Ahead of the Open: Corn, Soy Extend 2020 Rallies on Weather, Demand and Chart Buying

Posted on Thu, 12/31/2020 - 07:45

GRAIN CALLS

Corn: Up 4 to 6 cents
Soybeans: up 10 to 15 cents
Wheat: Down 2 to 5 cents

Markets are open for a full day of trade today and are closed on Friday in observance of the New Year’s Day. Your Pro Farmer weekly newsletter will be sent out today and there will be no Pro Farmer services tomorrow. We wish you and your family good health and prosperity in 2021!

GENERAL COMMENTSCorn and soybeans extended gains on Thursday to hit their highest in 6-1/2 years, after major exporter Argentina said it would restrict corn shipments and as dry weather continued to threaten harvests in the country.  Argentina's agriculture ministry announced on Wednesday that the country would suspend sales of corn for exports until Feb. 28 to ensure ample domestic supplies. Argentina is the third largest exporter of corn and traders are betting on improved U.S. exports. Soybeans, which were earlier this month driven by a 20-day labor strike in Argentina, remain supported by the dry Argentina forecasts, but ignoring recent beneficial rainfall in Brazil.  Argentine soymeal and soyoil factories went back into production on Wednesday but the backlog of shipping and crushing operations will take time to improve and may shift some demand to U.S. supplies. Prices also rose on expectation for continued strong Chinese demand for global supplies. Chinese soymeal futures rose to the highest since November 2018 today on strong demand from the livestock sector as China continues to rebuild after African swine fever wiped out nearly half its hog herd. Wheat prices were paring gains after touching six-year highs on Wednesday.   

The South America weather outlook remains little changed. In Argentina, the struggle for any widespread moisture will continue. Any rain in first week of the outlook will be isolated. However, more meaningful rain is likely in the far west-central and northwestern part of the nation, especially Saturday through Sunday. Rising crop stress is a concern in most other areas of Argentina though. There is still some potential for greater rain from Jan. 9 to 13. In Brazil, rain will support crops in most areas. An exception will be in Rio Grande do Sul where less frequent and more erratic rain will lead to some increase of crop stress in the next week. However, net drying will be slow at times due to there being at least some rain. The far northeast, such as northeastern Bahia and eastern Piaui, will also be notably drier-biased; however, there is potential for greater moisture in week 2 of the outlook.

Before the reopening this morning, USDA did not announce any new export sales.

USDA’s weekly export sales data this morning showed corn and wheat sales at the end of trader estimates and mixed trends of the soybean complex. Wheat sales rebounded to 520,600 MT in the week ended Dec. 24, up 4% from the prior four-week average with China the top buying of 133,200 MT. Corn sales rebounded 48% from the prior week to 964,500 MT but were still down 27% from the prior four-week average. While no new sales were reported to China, U.S. exporters sold 246,000 MT to unknown destinations. Soybean sales last week were up 25% from the prior four-week average at 695,400 MT.  Increases primarily to China for 619,700 MT which included 596,000 switched from prior purchases designated at unknow and there were decreases of 191,000 MT. Sales for 2021-22 delivery were 315,800 MT, including 126,000 sold to China. Soybean meal sales fell to a marketing-year low of 76,200 MT, well below trade estimates for 100,000 to 350,000 MT last week. Soyoil sales jumped to 60,700 with 33,000 MT sold to unknown.

Markets are ending a tumultuous year on a quiet note, with global stock indexes holding near record highs and the dollar at the lowest in two years. U.S. equity futures were little changed, with investors shrugging off better-than-forecast jobless data. European stocks dipped on the last day of 2020. Markets in Japan, Germany and South Korea were shut for New Year’s Eve The S&P 500 is poised to end a tumultuous year up more than 15%, leaving equities at rich valuations amid expectations that widespread vaccine distribution in 2021 will reignite economic growth and boost corporate profits. The gains were global, with the MSCI World Index of stocks also set to end the year near a record high, having risen 14% in 2020. Against a backdrop of subdued trading this week, the speculative frenzy in cryptocurrencies shows no signs of slowing down. Bitcoin vaulted above $29,000 on Thursday, then pared the gains. The digital asset has advanced almost 50% in December and is on track for the biggest monthly jump since May 2019.

On the coronavirus front, global deaths from Covid-19 passed 1.8 million. Cities that had gone weeks without new infections, including Beijing and Melbourne, are now reporting clusters, and cases of the new, highly transmissible virus strain were identified in Singapore and California.

CORN: March corn is accelerating higher with the export suspension announcement by Argentina. The USDA estimates the nation will export 34 MMT and this declaration could delay as much as 4 MMT from shipping for 3 months. The US seems to be the only practical option to cover the gap in the interim. U.S. export basis firmed 2 to 3 cents yesterday on top of the futures surge. Argentina’s corn planting pace rose to 75% completed this week, compared with the prior three-year average of 81%  The CME Group announced it will hike maintenance margins on corn futures contracts by $125 (14.7%), pushing those margins to $975 per contract for March 2021. Rising margins sometimes are associated with markets near a top. But prices can go much higher than expected before retreating.

SOYBEANS: Soybeans continues to push higher on a lack of U.S. or South America farmer selling and ramped up speculative buying interest. Malaysian palm oil futures extended this year’s rally, up about 18% this year, marking its second year of growth on tightening world vegoil supplies and strong exports. However, on Wednesday, the United States banned imports of palm oil from Malaysian producer Sime Darby Plantation over allegations of forced labor China’s Dalian soyoil contract rose 0.9%, while its palm oil contract edged 0.5% higher. CME soyoil prices extended their rally to fresh 6-1/2-year highs overnight.

WHEAT: Futures are consolidating big gains this week.   

Cattle: Mixed to firm
Hogs: Mixed to firm

Cattle: Cattle futures have been consolidating last week’s rally waiting for the first full slaughter week after the holidays. The cash market has been mixed to firm this week, but packers have not been aggressive and winter weather messed with schedules. The biggest concern for the market is the rising market weights  Choice and Select beef cutout values climbed 23 cents and $4.38, respectively, on Wednesday, with a solid 141 loads changing hands. Packer margins have fallen about $56 over the past week, but they remain quite strong for this point in the year at $178 a head. Weekly beef export sales for delivery in 2020 were much stronger than expected at 14,900 and sales for delivery in 2021 were 14,400 MT. Shipments rose to a new marketing year high of 27,600 MT.

Hogs:  Hog futures failed to hold gains yesterday after pushing to new swing highs. That is a concern moving into early 2021.The outlook is positive, but futures are trading a wide premium to the CME Lean Hog Index.  The pork cutout value edged 29 cents higher yesterday, with movement decent at 343.24 loads. But cash hog bids fell $1.03 at midweek, with the eastern Corn Belt leading the decline. That combination has helped strengthen packer profit margins this week. Look for weekly export sales data to provide support today. USDA reported sales for 2021 delivery were 46,300 MT, including 22,700 sold to China. Shipments last week remain active at 39,400 MT, down about 1% from the prior four-week average with Mexico and China each taking more than 13,000 MT.