The Most Important Factor Determining Price Direction For The Next 2 Months Will Be Chinese Demand for Old Crop US Corn & Beans
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Market Commentary for 3/19/2021
China’s purchasing of corn and beans is the biggest factor impacting the market right now. Everything else seems to be noise. If buying continues to outpace any potential cancellations, stocks will decrease, and prices should trend higher. If the reverse happens, then the market will have difficulty remaining at these levels.
Soybean Outlook
Most US beans have already been shipped, and while some of the remaining could still be cancelled, there is less opportunity every day for that to happen. This means old crop carryout is tight, and its likely next year’s will be too, pending planting intentions. Beans seem to have more upside potential than downside risk at this point.
Corn Outlook
China added more purchases this week, which suggests the USDA will likely need to increase export estimates and decrease carryout in upcoming reports. Unlike beans, a lot of corn has not been shipped out of the US yet, so some cancellation risk remains. The market will be focused on exports and purchases for at least another month until weather in the US increasingly becomes just as important for impacting prices.
Brazil
This week Brazil’s central bank raised interest rates for the first time in 6 years. Some in the trade suspect this will lead to the Brazilian currency increasing in value compared to the US dollar. This could make it easier to export US product over Brazilian. Last May when soybean prices hit their low, the Brazilian currency also hit its lowest value compared to the US dollar. Since then, the Dollar has dropped in value compared to the Brazilian Real and export pace has also picked up here.
Spreads and Basis
This week’s spread action suggests the market needs physical grain now. As the corn and bean boards were dropping on Thursday, May futures dropped less than July futures. Then on Friday as the board rallied back, May gained more than July on both crops again. Additionally, basis values stayed firm this week for both corn and beans throughout much of the Midwest.
Corn Demand at Ethanol Plants
Some Midwest farmers are reporting long lines at ethanol plants over the last two weeks, with several saying lines were longer now than at harvest. This suggests many farmers are cleaning out bins before planting season starts in April. There is growing concern among ethanol plants about what happens to the remaining corn supply as farmers start getting busy for planting. Elevators have been transporting large quantities by rail for export rather than by truck to local ethanol plants this spring. Ethanol plants are uncertain who will be able to source their corn needs as summer approaches.
How Many Bushels of Unpriced Grain Are Farmers Holding in On-Farm Storage?
It’s hard to say. Farmers with remaining unpriced corn or beans that I’ve spoken to are unsure what price they want for those last bushels. When pressed, most say they plan to wait until after July 4th to decide. April, May, and June could be interesting for futures, basis, and spreads. I expect many of these farmers won’t worry about old crop values until they see how the weather is affecting their new crop mid-summer.
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Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
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