Markets still struggling as holidays loom
USDA makes modest demand changes.
USDA’s Dec. 12 crop report had mixed news about demand. But the market’s verdict on the numbers was the same: thumbs down.
Prices sold off in the wake of the news. Corn and winter wheat futures posted new contract lows, while Minneapolis futures and soybean slid, still trying to regain their footings.
Corn got the only real positive news from the releases. USDA raised its forecast of ethanol production following a string of record weekly totals this fall. That trimmed 50 million bushels off projected supplies on Aug. 31, barely a drop in an ocean of what’s expected to be 2.437 billion bushels left over at the end of the marketing year.
For soybeans and wheat the trouble was exports. USDA cut its estimate of sales for both crops by 25 million bushels. After an adjustment for higher seed usage, this raised soybean carryout by 20 million bushels to a hefty 445 million bushels, the most in more than a decade. Wheat ending stocks projected on May 31 went up to 960 million bushels, plenty in a world that already has way too much on hand as it is.
Outside the U.S., the biggest news came from what the government didn’t change. The agency left its forecast of corn and soybean production unchanged in Argentina and Brazil. The market is desperately looking for clues after an adverse start to the growing season. Dry conditions delayed seeding in the key center-west part of Brazil. Too much rain was a problem for early planting in southern Brazil and Argentina, before that area turned dry, keeping growers out of the fields.
Rains returned in Brazil, boosting some estimates of soybean production closer to the record brought in earlier in 2017. But those late soybean acres could lower the amount of corn that’s doubled cropped, as well as pushing growth into the driest part of the Brazilian year.
Better rains also started to fall in Argentina in recently, and forecasts for the end of December are looking wetter too. But questions remained about whether farmers would be able to plant all the acres they originally intended.
U.S. government weather exports increased their odds of La Nina cooling of the equatorial Pacific, and said the event could last longer into the spring than previous forecasts. This phenomenon is associated with lower corn and soybean yields in Argentina, keeping weather in the news.
But by mid-December, markets already began to have a holiday feel. The next big price movers don’t come until Jan. 12, when USDA releases some of its biggest reports of the season.
Corn prices made new contract lows in the days following the USDA report. That kept March futures from breaking out of a downturn on the nearby chart as it took over from December, which stopped trading Dec. 14. December went off the board at $3.3625, which could become a new downside target for bearish if the market can’t find some footing.
Normally, corn gets at least some type of lift into the end of the year and January. Farmers typically don’t want to move corn now, preferring to wait until the new year for tax purposes. Weather and holidays also combine to slow movement, forcing end users to bid up both futures and basis to attract supplies.
Some bears also should liquidate positions into the holidays. But short covering rallies are usually brief.
Soybeans appear to be falling into a bearish pattern, one that could last into February on pressure from the Brazilian harvest. Buying by China ahead of the lunar new year celebration in mid-February should also begin to slow soon, leaving a void for positive news.
Growers have had multiple chances to sell $10 soybeans on the board this year. Those who didn’t have made their choice, and will have to wait until spring and possible summer for rallies. That could net a higher price if the 2017 crop turns out smaller than expected or if dryness from the Plains into Missouri expands. But weather rallies are hard to predict, especially six months in advance.
Growers who don’t mind moving beans over the holidays should look to the cash market for pushes. Spotting some basis on hedges could be possible from end users who are short bought.
Wheat sold off into mid-December, trying to finally start what typically is a rally into the January USDA reports. Traders have plenty of questions, including how many acres of winter wheat did or didn’t get planted, especially in big states like Kansas.
Moisture and late harvest of fall crops slowed planting this fall. And low prices mean growers may have put in the lowest winter wheat totals since 1909. Coupled with dry weather this winter, that could set up rallies into the spring.
Still, lower production won’t ensure higher prices unless production suffers elsewhere too. But the uncertainty could at least provide a respite from selling in the meantime.
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.