Ahead of the Open: Firming Grains, Soybeans Into the Weekend on Tight Supply Outlook

Posted on Fri, 02/19/2021 - 07:29

GRAIN CALLS

Corn: Up 1 to 3 cents
Soybeans: Up 4 to 8 cents
Wheat: Up 1 to 4 cents   

GENERAL COMMENTS:  Grain and soybeans are pushing higher this morning after USDA’s preliminary projections for 2021-22 seasons suggest there is little tolerance for production shortfalls this year. With tight or tightening old-crop corn, soybean and wheat carryovers and USDA is projecting optimistic usage forecast, resulting in tight new-crop ending stocks even with normal yield assumptions. The combined corn and soybean acreage forecasts is a record 182 million acres, supported by lower spring wheat plantings in the Northern Plains and a return to normal planting conditions. This is contrary to 2019 and 2020 where weather events left unplanted area at an unusually high level. With strong prices and normal weather conditions, the three-crop total is projected to reach 227 million acres, the highest since 2016. Rallies were contained overnight, in part because of the expiration of the March options today and sharply lower crude oil prices.

Here are the highlights from this morning’s USDA initial projections for 2021-22:

Corn: Planted acreage estimated up 1.2 million to 92.0 million. A national average corn yield of 179.5 bu. per acre would produce a crop of 15.150 billion bu., up from 14.182 billion in 2020. Total use is projected at 15.125 billion bu., up from 14.625 billion this year on higher ethanol, feed and export demand. Carryover seen rising only 50 million bu. to 1.552 billion bushels.  

Soybeans: Planted acreage forecast up 6.9 million to 90.0 million. A national average bean yield of 50.8 bu. per acre would result in a crop of 4.525 billion bu., up 390 million from 2020. Total use is forecast at 4.534 billion bu., down just 41 million from this season’s record.  Despite increasing global import demand, U.S. market share is likely to decline on limited exportable supplies. Carryover will remain tight at 145 million bu., up slightly from a very tight 120 million this year.

Wheat: Planted acreage is projected at 45.0 million and with a national average yield of 49.1 bu. per acre would produce a crop of 1.827 billion bu., up 1 million bu. from this year. Total use seen at 2.095 billion bu., down from 2.138 billion this year. Still, carryover will fall to 698 million bu., down from 836 projected this year.   

Conditions for Argentine soybeans have improved in Cordoba and Santa Fe over the past week, the Buenos Aires Grains Exchange said in its weekly update, referencing welcome rains across a wide swathe of the Pampas grains belt. More than 97% of the country’s soybean area now has adequate to optimal moisture, the exchange detailed. But it added, “weather conditions over the coming weeks will be key to maintaining these expectations.” The exchange still estimates Argentina’s soybean crop at 46 MMT, with its corn crop forecast also holding at 46 MMT.  Net drying will continue the next week with soils moisture adequate. Models are mixed about the outlook in two weeks with some rains expected but crop stress is expected to return. Brazil looks like soybean harvesting will have to work around showers, delaying the planting of safrinha corn. Excess moisture will be limited.

Before the reopening, USDA did not announce any large grain or soybean sales this morning. That will add to the bulls’ caution ahead of the weekend.

This morning’s weekly USDA export sales report for the week ended Feb. 11 showed sales were down from a week earlier but came in well within pre-report trade estimates. Soybean net sales were 455,900 MT, down 53% from the prior four-week average with new crop sales of 168,000. China was not a major buyer of old-crop but did buy 63,000 MT of new-crop U.S. soybeans. Weekly corn sales fell 31% to 999,200 MT from a week earlier with new-crop sales of 182,600 MT reported. There were no large Chinese purchases. Wheat sales fell 33% to 399,100 MT from the previous week and were 18% below the prior four-week average. But China was the second-biggest buyer with 131,700 MT report sold last week.

Happy anniversary. As far as markets are concerned, it is exactly one year since the Covid-19 hit and stock markets peaked then began a slide that turned into a rout as it grew clear that the novel coronavirus had made landfall in the developed countries of the West. The most basic fact to master is that all the main asset classes are higher now than 12 months ago.  

