Sunday Scaries: What I'm Watching in the Grain Markets This Week

Uncertainty remains high when it comes to outside market direction and global supply and demand outlooks for grains. This uncertainty seems to be keeping us range bound, with corn and beans both rejecting a breakout to the upside after a bullish USDA report last week. At the end of the week this week we saw Chicago wheat down 2, March corn up 1, with March beans down 22. November beans were the biggest loser of the week, falling 41.

Rain is finally falling across much of Argentina, with more in the forecast through the end of the month and into February. Though this rain will not be enough to bring back the early planted crops lost to drought, it will go far to stabilize production outlooks, at least in the short term. Continued rains will be needed throughout February and into March to finish the later planted crops.  

There was a lot of discussion this week about Brazilian harvest delays, and subsequent worries about Safrinha corn planting. One must use caution when getting too worked up over these delays though, considering the average harvest pace for this week according to Ag Rural is 1.2% across the country. Mato Grosso is a bit further behind than last year with only 2.3% harvested versus 4.1% seen a year ago and 3.5% on average.

The truth is, Brazilian new crop bean supplies have never been overly plentiful in the month of January, with this year no different. Many have attributed the recent strength in soybean shipments to delayed harvest pace, though with a larger than normal amount of soybean export sales committed, but not yet shipped, shipment pace into the first part of February needs to be larger than what we would consider to be normal.

According to a well-followed market analyst, the US has nearly 15 mmt of unshipped soybean commitments, nearly 33% of total sales for the year, and a much larger than normal number. Of those unshipped bushels, China accounts for just over 6 mmt or a third, with more added last week after a large chunk of beans sold to ‘unknown’ was declared to be China.

Some have said a larger than average amount of corn left to be shipped out of Brazil may continue to dominate port space in the short term as well, keeping shipments out of the US stout—this is likely some of the reason we’ve seen bean spreads remain strong in the face of price declines recently.

Slow Brazilian farmer selling could also be listed as one of the reasons we have seen old crop bean strength versus deferreds recently as well, with farmers expected to ramp up sales as harvest pace perks up. One local trade group suggests Brazilian farmers are sitting on around 110 million metric tons or 4 billion bushels of beans to sell as harvest rolls on.

Talk of delayed Safrinha corn planting has been making the rounds recently as well, though current pace versus usual pace is similar to what we see in soybeans with 0.4% of the crop planted versus the usual 1.1% pace. The window for optimal corn planting remains open through the third week of February, giving us 4 weeks yet to make up for the ‘slow start.’

As we talked about last week, the weather pattern in the region is expected to shift, with heavy moisture beginning to favor the areas in Southern Brazil and into Argentina that have been so dry, and a drier trend expected to emerge across Northern and Central Brazil. If realized, we should see a relatively rapid soybean harvest pace, with Safrinha corn or cotton planted quickly behind it.

I would be remiss not to mention the conversation Brazil’s newly appointed ag minister had with Reuters this week when it comes to the future of the country’s agriculture industry. Some had thought Lula’s election would limit Brazil’s agricultural production capacity as the administration has made it clear it is against deforestation. However, Carlos Favaro, the country’s new Minister of Agriculture and former president of the country’s soybean producer’s association believes Brazil can expand its acreage by 5% a year for an extended period without deforestation.

According to Favaro there is an estimated 371 million acres of degraded pastureland in the country, with over 90 million of that located in areas ideal for agricultural production. The plans being proposed to bring this land into production would involve low interest loans with extended terms to farmers from the government, with ideas that upwards of 10 million acres of land a year could be brought into production over the course of several years.

In addition to what’s happening in South America, I continue to watch what is happening in the macro space as money flow remains important to futures market direction. We saw big fund buying again this week, with estimates on how much fund activity took place vastly underestimating how much cash had worked its way into the market.

Money flow into commodities on ideas crop shortages remain a story into 2023 and belief we soon see a Fed pivot has helped corn, soybeans, crude and others remain near the high side of their recent range. Worries we won’t be able to nail the soft landing though, seem to be keeping a lid on some of that optimism.

The Fed will hold its meeting January 31st and February 1st, with the rate decision announcement held February 1st.  The markets responsible for predicting Fed moves do not agree with recent Fed messaging, showing rates will soon top, with rate cuts expected by the end of summer.

Members of the Fed have maintained a desire to push benchmark rates beyond 5%, with a belief rates remain elevated through the end of the year into 2024. With the job market starting to show signs of cracking, especially in the tech space where over 100,000 people have lost their jobs since early October, and other economic indicators starting to show a sign of slowdown, many feel we are getting close to a point of no return when it comes to monetary policy, perhaps pressuring the Fed to capitulate sooner than later.

All of these outside adjustments will have a big influence on market psychology, which will of course continue to affect money flow and price direction.

Looking ahead, China is off this week celebrating their New Year holiday. We usually languish a bit with limited direction as our typical buyer in the market is not at their desk. Rains over the weekend across Argentina have been mostly as forecast, with a continuation of 1-2” rains expected over the next 7 days.

South American weather, Chinese demand and outside market psychology remain our main drivers, with limited fresh fundamental developments expected. Where oil goes could influence grains this week, especially if we’re able to break out over recent resistance, though, as mentioned, improving forecasts for South America may limit some of that correlation.

Let me know if you have any questions! Have a great week.

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