Daily Grain / Hogs Marketing Outlook 1/26/2021 - A C Trading Co
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Daily Grain / Hogs Marketing Outlook
Written by: Jim Gerlach
1/26/2021
Early Call 8:45am EST: Corn up 10, soybeans up 19, wheat up 5. Quietly mixed
equity markets occurred overnight although Asian shares posted larger declines after the
Chinese central bank tightened financial conditions and an official raised concerns that
loose liquidity could inflate an asset bubble according to the Financial Times. The
People's Bank of China withdrew $12 billion of net liquidity through open market
operation which firmed interest rates slightly. With the volatile nature of Wall Street
lately, plenty of people wonder if the massive amount of liquidity surging through the
U.S. economy is helping to inflate an asset bubble in stocks as well. Energy markets are
firmer overnight with crude oil on the verge of moving back over $53.00 per barrel. The
U.S. Dollar Index is firmer and precious metals are weaker. Grain markets are mostly
higher overnight with corn and soybean oil leading gains. If Monday's gains can be
added to Tuesday, grain bulls will be able to breathe a sigh of relief following Friday's
washout.
Grains: Soybeans for March delivery rose 2.4% to $13.43 ½ on the Chicago Board of
Trade on Monday, with last week's correction coming to an end as supply-demand
fundamentals remain strong. Corn for March delivery rose 2.2% to $5.11 ½, while
wheat for March delivery rose 2.2% to $6.48 ½. Corn and soybeans futures each fell
more than 4% Friday, a slide that was linked to managed money funds offloading long
positions. However, the move appeared to be temporary, with those same funds buying
grain futures Monday. Export inspections of U.S. corn and soybean were strong this
week, providing support for grains as they recovered from last week's selling. The fact
that we continue to see soybean sales means more rationing is needed in the complex,
not less. Delays in the harvest of the Brazilian soybean crop look to benefit U.S.
soybeans on the export market. While China bought more U.S. agricultural exports in
2020 than the previous year, the purchases missed targets set by the so-called phase one
trade agreement under the Trump administration. Covid-19 pandemic restrictions
limited trade last year, and data from the Peterson Institute of International Economics
showed Chinese purchases totaled $23.5 billion, below the $36.6 billion goal. China
also missed its targets for buying manufactured goods and energy, according to the
1group. Market followers are now watching to see how the Biden administration reacts to
China missing the targets. Last week, The Wall Street Journal reported Beijing plans to
pivot from trade issues to climate change and the pandemic in an effort to ease tensions
with the U.S. President Biden has said he plans to work with allies to keep pressure on
China, but at the World Trade Organization the U.S. will be facing a rival in Beijing that
has become a more dominant force in recent years. Skepticism toward the WTO in the
U.S. translated into policies, such as blocking judges to its top court, that have largely
gutted its ability to serve as an international arbiter of trade disputes. At the same time,
Beijing has cast itself as a defender of the WTO and its top court, fueling its stature
within the organization.
A much wetter pattern starts tonight into Thursday for southern Paraguay and far
southern Brazil, with pockets of excess rain the next 10 days. Showers are still adequate
(particularly in the 6-15 day period) to keep late stress in Center-West areas spotty.
Stress persists for 15% of the soybean crop and 25% of first crop corn mainly in
northeast Brazil. Argentina saw showers scatter mainly in northern and far southeast
Santa Fe, northern Cordoba, southwest Entre Rios and western Buenos Aires the past
day. An active shower pattern from Thursday through early in the 6-10 day period keeps
crop conditions stable, but confidence is low past this week’s forecast. Moisture deficits
in the southeast ½ of the ag belt will slowly build. In a normal La Nina, southern Brazil
and Argentina suffer from drier than normal weather, with central/northern Brazil sees
normal to above normal moisture flow over the top of the ridge further south. This year,
35% of soybeans had less than half normal rain in Brazil the last 30 days (50% central,
73% north, 14% south). Contrast that to just 9%, 2%, and 8% of early-corn, late-corn,
soybeans receiving less than half normal rain in Argentina the last 30 days. It’s
important to note that center-north Brazil grows more crops than southern Brazil and
Argentina combined. It’s also important that crops in northern Brazil are harvested first,
meaning any recent rains may have just limited impact on yields.
