Grains Take a Breather

February 26, 2021

Grains Take a Breather

The grain complex had a strong start this week but could not hold the gains. A mid-week high turned into significant selling on Thursday and Friday, giving wheat a mixed close for the week while row crops managed to stay higher.

We saw Kansas City lose 7 cents on the week (32 cents off its high), Minneapolis gained 2 cents (20 cents off its high) and Chicago gain 4 cents (28 cents off its high). Corn gained 13 cents (5 cents off its high) and soybeans moved 28 cents higher on the week (38 cents off its high).

Higher world cash prices supported the early week surge as European prices pushed higher on the absence of Russian offers, which have all but evaporated beyond March due to the heavy export tax jon old crop and the uncertainty about taxes on new crop.

There is also a great deal of uncertainty surrounding crop conditions in the southern plains after the recent massive winter storm. It won’t be long before the winter wheat crop will be greening up enough to assess the damage, and wheat futures will take its cue from those reports.

There is plenty of debate on the extent of damage or if there is any at all. We know wheat is a tough plant and every year we hear about winterkill/freeze damage. But this storm was clearly different, and I don’t think we can be complacent as to its potential effect.

Corn and beans ran into pressure as well this week after a forecast for rains in the dry region of southern Brazil/northern Argentina stopped the bullish momentum. Pressure in the stock market and metals, along with a stronger dollar all contributed to a risk-off attitude in the commodity space.

We can expect to see more pressure in soybeans as harvest ramps up in northern Brazil. After long rain delays, it appears the weather is finally breaking. Vessels are already lined up at the ports, and basis levels are declining as new crop beans fill the pipeline.

Export sales for all grains last week were notably lower than usual. Some of that could be the Asian holiday break, but it added to the overall nervousness about high prices being able to maintain these levels.

For the short term, we could well see all grain prices contract, particularly if South American weather gets a much-needed improvement. Longer term, the bull market is very much intact. Grain demand is huge, granted most of it from China. But the struggle of South American crops is keeping supplies in check.

For wheat, the next major exporter harvest will be the US starting in June/July, followed quickly by Europe, the Black Sea and Canada in July/August/September. While world wheat supplies are currently adequate, the tight feed grain supplies are tugging at wheat stocks. Any hint of production problems in any of the three major winter wheat producing regions quickly recharges the bull market.

As for spring wheat, strong row crop prices increase the possibility for acreage to shift to more profitable opportunities in Minnesota and the Dakotas. As always, there is plenty of potential for volatility through the growing season. But this year’s price action will likely have extra energy, so moves either way will be bigger.

Louise Gartner,

Spectrum Commodities

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