Ahead of the Open: Corn, Soybeans Surge to New 6 1/2-Year Highs to Start 2021

Posted on Mon, 01/04/2021 - 08:12

GRAIN CALLS

Corn: Up 7 to 9 cents
Soybeans: Up 27 to 32 cents
Wheat: Up 2 to 5 cents

GENERAL COMMENTSCorn and soybeans started the new year just like they ended 2020 with strong gains to new 6 ½-year highs. Prices supported by weather concerns in South America, labor unrest in Argentina and expectations for continued strong Chinese demand for commodity imports.  Wheat rose to a 6-year top as the weak dollar boosts U.S. export prospects as Russian measures to curb its shipments may curb the exportable surplus. It’s a new year but it’s the same issues that sent prices sharply higher to end 2020. That creates some concerns that when this blow-off action the markets will be vulnerable to big liquidation but the markets will need a trigger. The CFTC will release the latest data as of Dec. 28 after the close after the close tonight and will show near record long fund positions in corn and soybeans. Clearly new money was flowing into the markets overnight, probably much larger than many expected and exaggerated by the lack of farmer and commercial selling interest.  As long as the markets perceive the Federal Reserve and other central banks will keep monetary policies easy for the next few years, that creates an environment for increased speculation and bets on higher inflation.

The weaker dollar is a significant contributor to the rallies today with the dollar index falling to its weakest point since April 2018, lending support to the wider commodities complex. Meanwhile, strikes from the Grain Exporters Union in Argentina continued over the weekend and it was announced by the Argentinian Government last week that corn exports will be halted until late February/ early March in order to secure domestic stocks to support feed demand there. This places greater strain on corn supplies as China continues to buy at feed grain at a record pace.   The Chinese Agricultural Ministry has announced a pledge to improve locally grown crop yields in order to maintain local production as part of the Government’s five-year plan. The expansion is a part of the pledge to ensure domestic food security.  

Argentina will likely see some scattered showers and thunderstorms in some of its driest areas, but no general soaking rain is expected, and temperatures will remain on the warm side, reports World Weather Inc. It expects limited rainfall and warm temperatures over the next two weeks to increase crop stress for central and eastern crop areas. In Brazil, showers and thunderstorms maintained favorable crop conditions in parts of Mato Grosso through areas of Goias and Minas Gerais and some northern Sao Paulo locations. Net drying occurred in other areas. Most crop areas should receive rain at times over the next two weeks and temperatures should be seasonable. That should keep conditions generally favorable for corn and soybeans, according to World Weather.  

Weather in Europe is forecast receive moderate rains with lighter rains in France and the UK this week. The Black Sea region is forecast to see moderate rains and snow over most of Ukraine with lighter volumes over Central and Volga regions, but southern Russia will remain dry. 

Before the reopening this morning, USDA did not announce any new export sales. That may limit some new buying interest early in today’s daytime session.

China plans to boost corn planting in its main production areas this year, the country’s ag ministry says. This reversal from recent years is thought to be a response to a domestic shortfall, which has dwindled the nation’s reserves and shot domestic prices higher. Tang Renjian, the country’s new ag ministry, says the effort to boost plantings in the northeast as well as around the Yellow, Huai and Hai rivers is part of the country’s comprehensive plan to ensure food security. The country’s statistics bureau reports farmers planted 41.264 million hectares to corn in 2020, with production coming in at 260.67 MMT. Tang called for a recovery in wheat acreage and stabilizing soybean output to ensure domestic supplies of soybeans for food use.

Food security worries are rising and adding to the overall bullish sentiment to start 2021. For the first time in decades, Vietnam is purchasing rice from rival India after prices shot on the domestic market shot to a nine-year high amid tight supplies. Vietnam is typically the world’s third largest exporter of the grain and aggressive shipments to the Philippines has dwindled domestic stocks. Vietnam has contracted around 70,000 MT of 100% broken rice from India for January and February shipment at around $310 per MT on a free-on-board basis. In contrast, Vietnam’s 5% broken rice is offered around $500 to $505 per MT vs. Indian prices ranging from $381 to $387. China also started buying rice from India for the first time in at least 30 years this season.

