Weekly Grain Market Recap
Tariff threats on Canada and Mexico weigh on corn and soybeans while wheat shows potential for a breakout.
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Looming tariff threats erased early-week gains across the grain markets this week. Early Friday, Reuters falsely reported that tariffs on imports from Canada and Mexico would be delayed until March 1st, but the White House reiterated that tariffs would take effect starting February 1st. Tariffs aren’t new news, but they may impact corn and soybean prices in the short term – especially if Mexico implements retaliatory tariffs on U.S. corn. Mexico is the largest buyer of U.S. corn and remains at a record pace thus far in ‘24/’25. A disruption in that trade would be a boon for corn prices. Soybeans should be less affected as China is typically dormant in January and February and completely shut down this week for their New Year celebrations. U.S. soybean exports typically wane as we enter February, so any Chinese business won during the month while Brazilian ports are sidelined should support soybean prices. Last but certainly not least, wheat looks strong. Wheat’s blowout export sales report is emblematic of the revival in the global wheat trade. Over the past few weeks, we’ve seen large buyers like Egypt re-enter the market while global stocks dwindle at 7-year lows.
Corn
Corn Futures Market Overview
March corn futures failed to break through the psychologically significant 500 handle on their first test this week, but there remains room for optimism. For the week, March corn settled at 483, down 3 ¾ of a cent. Prices rallied sharply on Tuesday and Wednesday, and saw March corn trade up to 497 before receding on Thursday and Friday on tariff fears. Friday’s gap-and-run lower resulted in corn settling below our pivot pocket between 487-488, but we still defended the previous swing low, and RSI is back in neutral territory at 51.5, which may provide some support. While we may retest 3-star support between 477 ¾-479 ¾ before moving higher, there are fundamental reasons why corn may continue to rally.
Corn Moneyflow Overview
Implementation of tariffs will likely induce some long-liquidation on behalf of managed funds next week. Again, the tariffs have been known for some time, but the implementation be cause enough for managed money to take some risk off the table in corn. Managed money is now approaching record net-long territory holding 350,721 contracts between futures & options. Meanwhile, commercials expanded their net-short position to 324,689 contracts between futures & options, likely due to the swath of farmer selling over the course of the past three weeks. If long liquidation materializes, it will likely see a drop in prices fairly quickly before stabilizing. For our Blue Line Ag Hedge clients, we’ve looked to protect against this by using protective puts on the spring and summer contracts for unpriced 2024 bushels. If you’re in need of marketing assistance, call our trade desk at (312) 278-0500, and request information on Blue Line Ag Hedge.
Corn Supply-Side Overview
The first-crop harvest delay in Brazil will become more prevalent with time because of the implications it will have on second-crop corn, which represents Brazil’s exportable supply. As of Friday, the Safras region of Brazil was just 7.6% harvested, and the key growing region of Mato Grosso is just 1.15% planted as of January 28th – the slowest pace since 2011. It remains very early in the season, but it’s a justifiable cause for concern. The forecast across much of Brazil is expected to dry out, which should help them increase their first-crop harvesting pace, and their second-crop corn planting pace. Brazil’s second crop corn production is pegged between 126-129.8 million metric tons for the time being. Should Brazil dry out, we’ll see the corn production estimates tighten toward the upper end of that initial range.
Corn Demand-Side Overview
Export sales this week were solid totaling 1,358,000 MT. While they weren’t as strong as last week’s sales, they’re still 38% higher than the rolling 4-week average. Japan and Mexico continue to do the heavy lifting accounting for 493,100 MT and 426,000 MT respectively. Monday’s inspections were also strong, totaling 1,247,004 MT. Marketing year-to-date inspections remain on a torrent pace now totaling 20,496,520 MT. We’re still in the thick of our export window for the time being, and any uptick in Chinese demand for corn would be tremendously beneficial for corn prices. The reason that the tariffs on Mexico are such a big deal is because of what they represent to total U.S. corn sales as displayed in the first chart above. Any detratction from their import pace will be a thorn in corn’s side.
Corn Cash Market Activity
Ethanol margins are becoming a concern because it’s going to lead to weakening basis bids in the coming weeks/months. Our advisory clients were advised about this trend over the past few weeks because it could result in weakening bids from elevators and river terminals. Farmer selling slowed through the balance of the week, and corn basis were steady to slightly weaker as a result. New Orleans ports coming back online should provide some short-term relief from river terminals, but that is not necessarily a guarantee. Regional-specific analysis is provided for active clients. If you’re in need of marketing assistance, contact us at (312) 758-0500.
Soybeans
Soybean Futures Market Overview
Like corn, March soybeans broke their weekly winning streak finishing the week at 1044, down 6 cents. The extent of the technical damage on the chart is just the minor bearish divergence on the standard 14-period RSI, but we’ve been able to sustain higher-highs and higher-lows on a closing basis. Friday’s settlement saw beans fall below our pivot pocket, and set us up for a re-test of our 3-star support pocket between 1035-1039 next week before ultimately moving higher. Tariffs and South American harvest progress will be pivotal for price direction over the next few weeks. If you have unpriced 2024 bushels in storage, protective puts or put spreads may be prudent.
