The volatility in commodity markets seems to be picking up right where prices left off to close out 2021. On Friday, January soybeans were trading down 25 cents mid-morning. And by the time prices closed, that contract had rebounded to finish the day 24 cents higher.
The final month of 2021, weather trumped demand to provide year-end fuel in the markets. And Garrett Toay of AgTraderTalk says weather continues to drive prices this week.
“It’s still weather,” says Toay. “The demand is going to come if these production cuts keep coming.”
The cuts to which Toay is referring are the most recent crop estimates coming from South America. Two estimates just this week showed a 13 to 14 million metric ton cut to Brazilian soybeans, all due to weather concerns.
“We have soybean prices that are nearing $14. And all of a sudden, we’re looking at global soybean supplies, or at least the South American supply situation, that’s now looking at a year-over-year decline rather than a year-over-year increase,” he adds.
He says if the South American crop comes in shorter than expectations, that will help the U.S. Supply and Demand balance sheet, even as U.S. soybean exports continue to lag.
“And the focus from the Chinese, for the near term is on South America,” he adds. “January, February, March new crop is off American supplies. But ultimately, if the soybean crop continues to drop in South America, it’s going to drive some demand back to the U.S. on the export front in July, August, September timeframe. So, the focus is still focused on weather and focused on the beginning of the year money flows.”
While private firms are starting to make cuts to their South American production estimates, USDA will have to choose in the big crop reports next week whether the agency is ready to make adjustments to the USDA forecast just yet.
“There is an awful lot that’s going to happen on these numbers next week,” says Brian Splitt of AgMarket.net. “I think based on some of the signals the market is telling us, and specifically for corn, we continue to look at the lack of carry in the market. March and May corn are essentially trading at the same price. Both of those are trading a few cents over the July contract.”
Splitt says basis continues to be on fire, especially in the West where drought concerns are driving decisions.
“We have a client in Liberal, Kansas that has a local feed yard out there bidding $1 over the board,” says Splitt. “So this is something that I think is going to potentially show lighter than expected stocks. And we’ll see how the overall production numbers come out. But the structure of the market is telling us right now that things may be a little bit tighter than what the USDA is leading on for corn.”
Splitt says corn exports are currently running ahead of the five-year average. Soybeans, however, are a slightly different story.
“We’re running right at about the five-year average for soybeans, but as Garrett had mentioned, I think those sales will come down the road, especially if we continue to see these numbers in South America drop,” says Splitt.