Corn prices were higher overnight, with nearby contracts rallying more than deferred
contracts as bull spreads standout. More than anything, it is encouraging to see most
contracts retaining Monday's strength and adding to it as price made new lows for the
move only to close above Friday's settlement. As has been the case lately, corn was able
to fall back on solid demand data to support the move Monday. Weekly export
inspections totaled 54.8mb vs. the 53.4mb needed weekly to hit the USDA forecast.
This was the first week of the year to see the necessary export shipments to achieve the
USDA's forecast. If USDA assumptions are correct, major exporter ending stocks of
corn will fall to 52.0mmt at the end of 2020/21 which will be the smallest ending stocks
since 2013/14. The stocks/use ratio for this group will fall to 9.06%, which would be the
smallest since 2012/13. South American supplies are still a moving target, but current
2USDA estimates are counting on the largest combined production for Brazil and
Argentina on record along with the second largest exports on record. Unless prices
completely fall apart before February, the U.S. producer should see the highest revenue
assurances heading into spring he has seen in many years. The allure to plant corn in
April and May will be strong.
The soy complex was also higher overnight, with bull spread bias like corn noted. Most
contracts in the soy complex saw new lows for the move Monday before a strong
recovery helped claw back more than half of Friday's losses. While more trade will be
needed to rule definitively, Friday's price action felt like the anomaly as opposed to
Monday's recovery. South American weather remains center stage as harvest picks up
steam in Brazil and crops develop in mostly favorable conditions in Argentina. Brazil
will see mainly dry weather in northern production areas the next seven days while the
southern provinces see above normal precipitation. More general rainfall is expected in
the week two portion of the forecast. Argentina looks well-watered the next two weeks,
especially according to the European model. It will be difficult to keep production
estimates from climbing the next several weeks. Export data Monday was encouraging
and unless sales and shipments fall off a cliff February forward, the USDA will need to
increase its export forecast on a future WASDE report. Crush spreads have enjoyed a
decent recovery off the lows the past seven days with the March spread trading at $.76
per bushel vs. a low of $.54 per bushel on January 15. At one point Monday, the March
spread traded as high as $.84 per bushel. Deferred spreads have not been as fortunate
with the May through August spreads trading between $.59-$.70 per bushel, something
which will need to be monitored moving forward for the sake of the USDA's current
forecast. For most of the fall, crush spreads were trading north of $1.00 per bushel,
incentivizing record crush. More time will be needed to see if funds will continue
shedding length or take a wait-and-see approach with regard to Chinese demand and
final South American crop estimates.
USDA’s weekly Export Inspections report yesterday showed 54.78mb of corn shipped
on the week ending 1/21. That was up 18.78mb from the week earlier and more than
double shipments from the same week last year. Marketing year to date corn exports are
84% ahead of last year’s pace with 737mb. Looking at sales, if we used the prior 5-year
pace and applied it to this year, the USDA could be 900mb too low, which of course
won’t happen but does illustrate the huge amount of rationing that needs to happen. I do
think they’ll have to add 200-300mb, putting carryout down at pipeline levels of 1.2-1.3
billion bushels. It’s even worse for soybeans. The weekly Export Inspections report with
data from the week ending 1/21 had 72.71mb of beans shipped. That was down 13% on
the week, but still 86% above bean shipments from the same week last year.
Accumulated bean exports are at 1.66 bb through 1/21, an all-time record for the first 21
3weeks and nearly all of 2019/20’s full year
1.682 bb export total. Delays in the harvest
of the Brazilian soybean crop (see table)
look to benefit the presence of U.S.
