Weekly Grain Market Recap
Corn, soybean, and wheat futures had a volatile week between China’s rejection of Brazilian soy imports due to phytosanitary concerns to Argentina’s move to bolster export sales.
By: Matthew Bresnahan
Grain markets closed higher for the third week in a row despite some bearish headlines late in the week. News broke Thursday that Argentina was lowering export taxes on corn, soybeans, and wheat to garner export demand. It’s a strategic move as U.S. Gulf ports in Louisiana are under Force Majeure due to the rare snowstorms there and after the Chinese rejected soy from 5 vendors in Brazil due to phytosanitary concerns. The charts below show the per-tonne export prices for the highest-traffic export terminals from Brazil, Argentina, and the U.S. Gulf. While the move makes Argy soybeans cheaper on a FOB basis, Brazilian beans remain the most competitive by a considerable margin. Likewise, U.S. Gulf corn remains the most affordable per tonne following the export tax reduction. The Chinese crying foul on phytosanitary concerns comes at a curious time as the Brazilian harvest begins. While it’s very early, the Brazilian harvest is off to the slowest start in 7 years. Rains in Mato Grosso have slowed harvest pace, and if that persists, it could result in late second–crop corn planting. Wheat may be in the throughs of a technical breakout and garnered a bullish headline this week. Egypt’s return to the global markets was well-received after importing Russian grain and stating that they communicated with several European wheat suppliers.
Corn
Corn Futures Market Overview
Despite Friday’s weakness, front-month March Corn futures managed to stage a third consecutive higher weekly close. For the week, corn settled at 486 ½ up 2 ¼ cents. Unlike last week, prices chopped around. On Thursday, March corn traded as high as $4.94 ½ – marking the highest price traded on the contract since late May. We’ve yet to stage a test of 3-star resistance between 499-502 ¼, but the foundation is solid. Prices were pressured Friday following the news of the export tax reductions coming out of Argentina, but the contract settled directly in line with the early June swing highs. The slow harvest pace from Brazil bodes well for corn futures. So long as there isn’t a marked increase in harvest pace, corn futures should continue scoring higher highs and higher lows.
Corn Money Flow Overview
There is ample risk for long liquidation in the corn market. Managed money has amassed a considerable net-long position, which now totals 311,678 contracts between futures and options. Long liquidation doesn’t necessitate the end of a rally, but it may result in a considerable correction. In the last 4 weeks, March corn futures have rallied more than 40 cents, approximately 10%. At the same time, commercials are holding a considerable net-short position of 590,251 positions between futures & options. The ideal outcome for corn bulls would be a choppy, sideways trade in which commercials and managed money unwind positions simultaneously and re-establish neutral positions. The commercial net-short position contracted just over 109,000 contracts from last week, but that may be due to end-user hedging activity. However, a realistic outcome may be managed money pulling out as the Brazilian harvest pace improves, Argentinian rains materialize, or American export pace begins to slow. If you have unmarketed ‘24 bushels, now is a prudent time to consider protective puts in the spring and summer contracts.
Corn Supply-Side Overview
South American production is at the forefront of the supply side of the equation. As mentioned, the slow first-crop harvest pace in Brazil has come into focus this week. Mato Grosso is a key production area for their second-crop corn, representing the crux of their exportable corn supply. The longer harvest pace lags historical averages, the higher the likelihood that second-crop corn planting will start late. Unlike Argentina, Mato Grosso has received considerable rain, which hamstrings their ability to move production out of fields. Meanwhile, the rains in Argentina’s Pampas region failed to materialize last weekend, and corn production Argentine corn estimates were again lowered on Wednesday by another 1% to 47.5 million tons. The southeastern portion of the Pampas region, specifically northern Buenos Aires, southern Santa Fe, and eastern Cordoba, account for nearly 70% of Argentine corn production, and their moisture deficits are now between 20-70 mm. Soil moisture conditions in that region are the worst of any time in the last 6 years, as displayed below.
Corn Supply-Side Overview
Corn inspections on Monday were strong – the best same-week performance over the last 10 years, totaling 1,541,423 MT. Total crop-year inspections now total 19,249,865 MT, which is considerably higher than last year at this point (14.746,139 MT), and the 10-year rolling average as displayed below. We had a flash sale of 136k tonnes to Unknown Destinations on Wednesday and followed that up with an impressive export sales report on Friday. Export sales totaled 1,661,000 MT, up 62% from last week and 68% higher than the rolling 4-week average. There’s no question about it – corn demand has been strong. Mexico and Japan have done much of the heavy lifting, but China remains largely absent from the corn markets in both the U.S. and Brazil. Tariffs on Mexico rolling out on February 1st may be a headwind for corn as the Mexican import pace may slow.
Corn Cash Market Activity
Basis bids gradually softened throughout the week as a res ult of farmer selling and continued strength in nearby futures. Over the past few months, ethanol plants have held more competitive bids relative to elevators, processors, and some river terminals. Unfortunately, ethanol margins are contracting virtually across the nation. The strength in corn futures and the recent weakness in crude oil prices have weighed on margins. Almost every state in the Midwest runs a negative margin on ethanol. As a result, ethanol basis bids will likely weaken relative to other end users in the coming weeks and months. It’d be generally inadvisable not to take advantage of the recent rally in corn if you have unsold or unpriced ‘24 bushels on hand. If you’re looking for marketing assistance, call our trade desk at (312) 278-0500 and request a consultation for Blue Line Ag Hedge.
