Farm Futures - Weekly Market Recap
Weekly Market Recap
Bryce Knorr, Farm Futures senior editor
February 5, 2016
USDA reports often produce market-moving news. The Feb. 9 government may not be one of them.
Few changes are likely to domestic ending stocks of corn, soybeans and wheat. In fact, the biggest, and maybe only news of the day may come from overseas. Estimates of South American corn and soybean production are about the only number capable of moving markets, and the agency may go slow with these projections too.
For corn, USDA should stay with its current estimates for feed and ethanol usage. While the cattle inventory reported in January was higher than expected, the agency may wait until seeing its March 1 stocks data before making changes to the amount of corn fed to livestock. Grain crush out Feb. 1 showed sorghum working into plant feedstocks in amounts close to what the agency previously predicted.
Corn sales and shipments in the first five months of the marketing year were lower than the rate forecast by USDA. But sales have picked up recently, which could keep the agency from cutting its outlook just yet. The result should be keep projected ending stocks at 1.802 billion bushels.
Soybean crush for December was a little weaker than expected, but it may be too early for USDA to make changes yet. U.S. export sales appear to be slipping, but Chinese demand remains a question mark – it’s up 23% through December, much more than USDA forecasts. That could also mean little change to the agency’s current estimate of soybean carryout at 440 million bushels.
Wheat sales are weak, but are already projected to fall to the lowest level since 1971. Feed usage is hard to estimate until grain stocks data is released, and food usage doesn’t change much. So wheat could also see its carryout projection unchanged, at 941 million bushels.
Perhaps the most anticipated numbers will be the agency’s update to soybean production out of South America. Totals from Argentina could go up. The Ag Attaché in the country forecast production there 55 million bushels above USDA’s last projection, but noted dry conditions hurt yields in some areas. The attaché in Brazil kept its forecast 73.5 million bushels below the USDA guess after dry weather in the early part of the growing season.
Without surprises expect the market to continue its pivot from 2015 carryout to 2016 crop prospects. New crop corn and soybean futures remain weak as the discovery period for crop insurance base prices proceeds, proving little incentive for expansion.
Corn prices have been stuck in a trading range for three weeks. Since the middle of that range is around 30 cents above January’s contract lows, this consolidation isn’t a bad thing. But it’s frustrated farmers looking for selling opportunities.
Growers held off on sales last month, but grain began to move in February, starting to weaken basis in some locations. Ethanol plants faced the lowest profit margins in more than a year and some cut bids as a result. Basis in the export pipeline also weakened as shipments remain somewhat slow.
While a forecast end to El Nino by summer brings increased risk of below average yields, holding a lot of old crop inventory into the growing season is risky. Instead focus on making regular sales every dime or so higher. Volatility in the options market is very low, making it cheaper to own corn on paper to maintain some upside.
Soybeans maintained a modest uptrend in January that extended into the first days of February trading. But after reaching six-week highs that bullish pattern was in doubt as the market focused on prospects for a big South American crop.
Just how big the crop is remains a debate, but production appears to have escaped any significant injury. The usual transportation issues in Brazil will be exacerbated by floods that washed out some roads in the southern part of the country. Labor issues hampering shipments could also erupt in a country whose economic troubles are now joined by health concerns over the Zika virus.
It’s crucial for soybeans to hold, which could prompt rallies into March and April. These won’t return prices anywhere near profitable levels. Getting nearby futures above $9.20 may be more than the market can muster.
Wheat prices tried to generate some buzz on their price charts as trading got underway in 2016. But that effort looks all but over. Wheat will do well just to avoid new contract lows now.
Winter wheat futures should have one or two more rallies left that should be used as selling opportunities. Winter wheat conditions on the Plains declined in states putting out ratings for January. But overall production potential was only 5 million bushels lower. A dry forecast for hard red winter wheat could prompt a little buying, but most of the gains in January were driven by short covering, not new demand from end users.
Winter wheat in the rest of the northern hemisphere still looks promising. Outside a few trouble spots in parts of Eastern Europe, conditions are at least stable. That could keep fierce competition around for another year.
Bryce Knorr first joined Farm Futures Magazine in 1987. In addition to analyzing and writing about the commodity markets, he is a former futures introducing broker and is a registered Commodity Trading Advisor. He conducts Farm Futures exclusive surveys on acreage, production and management issues and is one of the analysts regularly contracted by business wire services before major USDA crop reports. Besides the Morning Call on www.FarmFutures.com he writes weekly reviews for corn, soybeans, and wheat that include selling price targets, charts and seasonal trends. His other weekly reviews on basis, energy, fertilizer and financial markets and feature price forecasts for key crop inputs. A journalist with 38 years of experience, he received the Master Writers Award from the American Agricultural Editors Association.