Soybean Moneyflow Overview
Managed money has become increasingly optimistic as Brazilian harvest issues have risen to the surface. As of Friday’s CoT report, funds are now holding a net-long position of 56,329 contracts between futures & options. This is still firmly entrenched in the neutral-to-bullish zone, and will be heavily influenced by headline risk. Soybean futures should be less effected than corn when it comes to tariff headlines between Mexico and Canada, but will be more heavily effected by harvest progress improvements in Brazil. If harvest issues persist, managed money has ample room to pile onto this position, and they can do so in a relatively short period of time.
Soybean Supply-Side Overview
Weather conditions have mildly improved in Argentina, with the Pampas region getting moisture over the last week and a half. As stated, the slow harvest pace in Brazil is of primary importance for the time being. On Friday afternoon, Patria Agronegocios reported that Brazilian soybean harvest was 10.32% completed, compared to 16.72% at this time last year. This is the slowest harvest pace in 11 years, and they’re experiencing logistical problems on top of it. On Thursday, Brazilian logistics firm, Rumo, reported that a conveyor belt at a key transshipment station in Mato Grosso caught fire. Mato Grosso is one of the largest soybean production areas in that country, and logistical issues there in addition to the harvest backlog will make it difficult for Brazilians to pick up the harvest pace.
Soybean Demand-Side Overview
China was expectedly absent from the market this as the nation shut down for the New Year holiday this week. U.S. weekly export sales were noticeably weaker than last week, totaling just 438,000 MT. Export sales typically wind down this time of year in the U.S., and the reason that China’s 2-month moratorium on Brazilian soybeans was such a big deal last week was because it afforded the opportunity for the U.S. to gain additional export sales. We remain far ahead of the USDA’s projected export pace, and additional soybean sales may eventually force the hand of USDA to adjust seasonal export estimates slightly higher. Should that materialize, it should be friendly for soybean prices.
Soybean Cash Market Activity
Basis bids across the nation were flat to slightly lower this week as farmer sales started to slow down. Crush margins across the nation are concerningly low as meal and oil prices remain suppressed. River bids should start to pick up with New Orleans ports reopening in the coming days. For regional specific coverage and cash marketing services, contact our trade desk at (312) 278-0500.
Wheat
Wheat Futures Overview
Wheat futures have looked fantastic over the past few weeks. Front month March Chicago wheat settled the week at 589 ½ – up 15 ½ cents. Ironically, one of the biggest bounts of strength in wheat came on the only day it settled lower on the week – Friday. During Thursday’s overnight session, wheat pushed as low as 551 before rallying back on the 8:30 open. The technical profile still looks largely supportive as well. Each new high wheat has made over the past two weeks has converged with new highs on the RSI, and we’re still not even in overbought territory yet. Weakness in corn or soybeans may hamper wheat’s strength, but there’s reason to believe that this rally could just be getting started – technically and fundamentally.
Wheat Moneyflow Overview
Managed money continued piling on their bearish bets this week, extending their net-short position to 110,782 contracts between futures & options. The net-short is substantial, but in no means overwhelming. That said, it serves as ample kindling for a potential short-covering rally. Specifically, if managed money decides to pull out of the Ag markets in lieu of tariffs, they would have to buy back those 110,782 contracts. Most importantly, the fundamental undertones on the market are turning significantly more bullish. As the adage goes, every rally starts with short-covering.
Wheat Supply Side Overview
Winterkill was the whisper last week, with the arctic blast that swept through the majority of the winter wheat growing areas in the United States. Snowfall acummulations are below average on a national basis, and any sustained bouts of extreme cold will make that alarm bell ring louder each time. On the global side, recent warmth in Russia has helped stabilize their strained crops. Russian total wheat production is pegged at 80.3 MMT, while winter wheat accounts for 55.3 MMT of that total. Like the United States, there is little to no snow coverage in the Central or Southern districts of Russia, which are the largest production regions for winter wheat. ROSSTAT, Russia’s equivalent of USDA, has trimmed their wheat production estimates and the country has gone as far as adding export duties to limit exorbitant domestic prices. 5-10 forecasts show those regions cooling down again as displayed below.
Wheat Demand Side Overview
Global trade is pickin up. On Tuesday, Tunisia tendered for 100,000 tons of SRW wheat and 100,000 of Durum wheat from optional origins in 25,000 ton consignments for shipment between February 25th and April 10th. The U.S. is fairly competitive on an FOB basis for SRW from the Gulf, but will likely fall short on a delivered price compared to Ukraine or Russia. To say this week’s export sales figures were an upside beat would be an understatement. Sales totaled 456,100 MT – up 96% relative to the rolling 4-week average. Accumulated wheat exports for the year are in line with the 10-year average, but if this week’s sales are an indication of what’s to come, wheat may stage a sustained rally on its own.