Soybeans
Soybean Futures Market Overview
Due to the Argentine export tax reduction, March soybean futures gapped lower on Friday. Fortunately, they didn’t run. March beans settled 20 ¾ cents higher for the week at 1055 ¾. March beans settled at the base of our 1055-1062 ½ pivot pocket. Recent strength stems from the bombshell report that China rejected cargoes of Brazilian soybeans due to phytosanitary concerns backdated to January 14th. Looking at the technicals, there is some bearish divergence on the most recent swing high. If we open lower on Sunday evening, we may find ourselves defending 2-star support at 1039 and ultimately 3-star support between 1018 ½-1025. As mentioned with corn, if you have unpriced ‘24 bushels, it’s prudent to consider adding protective puts on the spring and summer contracts.
Soybean Money Flow Overview
If you’re going to make the bull case for soybean futures, money flow may be a significant component of that argument. Managed money bolstered their bullish bets on soybean futures & options by just over 7,000 contracts, now holding a net-long position of 40,330 contracts between futures & options. If soybeans pull back, managed money will not play an overwhelming role. Commercials also remain aggressively neutral, holding a net-short position of just 5,769 positions between futures and options. The primary takeaway is that price action in soybeans in the short term has ample room to run in either direction due to aggressively neutral financial positioning between prominent market actors. Headlines relating to Brazilian export activity and Brazilian harvest progress will be key in determining the immediate direction of price.
Soybean Supply-Side Overview
Brazilian harvest pace is off to its slowest start in 7 years. On Monday, harvest progress was reported to be just 1.7% complete compared to an average pace of 3.6%. The slow pace is due to excessive rains in Mato Grosso, where the pace is the slowest since 2010-11. It’s still very early there, and we’ve seen Brazil ramp up activity in short order before. They showed this as recently as October when planting pace ran behind average and was finished in time once Mato Grosso received much-needed rain. While the harvest pace may be slow, the crop there is still expected to be near-record large. On Thursday afternoon, hEDGEpoint released their estimate of Brazil’s 24/25 soybean crop at 170.7 MMT. Argentina’s weather problems also remain a primary concern as their production exports seem to fall weekly, now seen below 53 MMT.
Soybean Demand-Side Overview
uesday’s bombshell report that China rejected cargoes from 5 Brazilian vendors due to phytosanitary concerns may be the biggest factor in the recent rally. The firms affected include Terra Roxa Comerciao de Cereais, Olam Brasil, C.Vale Cooperative Agroindustrial, Cargill Agricola SA, and ADM. According to the Brazilian agriculture ministry, the “non-conformity” notice it received from China’s General Administration of Customs. Friday afternoon, Reuters reported that China’s suspension of Brazilian soybean exports from those companies is expected will last two months. This is welcomed news for the American producer, as the U.S. export window was nearing a close. Inspections this week were disappointing, and the lowest same-week total in the last 10 years at just 973,145 MT. However, weekly export sales were strong, totaling 1,491,800 MT – notably higher than last week and the rolling 4-week average. Total sales thus far are in line with the 10-year average, and mirror 2018 and 2023 for the most part. The expansion of the American export window is undoubtedly friendly, as it allows the U.S. to amass unseasonal sales, which are already well beyond the current USDA export pace required.
Wheat
Wheat Futures Overview
The March Chicago wheat contract looks very promising. Despite weakness in the second half of the week, it managed to finish the week 5 ¼ cents higher at 544. After breaking above trendline resistance last week, wheat was able to score new highs. We spoke last week about the Corn Wheat ratio and the propensity for wheat to play a bit of catchup. That materialized on Tuesday, settling 20 cents higher. We traded up to our first 2-star resistance pocket on Wednesday between 564 3/4 and 569 before retreating. The most crucial factor to note is that we’ve scored higher highs and higher lows for two consecutive weeks, and volume is steadily rising. If we break through our first resistance pocket next week, our sights will be set on the late November swing highs and 3-star resistance between 574 ½-577 ½.
Wheat Money Flow Overview
Managed money did not cover as much of their net short position as would have been expected this week. Managed money now holds a net short position of just 91,792, meaning ample short-covering could materialize quickly. Immediate factors that may spur short-covering include threats of winterkill, increases in global trade, and additional strength in corn and soybeans. Producers still hold a modest net long position, which could dampen any short-covering rally to an extent if hedge activity starts picking up.
Wheat Supply Side Overview
Argentinian wheat estimates have been trimmed slightly with corn and soybeans over the past few weeks. The extreme cold temperatures across the midwest threaten winterkill in the short term. Snowfall accumulation has been spotty across many Plains, which would aid winter crops. On Friday, meteorologists issued initial warnings of winterkill amassing damage over 15% of the total HRW crop, while up to 65% of the crop may be affected. Realized winterkill damage is difficult to tell, which may cause wheat values to build in a risk premium over the coming weeks.
Wheat Demand Side Overview
Egypt is back in the fold. Last week, Mostakbal Misr, Egypt’s state grain buyer, said he’d communicated with several European suppliers in the past few weeks to diversify their wheat supplies. Misr made a splash on Tuesday by announcing that Egypt had purchased Russian wheat. While the totals of the sale were not stated, the vessels on route to Russia’s Novorossiysk port were said to have a carrying capacity of approximately 250,000 MT. The shipment was set for this month, a sign that Egypt is ready to do business. Egypt represents one of the 3 largest consumers of wheat in the world, and their activity may represent an uptick in global trade volumes in the coming weeks/months.
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