Grains closed higher on Tuesday:
Corn + 3 ½ cents/bu (Dec @ 4.08 ¾ )
Soybeans + 9 ¾ cents/bu (Nov @ 10.64)
Chi Wheat + 5 cents/bu (Dec @ 6.32)
Cdn $ +0.00355 (76.225 cents)
WTI Crude Oil +0.63/barrel (41.46)
Tuesday proved to be a quiet day for grain news, which left participants to trade the stories that have dominated the markets for the past couple of weeks. The Russian wheat belt remains dry, and while showers are falling, so far the coverage and accumulations have fallen below what was forecast. Brazil and Argentina are getting rains, with more forecast over the next 10 days, but again, total accumulations remain in doubt, and that has bulls convinced that there will continue to be problem areas. We can say with certainty that the pace of planting in Brazil is currently less than half of what would normally be seeded for this time of year, with many analysts pointing to the fact that some early seeded beans will have to be replanted due to uneven/poor germination caused by drought. Amid these production “concerns’ looms the prospect of insatiable Chinese demand.
Soybean prices are being supported by the aforementioned late planting in Brazil. If this late planting leads to significant delays in Brazilian abilities to load soybean cargoes in early February, then that could necessitate China having to come to the USA for more supply. At the moment, the USA is the only real source of beans until February. In the February timeslot however, Brazil’s current offers are approximately 25 US dollars per tonne less expensive than American. For that reason, the Chinese are holding off booking later cargoes from the USA. Having said all that, another month of Chinese demand represents an incremental 100 to 200 million bushels of soybeans – and the USDA’s Soybean Supply and Demand tables simply do not have that volume of soybeans available. This fact has market bulls racing to own bean futures. The key to this rally going forward will be the pace of Brazilian soybean planting, and the amount of moisture that those newly planted beans actually get. We are moving into a traditionally moist period in the Brazilian growing season.
Corn is rallying for many of the same reasons as soybeans. It has been far too dry for planting Brazilian first crop corn, but equally important is the concern that the 2nd crop corn is vulnerable due to the late planting of soybeans. It is expected that many 2nd crop corn acres will be vulnerable to excessive heat during their pollination phase because of planting too late in the calendar in 2021, following the harvest of soybeans. Because of the production risk, some of those acres may not even get seeded. Again, we need to see solid planting progress on Brazilian soybeans in the coming days in order to allay some of these fears.
The wheat story is probably the most cut and dried of all of the grains. Wide swaths of the Black Sea production region are critically dry, and forecast rains have been underwhelming in actual precipitation accumulations. European and Russian wheat values continue to rise at a time when there are multiple countries tendering for wheat supplies. USA southern Plains are getting some much needed precipitation, but up to a third of the hard red winter wheat crop remains in very dry soil.
The USDA only reported one Flash Daily Sale today, for 132,000 tonnes of soybeans to an unknown destination.
On the day, funds were estimated to have bought 10,000 corn futures (now long 216,000 contracts), bought 10,000 soybean futures (now long 244,000 contracts), and bought 3,000 Chicago wheat contracts (now long 74,000 contracts). Bit of a self fulfilling prophecy for fund managers right now, as they continue to add to what are very large long positions, but with uncertainty over the Russian wheat crop and South American row crop potential, there is not a lot of sellers willing to take on the volume of speculative buying that is coming to grain futures. Producers are taking advantage of the rally to price nearby grain movement, and to lock in attractive new crop values.