Special Market Update
Grain Market Commentary
Monday, March 12, 2018
By Mark Rossol, Commodity Merchant, The Andersons
Corn, Soybeans & Wheat
I think it is prudent to go back and look at the USDA WASDE report that we received last week as it will be the basis for price direction going forward into the spring. In my opinion, corn was the most bullish on the surface with a large increase in US corn demand. Couple this demand increase with a belief among many in the trade that with February price averages the same as a year ago we will see bigger bean acres again this year at the expense of corn.
On top of that the Brazilian second crop of corn is behind pace and losing its top end potential. All of this could start, and may have already started, to prop up corn prices. It is always tough to figure out exactly what is “priced in” to the market place and with a 30 plus cent rally leading up to this report it is fair to say some of this news is priced in. Equity markets are volatile and less clear and a risk of inflation has the demand for traditional inflation protection, IE Commodities, on the watch list of many investors. I think it is safe to see we have seen new money come into the long side of our market based off inflation concerns over the last few weeks accentuating the rally.
All that being said, I think if we don’t cut acres as much as some think, and we have a good growing season for second season corn in Brazil and corn in the US then we may not have much room to grow, but the corn market appears the most dynamic to the upside today.
Headlines have raged recently with the reality of a drought in Argentina and the subsequent cut in soybean production in the world’s biggest crusher of beans. Meal took off like a rocket and crush margins the world across told the crusher to run to the max. One would think the cash market would have followed suit more than it has. Cash meal prices are nothing spectacular and old crop spreads in Chicago indicate a burdensomely supplied market at least through May.
The SN/X, commonly known as the “widow maker” in trading circles round tripped from even money to a 48 cent inverse and has settled down back to about a 20 cent inverse as I write this wire. One would have thought the USDA not only reduced Argentine crop size but also US ending stocks because of all the perceived demand. Not so, the USDA RAISED US ending stocks after a long overdue decrease in US exports. The former number was getting into the realm of outside of the bounds of our export capacity given strong corn elevation demand, and the new number will still stress the US export capacity to materialize. When it comes to the commodity markets the physical constraints of belts, legs, and hammer mills aren’t don’t usually matter, until they do and the CBOT warehouseman let the speculative long execute on paper what cannot be done in the physical realm and the market comes back to reality.
Maybe we will continue to test our limits and the SN/X inverse will prove the demand story yet again, but given what I know today I have no interest being long, especially the spread, heading into July 1. Obviously, we have a planting and growing season in the US ahead of us, but assuming something normal I think we have enough beans in the world for the time being.
Probably the most uneventful of the majors in last week’s report. On the US side the USDA took down export estimates by 25 million on the tail of a 50 plus cent rally in futures which has all but priced us out of the global grid except for captive demand. The new estimate assumes we run slightly behind last year’s pace for the remainder of the marketing year which seems likely today unless we see a significant break in futures even after the drop on Friday.
Russian exports were raised 1.5MMT to 37.5MMT (27.8MMT a year ago) which continues to confirm the massive Russian crop this year is supplying the world’s wheat needs. Low acres in the US and a drought in a significant portion of the HRW belt has helped fuel the recent rally, but if demand prospects remain as tempered as they are today a lower production scenario may not be as bullish as perceived.