No battle lines (Grain Marketing)
(Editor’s note: Rob Davis is a professional grain market analyst.)
The double-edged sword of uncertainty creates volatility and opportunity.
A few months ago I wrote about the undercurrents of inflation and bio-diesel. Both forces will impact demand like a slow steady train chugging along.
At times, markets could be choppy as new data makes the headlines and then fall to the back page as we get new information.
Currently the market is focused on South American weather.
Private analysts continue to cut production estimates for Brazil and Argentina as soil moisture is low and temps have been high.
As of Thursday, Jan. 13, some precipitation has been added to the 10-day forecast, which has brought some selling pressure into the market.
Any changes in the forecast could move the soybean and corn markets significantly when trading resumes on Monday night, after the long holiday weekend.
The January WASDE report was released last Wednesday with USDA projections coming in relatively close to market expectations for corn and soybeans.
Once again they had some bad news for wheat, as they increased ending stocks.
There were a few exceptions, mostly weighing on the wheat market.
On Jan. 14, the March 2022 corn contract closed at $5.87 1/2 with December 2022 closing at $5.57 1/4.
The USDA left the national average yield unchanged at 177 bushels per acre. Iowa (205 bushels per acre), Nebraska (194 bushels per acre), Indiana (195 bushels per acre) and Ohio (193 bushels per acre) all set new yield records last year.
Harvest corn acres were cut significantly in the Dakotas, but were offset by increased acres in Texas and a shocking 13-percent increase in Pennsylvania, from 870,000 acres to 990,000.
The ending stocks ratio for old crop corn crept up to 10.4 percent from 10.1 percent last month.
We had a similar forecast for ending stocks last year, which was eventually slashed to 8.3 percent after some large unexpected purchases by China.
As as I mentioned last month, if you’re are locking in input prices, it’s prudent to lock in some sale contracts and profits at the same time.
High input prices do not necessarily mean that grain prices have to be high as well.
On January 14th, the March 2022 wheat contract closed at $7.46 3/4 and the July 2022 wheat contract closed at $7.42 1/2.
The wheat market really needs a new story to rally and there doesn’t seem to be one on the horizon.
The unrest on the Ukraine border has not been in the headlines as much over the past month, but I doubt that President Vladimir Putin has already accomplished his goal there.
As I mentioned last month, military action in this wheat producing region would likely mean higher prices.
There tends to be some seasonal strength in the wheat market during February, but we currently have too many significant market drivers hitting headlines for traders to pay much attention to long term seasonal trends.
On Jan. 14, the March 2022 soybean contract closed at $13.77 1/4 with the November 2022 contract at $13.04 1/2.
The USDA lowered world ending stocks significantly, from 102 million metric tonnes to 95.2, due to crop losses in South America.
The USDA reduced harvest soybean acres here in the United States slightly, which was largely offset by an increase in national average yield, from 51.2 to 51.4 bushels per acre.
A reader made a comment about how quickly one market can fall out of favor — I’m relatively certain that they were referring to my opinion on the wheat market — a market that tends to be a bit bi-polar to begin with.
When you add my monthly column frequency to the equation, I may appear a little bi-polar as well.
The rally there was based on tightening supply with some rumors of Russian export tariffs, which added some fuel to the fire.
While supplies are tighter than recent years, our current supply and demand scenarios suggest that wheat will remain a market follower, rather than the leadership role that it took for the last few months.
The battle for acres will continue to be a hot topic over the next few months.
Trying to predict corn and soybean acres will be a moving target with all of the land mines that could change the game at any moment.
(Editor’s note: Rob Davis spent 12 years in the finance industry as a portfolio manager and three years as a grain merchandiser and market analyst, currently farming on the Delmarva Peninsula, raising grain and poultry. Davis can be reached by e-mail at Rob@RichLevels.com.)