Special Market Update
Grain Market Commentary
Monday, February 12, 2018
By Mark Rossol, Commodity Merchant, The Andersons
Demand is strong for corn and the producer can weather dips so it feels like there is a floor for the time being, especially ahead of US planting intentions/weather. Managed Money has covered much more than expected on Friday’s CFTC report. They bought 44.5K corn, 10.5K beans, 13-20K wheat/meal/oil. We are currently in the February insurance averaging period so the relative prices between corn and beans could influence planting decisions this spring. With rising demand in corn the market may try to incentivize a few more corn acres especially if the Argentine bean issues sort themselves out. Open orders should continue to be utilized in corn as pops can be short lived and the balance sheet ultimately limits the upside without a major weather issue in the US. Brazil’s safrinha corn planting has caught up to 5-year average pace but is still behind last year’s pace.
Argentina continues to be dry which continues to push up the price of soybeans, despite larger US ending stocks in the USDA report last week. No rainfall currently forecasted for Argentina. The market is using this input to drive soybeans up 15 cents at one point today and the forecast will drive price movement for the days and weeks to come. Brazil is in much better shape from a weather perspective but the global demand structure will be challenged with a major Argentine supply issue this year as Argentina is the world’s largest exporter of Soybean Meal. There is still time left for Argentine beans, but the market is building in risk premium today. Export pace has been much behind last year out of the US which has caused a big drop in export expectations. It would be the first year in many that we saw a decline year over year. Either the insatiable demand from China is slowing, or they like beans from Brazil better because of a quality issue, and next year we will come roaring back. It may be a bit of both this year.
Plains got a little precipitation over the weekend but still is very dry especially in the SW portion of the HRW belt. Russian prices have continued to climb in recent weeks showing some firmness in the de facto world supply of wheat in recent months. All these factors continue to drive up the wheat futures complex but a robust global balance sheet will temper this run eventually especially as the US runs away from exports. Australian wheat priced into Iraq despite a smaller crop this year. US wheat came in 25$/ton higher with the recent board rally not helping exports. Eurasia has had good wheat weather so far this season, so they could still have a great crop, but the US is in question with the low acres and the extreme dryness in the HRW belt. SRW acres are always a point of controversy and a lot of the fringe states continue to decline while the core SRW states carry the load. The VSR in both KC and Chicago wheat present opportunities to growers though with WN19 touching 5.40 and higher today which is a big premium to the WH18 price of 4.60 today. That seems like a great opportunity for the usual SRW growers on the crop they will plant this fall.