COVID-19, Brazil and China shaping markets moving forward

By Doug Tenney, Leist Mercantile

South America and U.S. weather, domestic and world demand for grains, COVID-19, and the vaccines will be the major price drivers for at least the first four months of 2021. Digging deeper into that topic, Brazil weather has had a major influence on soybean prices since September. The January and March 2021 CBOT soybean contracts flirted with strong resistance at $12 multiple times the first half of December. Yet, the lack of breaking resistance provided significant choppy, volatile price activity. It’s no surprise the funds continue to be long corn, soybeans, and wheat, while getting even longer compared to their September levels. Higher price action is anticipated in coming weeks and months. Mid-December one analyst suggested the charts were negative but fundamentals were bullish for grains.

The Dec. 10 USDA monthly WASDE report was expected to provide little change compared to the November report. The surprise was, even fewer changes actually took place. Just prior to the report release, soybeans were up 16 cents. The market expected U.S. soybean exports to increase. They did not. In addition, with the dry weather in Brazil last fall, expectations were high for a reduction in Brazil soybean production, which in November was 133 million tons. USDA published no change. Disappointment was strong and quickly apparent as soybeans closed 5 to 6 cents lower that day. In that report, USDA chose not to increase U.S. soybean and corn exports in spite of strong export activity this fall. The Dec. 10 report yielded just two demand changes when looking at U.S. corn, soybeans, and wheat. There were no changes for corn or its exports. Soybean exports were unchanged while soybean crush was up 15 million bushels. Wheat exports increased 10 million bushels.

U.S. soybean exports in November posted a new record 2-week total at 195 million bushels. On Dec. 7, the US had exported 1.081 billion bushels of soybeans compared to the same date last year of just 638 million bushels. Soybean export sales to date were at 88% of total exports expected. Also, on Dec. 7, the 5-year average for soybean sales was only 63% of total exports expected. U.S. corn export sales on that same date were 67% of total expected compared to the 5-year average of 43%.

The U.S. continues to be the only game in town for soybean exports and has been for months. Brazil is not expected to have supplies available for export until mid-February at the earliest. In addition, U.S. corn export values have consistently been the cheapest source of corn in the world.

China has been actively buying U.S. corn for April and May delivery. They have been also seeking U.S. values for soybeans out into the summer for July and August delivery.

Both U.S. corn and soybean export sales are phenomenal as they are over 20 points above the 5-year sales as noted above. Additional increases for U.S. corn and soybean exports would seem to be just around the corner. Many are expecting the Jan. 12, 2021 WASDE report to be bullish. Expected to increase are U.S. corn and soybean exports. In addition, Brazil soybean production is expected to drop in the months ahead, with some private analysts suggesting that number could be as low as 126 million tons. Currently, it is 133 million tons.

The Dec. 10 USDA WASDE was not a bullish report. It broke a string of consecutive bullish reports dating back to the Sept. 30 grain stocks report. In another positive note for corn, usage for ethanol production has returned to levels seen in early 2020 before the onset of COVID-19 in the U.S. when 94 to 98 million bushels of corn were used on a weekly basis. The latest numbers in mid-December had 100 million bushels of corn used. However, note that March corn values and beyond at some ethanol plants fall off drastically as they desire to avoid unforeseen risk in the following months.

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