Weekly Market Update – December 31, 2021

Markets opened Sunday night stronger and took off for the first part of the week led by soybeans as the forecasts remained dry for the dry areas of South America. It is worth noting that the areas that have not been dry continue to get consistent rains. There are widely circulated pictures of crop damage in the dry areas that will not be reversible. There is some moisture that was added to the hard hit areas in some of the models in the nearterm. We get to continue to watch weather forecasts and debate damage. However, I hope it is now safe to say we have probably seen the highest production estimates for South America now. The market will continue to debate how much they need to be trimmed.

Corn and soybean markets hit their highs for the week on Tuesday and then faltered closing off their highs. There was significant pressure from fund selling and weakness in wheat was a drag on corn and soybeans to some degree but Wednesday markets held on relatively well as buyers took the opportunity to price and other buyers came in the market. The markets had gotten very overbought on the strong run and with year end and big profits in fund long positions, many people were worried about a big correction. Thursday it happened. It was sparked by the addition of some moisture to the hard hit production areas of South America but fueled by a lot of profit taking going into year end. In my opinion the fundamentals have not changed so I still see Thursday’s action as a needed correction with higher prices still ahead. We still have inflation pressure, strong demand, high energy prices, long term dryness in South America and lots of money looking for returns.

We have a big report coming out on Wednesday Jan 12th. It is “Final” US production estimates. USDA has been kicking the can for two months not making any adjustments to US production so there may be some surprises. We also get grain stocks and the market will be looking for an adjustment to South American crops.

Exports were exceptionally strong this week. Energy prices are still high and ethanol margins still good. Basis levels are getting stronger everywhere. Corn piles are already starting to be opened up in the Southeast to try to cover for rail slowness. Usually no one touches their corn pile until late winter early spring. We had a massive local crop but it is getting gone very quickly. Keep working orders to scale in sales on old crop futures. Look for rail delay basis to make any more basis sales. We are still being patient on new crop corn as it is going to have to fight for acres.

Only a few weeks ago we were wondering if beans could even reach $13 and this week they almost got to $13.70. Basis is getting stronger in our market on beans as well. There have been several trades for old crop beans over $14 with basis. Be scaling in old crop beans and new crop as well. This is still a weather market and if we lose enough South American production they will go a lot higher, but it could also rain and take that opportunity away. Beans are not going to have to work as hard as corn to pick up acres so that is why I am more aggressive on pricing new crop beans than corn right now.

The US Plains are still very dry and with cold weather coming and no snow pack we could see significant winter kill. Despite this, wheat has taken a beating this week and pulled corn down with it. It seems traders take even small amounts of moisture as evidence the drought is abating. Minneapolis wheat has been the leader on the downside and is below $10 for the first time since early Nov. Southern Hemisphere crops that are coming to market in both Argentina and Australia are expected to exceed USDA’s Dec forecast. The break in wheat prices this week seems to have brought a lot of buyers to the market as several countries tendered for wheat this week. I would not be a seller below $8 right now and elect to wait until the first of the year to see what support wheat can find.

Old crop cotton has not followed the same pattern of the grains this week and it has been a wild ride. China was the biggest buyer of US cotton this week. There were some very bullish macro economic data this week as US jobless claims came in lower than expected and ongoing claims were the lowest since early March 2020. US apparel sales jumped 47.3%. Bullish macro data points to a big boost in cotton demand. New crop has been steadily working higher and approaches 93 cents. Be scaling in new crop sales above 90 cents.

Happy New Year!