2/13/18 — Grains showed a resiliency last week, shrugging off both a negative U.S. soybean and wheat situation (higher ending stocks in the Feb. USDA report by 60 mb and 20 mb respectively) and a slumping stock market to close unchanged to higher for the week. That was an impressive performance for grains, and it followed that up with sharp gains Monday, Feb. 12. It is nice to finally see the market rally for a change, and that basically is following a pattern for grains since January began this year.
South American 14 day weather forecasts are similar to what we have seen all year, warm and dry in Argentina and cool and wet in Brazil. This weather pattern is starting to push Argentine production forecasts lower (down 2 mmt in soybeans and 3 mmt in corn in the Feb. USDA report). Some of that bullishness is offset by similar increases in Brazil (2 mmt in soybeans in Feb. and Jan.), but Brazil corn estimates are shrinking by some due to lack of ability to plant timely following a late harvest of first crop soybeans.
The forecasts for SAM continue to ebb and flow, with a bit more precip creeping back into the Argentine 14 day forecast today. We still have a normal precip forecast for Brazil the next seven days, and below normal for Argentina. That pretty much continues into the 8-14 day forecast as well, but there is a bit more precip in the Argentine forecast today than there was yesterday. Temps are still forecast above normal in Argentina and below normal in Brazil for the next 14 days; albeit it does indicate seasonally cooler temps for both countries in days 8-14. Overall, this is still an unfavorable forecast for Argentina’s growing crops, and this cool/wet pattern is also somewhat unfavorable for Brazil areas that are starting the combining season and harvest.
It was a nice rally Monday, Feb. 12, with relatively big gains in soybeans and wheat for the day. The runs higher have pushed up back into territory where producers who need to make sales of soybeans can once again do so on the old crop. We also are approaching last year’s prices for new crop grains during February, a positive considering we have higher carryout of both corn and soybeans projected than last year. So far our insurance revenue prices are running slightly below 2017, but if we continue this strength, we still have a chance to be equal or even better than last year’s prices if we continue to rally.
The fact that world stocks are getting tighter, and Argentine soybeans are under stress is helping the grain prices. The most consistent rally recently has been in corn, with a slow, quiet, but steady push higher. The cuts in Argentine production of 3 mmt in the Feb. report, with most of that reduced in world ending stocks, is a sign that world corn supplies are not as plentiful as they once were. And it’s only February — we have a lot to trade yet in the 2018 crop year!
The market was able to once again shrug off a bearish USDA Feb. report Feb. 8 in soybeans and wheat, both of which saw cuts in exports (60 mb soybeans and 25 mb wheat) and a subsequent rise in carryout of 60 mb soys and 20 mb wheat. Corn exports were hiked 125 mb, with carryout cut as much. But world ending stocks were cut in all 3 crops, and therefore the market shrugged off the negative U.S. news in wheat and soybeans. World ending stocks numbers are getting more favorable, and that is finally a positive sign in the grains markets.
We need it, as prices have been below break even for most of the past 2+ years, especially when you consider the horrible basis that grains have suffered with for multiple years recently. China is thus far a slow buyer of soybeans in 2018, with some cancellations which has forced USDA to cut export projections the past 2 months quite aggressively. Whether or not this pattern continues remains to be seen, but a trade war with China could not be good for U.S. agriculture, and particularly soybean producers.
But in spite of some negative news, grains have shrugged off most of it and are now in an uptrend for most grains, with corn and wheat the most consistent markets. Soybeans have been more erratic recently, but they too have a definite upward bias recently. This is a good sign coming into spring, as sometimes once a trend is started, it can continue sometimes for months and be longer than most imagined possible.
Ironically, with larger projected ending stocks in corn and soybeans than last year, prices for new crop are basically almost the same as last year at this time. Perhaps the market knows something that we as of yet don’t know? Lets just hope this uptrend can continue for awhile before we can sell it — hopefully at a decent profit in 2018!