Market analyst: February new crop rally

Ray Grabanski
Special to the Farm Forum

New crop corn and soybean futures continue to rally, running to new highs even while the old crop stalls out at current levels. New crop prices got a boost from the U.S. Department of Agriculture’s Ag Outlook that basically showed corn and soybean ending stocks would remain about the same as we have today — extremely tight.

And wheat will get a whole lot tighter as corn and soybeans steal acres away from wheat. USDA upped planted acreage of wheat to 45 million acres (up 0.7 million acres), corn to 92 million (up 1 million) and soybeans to 90 million (up 6.9 million). Carryout numbers for 2021-22 were projected at 145 million bushels for soybeans, 1.552 billion bushels for corn and 698 million bushels for wheat. So essentially, just as tight for corn and soys (almost) and tighter for wheat even with 8.6 million more total cropland acres planted. Realistically, their 2021 carryout figures for beans are probably 30 million to 50 million bushels too high and 400 million bushels high in corn. That reduces carryout numbers in both years to pipeline supplies. Add a little weather in and we have a potential powder keg this spring and summer.

When one looks at rainfall amounts since November in South America, a certain amount of irreversible damage was likely done with only 50 to 75% of normal rainfall for much of Brazil from mid-November to today. Recall this is the primary rainfall season for Brazil, with at least half of the year’s rainfall falling in that three-month period. Since it is the peak rainfall period, no amount of above average precipitation from mid-Feb forward can make up for that lack of rainfall. So Brazil will have a below average soybean crop. The only question is, how much? Hope springs eternal for the second crop corn, so with a good start of cool and wet weather the last 30 days it might still have a chance to produce a normal crop if that weather continues into summer. But the odds are stacked heavily against that given the crop is planted two to three weeks late, and average rainfall turns to almost nothing in summer months. Pro Ag predicts that Brazil crop production estimates need to be lowered at least 3 million metric tons to 5 million metric tons due to the lack of precipitation. You just can’t produce near a normal crop on 75% or less of normal growing season precipitation — especially in their light soils.

Weather forecasts continue to suggest some difficulties for Argentina, with below normal rainfall the next seven days and above normal temps. Rainfall improves somewhat in the eight-to-14 day forecast but there is stress in Argentina. Brazil is a little better with below normal temps and normal precipitation. But Brazil is also harvesting, so warm and dry weather is still preferred in the north to aid harvest, which is about 15% complete.

Yields are disappointing in Matto Grasso, with quality concerns there as well as Parana.

Chinese soybeans, rapeseed and palm oil all made new highs on Tuesday, as did U.S. new crop corn and soybean futures Monday and overnight. MATIF March corn futures also made new highs for the sixth straight day, with talk of a squeeze on the March contract. Wheat futures may be down on better-than-expected wheat ratings given the extreme cold recently suffered. However, weekly crop reports in Kansas, Oklahoma and Texas talk about the need to assess the damage, and that it would begin in the coming week.

Note that Texas wheat was reported at 22% headed in the weekly report versus 5% average. That cold weather could not have been good for headed wheat!

Kansas ratings are 26% poor or very poor and only 40% good or excellent. Oklahoma is 14% poor or very poor and 48% good or excellent. Texas is 31% poor or very poor and 30% good or excellent. Low temps in Oklahoma ranged from 12 to 21 degrees, and the average temperature was below freezing across the board, with highs barely above freezing.

Pro Ag is expecting another interesting week ahead, with this week finalizing the crop insurance prices in the U.S., and more importantly, setting the volatility rates that will be applied to set premium rates for the year. So this week’s trade is the most important of the whole month. If rates are higher, less of the Enhanced Coverage Option/Supplemental Coverage Option product will be sold (a product very similar to put options, but with a county yield trigger). Conversely, if rates are lower, it will be more advantageous to buy your puts through the Supplemental Coverage Option, which is 65% subsidized; Enhanced Coverage Option, which is 44% subsidized, or both. Supplemental covers you with a 14% deductible (86% coverage), or for $4.55 corn it would be $3.91 compared to $3.90 December puts. For 90% Enhanced, it’s $4.095, compared to $4.10 puts, and 95% Enhanced is $4.3221 compared to $4.30 puts. Soybeans at $11.80 would be $10.15 (86% Supplemental), $10.62 (90% Enhanced) or $11.21 (95% Enhanced). If you don’t understand this direct comparison, I’d highly recommend talking to a broker.