Investors are starting the new year as they ended the last, pushing stocks higher as risk appetite remains elevated. Overnight the MSCI Asia Pacific Index added 0.9%, with Japan's Topix index closing 0.5% lower as the yen rose against the dollar. In Europe, the Stoxx 600 Index is up about 1.5%, boosted by stronger manufacturing data from the euro area. S&P 500 futures are pointing to another record day on Wall Street. 

Bitcoin's massive holiday rally -- which saw the cryptocurrency rise more than $11,000 since Christmas Eve to trade above $34,000 yesterday -- took a blow this morning. The digital token plunged more than $5,000 to trade near $28,000. The 17% decline is the biggest intraday retreat since March for the volatile asset. The cryptocurrency gained more than 300% in 2020 and reasons for the steep drop are lacking this morning. Another example of a market with too many leaning in one direction.

Keep an eye on the oil markets this week. Last year's OPEC+ decision to have monthly meetings to agree on output is getting its first test today when the group meets to decide whether to increase production in February. With Covid-19 cases climbing globally, several member states are cautious about making any change in output at the moment. Crude oil prices are trading slightly lower this morning, erasing earlier gains to new 10-month highs overnight. 

CORN: March corn gapped higher to start the new trading year, leaving a 3/4-cent gap from $4.85 3/4 to $4.86 1/2 overnight. That gap is key support in the short term. Don’t forget, corn topped the first trading session to start 2020. China's energy watchdog last week said oil and gas companies should restore supply of ethanol-blended gasoline as soon as possible, after learning some had stopped selling the fuel in parts of the country.  The cut in supply has coincided with a near 34% surge in Chinese corn prices on the Dalian Commodity Exchange in 2020, making corn-based ethanol more expensive. However, oil and gas companies should understand that promoting ethanol-gasoline was a clear strategic objective of the Chinese government and should "adhere to the policy direction", the NEA said in a statement. China had planned a nationwide rollout of gasoline blend containing 10% ethanol in 2020 in an environmental push towards biofuels.  Meanwhile, Mexico's main agricultural lobby on Saturday criticized the government's decision to ban genetically modified corn, while organic growers hailed the move that should protect smaller farmers. Mexico will "revoke and refrain from granting permits for the release of genetically modified corn seeds into the environment," stated a decree issued Thursday evening, which also mandated the phase out of GMO corn imports by 2024. Mexico is largely self-sufficient in white corn used to make the country's staple tortillas but depends on imports of mostly GMO yellow corn from the United States for livestock feed.

SOYBEANS: March soybeans did not gap higher to start 2020 but still surge nearly 50 cents overnight, hitting $13.49 1/2. Prices have pared a small part of those gains into this morning’s break. Malaysian palm oil futures gained for a fourth straight session, trading at its highest level since February 2011. Palm marked its second year of growth in 2020 last week, as demand remained firm amid tightening supplies due to unfavorable weather and infrastructure issues. Palm oil supplies could also be affected by potential floods in Indonesia and Malaysia. China’s Dalian soyoil contract rose 1.2%, and its palm oil contract climbed 0.9%. Soyoil prices on the CME gained 2.4% overnight, touching the highest since March 2014.

WHEAT: Futures are following corn and soybeans higher with SRW futures touching the highest since December 2014 and HRW rising to touch the highest since January 2015. Moisture deficits remain for about a third of the winter wheat crop. After the close, some state reports will update crop ratings, which will set the tone for price direction this week.

Cattle: Mixed to firm
Hogs: Mixed to firm

Cattle: Cattle futures closed higher last week, paring annual losses. A move above Friday’s highs would set the stage for further gain in early 2021. Choice and Select boxed beef values fell 58 cents and $4.21, respectively, last Thursday, with 144 loads changing hands. While Choice values slipped less than a buck over the past week, Select fell around $4. Cash prices have climbed in recent weeks, which is making traders comfortable with nearby futures’ premiums to the cash market. But cash prices must continue to rise to prevent a corrective move to the downside, especially considering weights that remain elevated relative to year-ago.

Hogs:  February lean hogs finished last year at a nine-week high, which should pave the way for follow-through buying to start the new year. But it is worth noting that nearby contracts are at a wide premium to the CME lean hog index, ending last year at $59.86.  But cash hog prices jumped $1.74 on Thursday, with the eastern Corn Belt leading gains. Also encouraging, the pork cutout value surged $5.93 to the highest in more than three weeks, with all cuts rising and hams and bellies each rising nearly $13.