Special Market Update
Grain Market Commentary
Monday, January 25, 2021
by Chris Hillburn, Senior Merchant, The Andersons
Last week saw March 21 (CH21) futures lose down 31 cents at the close of the week and about 34 cents off the weekly high. Most of that loss came on Friday sell off. Unlike a summer weather rally where market craters on better weather or a forecast of rain, difficult to see much in the way of fundamental change to trigger this sell off. Looks to be more of a sell off due to money flow, profit taking, big long positions by funds, options expirations, and technical momentum. Mar21 corn has retraced 38.6% back towards the all-time high at $5.10 to $5.20, and usually can expect a lot of volatility around a major retracement level. Overnight low at $4.925, which was market price prior to bullish January WASDE report. Charts would say watch the retracement level above, closes over $5.20 bullish. At $5 corn market is still trading a lower carryout and lower ending stocks versus USDA numbers. Interesting to note in the January WASDE report USDA immediately reduced demand by 100 million in exports, 50 million in feed and residual usage, and 100 million bushels in ethanol demand. Reality is that export sales last week were strong, export shipments today were strong, so no evidence of demand destruction on that front. Question will be how much more corn will China buy? Even if China does not buy much more corn, how much exports can be sold to other countries? The answer to that second question depends on SAM production and we are 2-3 months away from knowing that, with Argentina corn just done with planting the Brazil Safrinha export crop not planted yet. Production problems on SAM corn would mean other countries would come to the U.S. for corn. Bottom line is we do not know at this point whether January USDA ending stocks and stocks to use ratios are accurate or too low. Trading range on March 21 corn at
$4.92 to $5.15 as market takes a breather. $5 corn still looks to be profitable for old crop sales and always keep in mind profits as opposed to timing the market.
Nearby March soybeans (SH21) dropped $1.05 per bushel last week and, like corn, most of that loss came on Friday sell off. March soybeans reached major retracement level of 61.8% back to the all-time high at $14.10 but could not stay above that level. Again, expect volatility around major retracements. Support at $13.50 now resistance and closes above $14.10 bullish. Fundamentally, if China buys more soybeans from U.S. then we are headed for major rationing. Export sales last week and export shipments today at strong levels. NOPA crush numbers remain at strong levels, so not seeing much evidence of demand rationing. Looking at USDA report, ending stocks on soybeans were cut to 140 million bushels, nothing weak about that number. In addition, to get to 140 million bushels ending stocks, USDA increased imports by 20 million bushels. but doubtful imports going to show up until next Spring. Strong La Nina in SAM usually results in Brazil still having a crop and Argentina being problematical, so right on schedule there. Even with the big drop in prices on Friday, still have $13 soybeans and profitable levels for bean sales.
Rona virus still with us with tragic loss of life, not to mention severe economic impact on different sectors of the economy. Response to this continues to be massive injection of liquidity into the American economy from the FED and the Biden Administration, no end in sight on either case. Result is lots of money looking for an investment home and commodities in general still very much a target for money flows. Reflation and possible inflation still on the minds of investors.
New Crop Acres
Early estimates of planted acres starting to come across the news wires. Consensus so far is for about 90 million acres of soybeans, an increase of 7 million acres. Corn estimates at 92 million to 94.1 million acres. At 90 million acres of soybeans planted and ending stocks of 140 million this year, no room for weather issues. Corn would seem to have some more slack for weather issues but expect market to be well supported until planting is done. March 31st planting intentions report should be marked on the calendar.