After starting 2022 off on the positive side, the grain markets were lower the second week of January.
March corn prices were down 10¢ and new-crop December corn prices were up 1¢, for the week ending Jan. 14. March soybean prices were down 40.25¢, and new-crop November soybean prices were down 28.75¢. March wheat prices were down 15.75¢.
A major influencer this week was the Jan. 12 USDA reports, which included World Agricultural Supply and Demand Estimates, Crop Production and Annual Crop Production reports.
“The report was surprisingly bullish in regard to what USDA said about the Brazilian crop,” says Jerry Gulke, president of the Gulke Group. “Normally they kind of kick the can down the road but apparently the USDA agreed with most of our thinking and in the trade was that that crop has suffered significant damage and will not likely recover.”
These are the current estimates from USDA:
Soybeans:
- Brazil production: 139 MMT, down from 144 MMT estimate in December, but up 1 MMT from last season’s record crop.
- Argentina production: 46.5 MMT, down from 49.5 MMT estimate in December, but up less than 1% from last year.
Corn:
- Brazil production: 115 MMT, down from 118 MMT estimate in December, but larger than last year’s crop by 28 MMT.
- Argentina production: 54 MMT, down from 54.5 MMT estimate in December
The drought is expected to continue in parts of Brazil and Argentina. If that continues, prices could rally again, Gulke says.
“These market swings look scary,” he says. “For several years we had much smaller moves, but now you can move 20¢ in just half a day of trading.”
Overall, Gulke says, several key headwinds are still in place for the grain markets. Those include potential cuts to the ethanol blending mandate, slow purchases by China per the phase-one agreement, continued economic impacts from the COVID-19 pandemic and, of course, weather.
Technically Speaking: A Paradigm Shift In Energy?
By Jerry Gulke
Sometimes I find it refreshing to view a commodity from a distance, so to speak. While not a commodity that I grow, Natural Gas influences the price of fertilizer and is one that has been in the news for months due to the explosion in its price, especially in Europe where it is reported to be five times the price in the US.
Notice that last five months ago, natural gas was a lot higher than in December 2021 where it had retraced much of the gains. This suggests that if natural gas is such an influence on our fertilizer, producers of fertilizer could have not only hedged off their purchases but had an opportunity to cover usages much, much lower in December 2021. But when inquiring, I found suppliers of fertilizer acting surprised at the price of natural gas having dropped and were not interested in pricing anhydrous accordingly. For decades it seems to be if our suppliers make mistake marketing, we pay the price. If we make a mistake, we pay the price. Apparently risk management is only a one-way street. The price of anhydrous ammonia is up far more than the price of Ngas would justify; what justification is there for the additional increase?
Natural gas price peaked at highs posted in 2014 and retreated. Back in 2005 natural gas futures were priced at twice the highs seen in 2021, so we’ve been here before. Past prices have economic fundamental rationale until times change. Previous price discovery works until it is determined there has been a paradigm shift in what we and the market view as a new period in time influences prices.
Past highs made during previous years were made based on the U.S. having huge supplies of NGAS burning off about 25% in the Balkan so there were supplies available. Are we now indeed in a new time, at least for now, with the new negative view of fossil fuels and the new focus to limit crude production in the US such that crude oil won’t have the influence on natural gas supplies it once did?
We, the U.S., is exporting LNG (liquefied natural gas) in volumes not present in 2014 when we were becoming net exporters of energy in 2014. That was essentially thwarted in 2021 in favor of wind and solar.
Initially natural gas priced itself to where it resulted in resistance (see chart) perhaps just because it was there before and there is a track record; we were producing crude oil to replace foreign oil and natural gas supplies were anything but short. Natural gas performed like one would expect looking back, but now looking to the future have times and the energy situation changed to a new paradigm shift that says natural gas is on a new venture of smaller supplies and needs new all-time highs similar to what we have seen in Palm Oil and to some extent Soybean Oil that are influenced by the new “veggie diesel” ventures.
This time it seems it is ok to burn food for fuel, contrary to ethanol’s bashing 10 years ago in the media and disfavor spreading currently. It seems ok to increase the price of food for the poorer countries in favor of the “green” movement.
With crude oil screaming higher as a result of just one year of negative influences, could natural gas be on the same path? If so, the true paradigm shift will be in the cost of raising corn and wheat and the cost of food worldwide affecting everyone, including the very people the “green revolution” says they are trying to protect.
The weekly price chart of natural gas shows the volatility and influence politics has and is a significance study guide for not only natural gas analysis but conceptually for the analysis process of probably any commodity. Preconceived ideas may be in line for a dose of reality?
Check the latest market prices in AgWeb’s Commodity Markets Center.
Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
