitative easing going on around the world. Like wheat, the funds have not really gotten very long yet in cotton compared to the other ag commodities so there is plenty of room for them to jump in. 80 cents is not a bad starting place on new crop cotton but I would not be very aggressive yet. Cotton carryout has gone from 7 million bales last summer to 4 million on the last USDA report and another cut is expected Tuesday. Cotton has a lot of catching up to do.
