Will bullish markets continue?

By Doug Tenney, Leist Mercantile

The Argentina dock strike last month lasted far longer than had been expected as it was drawn out to almost three weeks. It has been an annual occurrence for an Argentina dock strike to last 1 to 3 days as the dock workers demand more money. It has been reported the grain companies offered an increase high enough to keep government intervention from taking place. While you may think Argentina is a small player in the grand scheme with soybean production below that of Brazil and the United States, Argentina is the world’s largest exporter of soymeal. As the strike ended, reports noted at least 170 vessels waiting to be loaded with grains.

March 2021 CBOT soybeans finally breached the $12 mark on Dec. 17 after at least five different unsuccessful assaults in a month. The next resistance level of $13 was penetrated in significantly fewer days, taking place on Dec. 30.

Demand. This is the one-word story line for soybeans which has driven prices higher for months. Soybeans are in a demand led market as demand continues to climb higher while available quantities around the world are shrinking. U.S. soybean exports are flying out of the Gulf and Pacific Northwest at a record pace. Weekly exports in December exceeded 100 million bushels on at least one occasion. Traders had been expecting for weeks that the Jan. 12 USDA WASDE report would be a bullish report. U.S. exports had been expected to increase 50 million bushels and the crush pace for U.S. domestic usage was also expected to increase 20 million bushels.

Late in December, only four months into the marketing year, the U.S. soybean export sales pace reached 90%, with 8 months yet to go in the marketing year. That sales pace was at least 20 points above the average sales pace at that time of year for the past five years.

One factor also droving soybean prices sharply higher in December (which may have gotten little press attention) was the lack of significant hedge pressure above the $12 mark. This was due to a vast number of U.S. soybeans having already been sold before hitting $12. Without selling pressure, buy orders pushed the market higher and faster than might be expected. The announcement of an end to the Argentina dock pushed soybeans prices lower in early trading one day, only to close 40 cents higher when traders realized the strike was still on. 

Supply. Soybean supplies around the world are shrinking. Last month’s USDA WASDE report left Brazil’s soybean production unchanged at 133 million tons. Some had expected it lowered along with other demand numbers to increase. However, many had forgotten the December report has a long tradition of few changes. Some private reports suggest soybean production in Brazil could reach 126 million tons. The late December dry, arid weather conditions in Argentina could result in 20% of corn and soybeans not getting planted, which would be a record. Already late in December were ideas soybean production would be lowered in Brazil and Argentina. In fact, the U.S. soybean production might also be lowered.

Soybean demand will need to be rationed in coming months. As 2020 ended, soybeans are now in the teens as they rose above the $13 level.

Corn. Prices for corn finally gained dimes of higher prices the last two weeks of December. Some are anticipating that South America corn production could be 10 million to 15 million tons below previous USDA projections. U.S. corn exports in December were projected at 2.65 billion bushels. Those exports could climb to nearly 3 billion bushels in coming months. China was an active buyer the last week of December as they bought at least 10 cargoes of U.S. corn for April-May.

Wheat finally joined the corn and soybean price rally the last week of December, posted new 6.5-year highs.

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