Grains Quiet Heading into Supply/Demand Report

February 5, 2021

Grains Quiet Heading into Supply/Demand Report

The grain complex saw subdued price action this week, with the wheat complex ending mixed. Kansas City was down 1 cent, Minneapolis was up 6 while Chicago was down 22. Corn settled up 1, with soybeans up 13.

Corn pushed into new 8-year high on the record buying from China, but just couldn’t make a major rally out of the bullish news. The grain space appears reluctant to make a move before the important Feb 9 supply/demand report.

In the upcoming report, traders expect USDA will increase export estimates for at least corn and soybeans, and possibly wheat. The resulting drop in end stocks would further reduce already tight stocks/use ratios, setting up the possibility of extending this major bull market.

Export sales continued strong last week, led by corn’s record 7.5 MMT. Soybean sales totaled 1.5 MMT with wheat at 737 TMT. China bought 65 TMT of white wheat. Marketing year-to-date sales for wheat sit at 22.6 MMT, up 1.2 MMT over last year (up 6%). We have sold 84% of USDA’s projections, compared to 85% average.

For the row crops, corn sales so far this marketing year total 56.1 MMT, up a whopping 33.4 MMT (146%) over last year – thank you, China. Sales sit at 87% of expectations vs. the average of 60%. Soybean sales sit at 58.7 MMT, up 26.5 MMT (82%) over last year – again, thank you, China. Soybean sales sit at 97% of expectations vs. the 77% average.

Demand is soaring, but prices are not close to rationing supply. Traders are taking their chances as they wait for the South American crops to enter the world’s pipeline.

But that wait is longer than normal this year, with northern Brazil’s harvest only 5% complete vs. 27% average. Delayed plantings and early season dryness have created the delay in the north, and now excessive rain and flooding are creating yield stress in the southern regions. Argentina has had their share of weather issues as well, with widespread dryness across much of their growing regions. Fortunately, temperatures have not been extremely hot.

The one thing keeping soybean prices in check is Brazil’s projection of a record soybean crop, based primarily on record plantings. Argentina is projecting lower production than last year. Brazil’s second season corn crop will be significantly delayed because of the late soybean harvest, further propping up corn values into the spring.

Wheat will likely continue to be well supported on Russian export restrictions. In addition to the already announced taxes in February and March, Russia is now looking at a 70-euro/MT tax on prices above $200/MT starting June 1 and extending into the new marketing year. The large tax burden has rallied FOB offers but stifled domestic prices. Discouraged farmers, seeing that their prices will be capped, have finally begun to sell wheat.

World wheat prices have rallied to match the initial Russian tax, keeping Russia competitive in key markets. This week, Egypt bought 480 TMT at $294/MT FOB. Russia managed to get 120 TMT of that sale, with France selling 240 TMT; Ukraine and Romania each sold 60 TMT. Egypt cancelled a tender two weeks ago because prices were too high. It didn’t help as this week’s purchase was the highest so far this marketing year.

STATS Canada released their Dec 31 grains stocks report this week. All wheat was 24.845 MMT, down 600 TMT from the estimate and off 1.0 MMT from last year. Durum was 4.76 MMT, equal to the estimate and up 100 TMT over last year. Canola stocks were 12.14 MMT, down 200 TMT from the estimate and down 3.8 MMT from last year.

Moving forward, grains tend to put in a high in early February, often around the crop report. We expect to see bullish data on Tuesday, and if it happens then that could set an intermediate term high. Longer term, I look for the entire grain complex to stay well supported as demand stays strong and Northern Hemisphere crops need to be large to get back to a comfortable stocks figure.

Winter wheat will be the first crop we watch as the southern plains break dormancy in late Feb/early March, and then the battle is on for acres for the remaining grains. I would expect plenty of volatility this spring/summer. Any hint of weather issues sends grains sharply higher.

Louise Gartner,

Spectrum Commodities

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