The U.S. coronavirus vaccine supply is poised to double in the coming weeks and months, according to an analysis by Bloomberg, allowing a broad expansion of vaccination efforts.  The action this week has been centered on the bond market, not the stock market, as Treasury yields have climbed in reaction to the progress on a new stimulus package as well as the global rollout of COVID-19 vaccines. Treasury Secretary Janet Yellen defended the need for $1.9 trillion in pandemic-relief spending, the second-largest emergency aid bill on record -- even with recent strength in retail sales and U.S. stock values.

The S&P 500 has declined for three straight days, but by only 0.5% — suggesting the stock market hasn’t panicked about the moves that have sent the yield on the 10-year Treasury to a one-year high of more than 1.30%. U.S. stock index futures edged higher overnight. European shares mostly rose as data showed euro zone factory activity in February jumped to its highest in three years, while Japan’s Nikkei slipped on profit taking.   

As the power starts to come back on in Texas after the biggest forced blackout in U.S. history, the restarting of the region's oil production capacity is coming as a relief, with oil executives saying most of the lost output would be restored within days.  

Meanwhile, NASA successfully landed its largest and most sophisticated science rover on Mars after a months long 292.5-million-mile journey from Earth, touching down in an ancient river delta that may contain signs of whether the planet ever harbored microbial life.

CORN: Futures are heading for a higher weekly close after closing lower last week when prices touched new 7 1/2-year high. New-crop futures have led the rally this week, narrowing the discount to front-month contracts. The bulls argue the markets needs to continue to firm to get as many acres planted as possible to ease the tightening U.S. and global supply story.

SOYBEANS: Like corn, new-crop soybean futures are gaining on old-crop amid slowing export demand and heightened concerns the supply tightness will continue into 2022.  November beans are about 8 cents below the contract high from January at $12.03 and still $1.84 below March futures.

WHEAT: After big up and down price swings the past three session, wheat is relatively quiet but holding firm on uncertainty about the impact the arctic blast has on potential wheat yields this year. Meanwhile, SovEcon lowered its Russian 2021 wheat crop estimate 1.5 MMT to 76.2 MMT, citing unfavorable weather and coming state export taxes. The consultancy warns Russia’s 2021 wheat crop could be “substantially” smaller, as crops entered winter in their worst shape in a decade and while January weather was favorable, February weather has not been.

Cattle: Mixed
Hogs: Mixed

Cattle: Cold weather continues to upend the livestock sector, with the cold temperatures and natural gas shortages in southern areas of the country stressing animals, disrupting marketing and slowing processing. Through Thursday, this week’s kill is estimated at 380,000 head, 95,000 head below a year-ago. Slowed processing has pushed beef prices higher, adding to already record-high packer profit margins for this time of year. HedgersEdge.com pegged them at $359.50 a head on Thursday, up more than $15 for the week. A few thousand head of cattle traded in Iowa near $115 yesterday, with trade also getting underway in Nebraska, Kansas and Texas at $114. These prices are generally steady to firm from last week. This morning’s weekly export sales report showed beef sales improved to 22,868 MT from 17,544 MT a week earlier. Today, traders will position for USDA’s monthly Cattle on Feed Report after the close.

Hogs: Thursday’s slaughter slowed to 479,000 head, 15,000 head below year-ago levels, underscoring the impact of cold weather across the nation’s midsection. For the week, slaughter is down 177,000 head from the same week a year ago. Average cash hog prices climbed $1.03 on Thursday, despite slowed slaughter. The pork cutout value climbed $1.64 yesterday and movement picked up a bit to 316 loads. Packer profit margins are holding solid at just shy of $29 a head, according to HedgersEdge.com. Pork export sales last week ahead of Lunar New Year fell to 33,279 MT, the smallest tally in five weeks. China was a net buyer of just 2,500, which included decreases of 1,300 MT. However, pork shipments were up 5% from a week earlier with china the top destination for about a third of the 39,800 MT exported last week.