Grains Push Lower

March 12, 2021

Grains Push Lower

The entire grain complex was weaker this week, with wheat falling in reaction to rains in the plains and lower world cash, while corn and soybeans pushed lower on increasing harvest in Brazil and much-needed rains in Argentina.

Chicago wheat dropped 15 cents, Minneapolis was down 11 and Kansas City saw the largest drop of 23 cents. Corn was down 6 while soybeans lost 17 cents.

The grain space is in a long-term bull market, but weather has become the driving force for price action the past few weeks and will likely stay that way for several more weeks as the Northern Hemisphere gears up for its growing season.

Demand from China remains huge, and the rest of the world is trying to keep their market share. Brazil’s crops are in their harvest season and second season corn planting. Argentina appears to have dodged a bullet with very timely rains on pollinating corn and soybeans. It has not been an easy growing season for either country, but record plantings are keeping production near record levels.

As South American crops fill the world pipeline, the Northern Hemisphere begins its growing season. here in the US, the vast cold snap from a few weeks ago across the south appears to have done little damage and winter wheat is growing fast.

Another massive storm system is moving across drought stressed areas of the southwest/central plains and will be a huge boost to the winter crops as they enter major growth stages. The storm won’t be a drought buster but will go a long way in establishing a good start to the season, explaining why Kansas City was the weakest of the wheat complex this week.

Export sales for wheat were within trade expectations at 361 TMT. Sales have slowed in the past few weeks and we are now behind the normal pace to meet USDA’s projections. Market year-to-date sales for all wheat stand at 24.3 MMT, up 600 TMT (2%) over last year but are only 91% of expectations compared to the average of 95%.

Corn and soybeans, however, are another story as both are way ahead of the normal pace. Corn sales market year-to-date are 59.5 MMT, up 31.4 MMT over last year (+112%). We have sold 90% of USDA’s projections, up 17 points over the average. Soybean export sales stand at 60.4 MMT, up 26.2 MMT (+76%). We have sold 99% of USDA’s projections, up 14 points over the average.

It would seem to be a safe assumption that USDA will increase US export projections for corn and soybeans, even though there is little room in the end stocks to do so. This will take stocks/use down to very tight levels, leaving no room for weather issues here in the US this summer.

Egypt bought 360 TMT of Romanian wheat this week, paying $297/MT FOB, down about $10/MT from their last purchase in mid-February. Part of the drop is the way they make payments, now paying on sight instead of 180 days later, and sellers removed that price risk.

But part of the drop was also just lower world prices. Surprisingly, Russian FOB offers were down about $6/MT this week, pressuring European offers by the same amount. US Gulf offers were down $8/MT for hard red winter and down $5/MT for soft red.

There was also a supply/demand report this week, which was virtually identical to last month for US crops. USDA did raise Australian production but that only lined it up with where the trade already was.

The CBOT will raise position limits in the grains next week. Funds often use commodities to hedge against stock positions, but the sky-high equity valuations have bumped them up against position limits in the grains. Increasing the position limits will allow large funds to be more active in the grain space and the market expects a surge in volume in the coming weeks.

There is a lot going on across most of the commodity space, and grains are no exception. The bigger picture still shows a demand driven bull market firmly in place, and as we enter the growing season all eyes will be on weather and planting/crop progress. Odds are high that there will be plenty of volatility over the next few months.

Louise Gartner,

Spectrum Commodities

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