soybeans on the export market. Brazil has
harvested less than 1% of its soy crop, well
below historical averages due to latent
seeding dates amid the September-
November drought. The bulk of the Mato
Grosso soy harvest will not be occurring
until the 3rd week of February. As a result,
Brazilian soybeans are not likely to hit the export market in full force until March,
allowing even more U.S. soybeans to be shipped. Again, if we assume the 5-year
average pace, the USDA is 600mb too low, an impossibility but with carryout in the
U.S. already at just 140mb, there is little room for ANY additional sales, much less
600mb. Prior demand rationing markets don’t end until there is evidence of demand
being destroyed and unfortunately and thanks to USDA incompetence, we may have
waited too long. I don’t like inefficient markets that are forced to destroy demand as
producers never have enough bushels left to sell at extreme prices to make up for the
several years that follow trying to regain lost demand. The high prices lead to more
acres we won’t need as demand falls, leading to a multi-year cycle of overproduction
and low profitability. With Chinese demand for feed grains surging at a time when their
reserve stocks have been depleted and the world ready to celebrate the end of Covid,
demand rationing will prove to be much harder than prior, historic markets.
On the demand front, palm oil prices closed 0.7% higher overnight as bargain-hunting
emerged amid stronger soybean oil prices. Malaysian export figures are still weighing
on the market and may offset concerns over supply disruptions due to heavy rain and
floods. Malaysian palm oil exports from Jan 1-25 were down 34% vs. last month,
according to a private cargo surveyor. Chinese soybean futures were unchanged while
corn futures fell 0.4%. China's corn prices are near their lowest level in three weeks as
demand from industrial processors in the northeast has weakened and is now down
compared with the same period last year, says Darin Friedrichs, senior Asia Commodity
analyst at StoneX. This is due to plants taking downtime for maintenance, the higher
prices of corn, and difficulties caused by the Covid-19 restrictions, he says. China is
said to be booking new cargoes of U.S. corn/soybeans, which will tighten already tight
stocks. China was expected to load out 5mmt of Brazilian soybeans in February but now
they may only get 2mmt. The new Chinese demand for U.S. soybeans should push
CBOT values to new contract highs on demand rationing. Chinese interest for old crop
U.S. corn is also being rumored. Ukraine’s agriculture ministry and representatives of
4the industry have agreed on a corn export cap set at 24mmt through to June 30, an
official notice from the government said Monday. The parties also agreed to re-assess
and potentially revise the limit after publication of the final production number by the
country’s statistical agency, if needed. The approved quota is 2mmt higher compared to
levels previously discussed. Since the start of the marketing year on July 1 through to
January 22, Ukraine has exported 11mmt, meaning there is still up to 14mmt of corn left
for export within the quota. Civil unrest and uncertainty regarding the wheat export tax
situation in Russia is increasing the risk in doing business with the world's largest
exporter.
Hogs: Cash hogs are called $1 lower to $1 higher, with most bids expected steady.
Tuesday slaughter numbers are expected near 491,000 head, but this is still uncertain
based on weather and road conditions through the upper Midwest. Monday's cash hog
trade may have been somewhat lower, but it wouldn't be surprising to see packers steps
into the market again at some point this week and buy up a hogs to secure inventory.
USDA’s National Average Base Hog price was back down by $.16 at $55.30 yesterday.
The 1/21 CME Lean Hog Index was up $.15 to $65.55. Pork cutout futures closed with
triple digit gains of $.85 to $1.05. Pork cutout values were $82.13, down $.70 on slow
movement of 308 loads. Estimated packer margins were $50.14/head for non-integrators
and $38.71/head for integrators vs. $51.11 and $40.71 the previous day. Monday's
slaughter was down 2.6% vs. last year.
Firm follow-through support developing in lean hog futures has added increased
optimism to the entire complex. April futures have continued to shift steadily higher,
focusing on underlying support in pork values and the expectation that additional
demand support will further develop across the rest of the complex. Pork in cold storage
decreased once again in Monday's report, moving to 10-year lows, as significant shifts
continue to develop in pork belly cuts. Although underlying support is seen in all pork
cuts, the seasonal support of pork bellies and rib cuts continues to be a main focus for
lean hog futures. Despite the pull lower in the overall pork cutout value driven by a
strong one day shift lower in pork belly cuts, firm buyer support is seen in all other pork
cuts early in the week. The expectation is that the firm underlying tone in the market
will continue to keep prices firm, although the recent price swings will bring about
increased market volatility over the next few weeks as individual pork cuts will gyrate
higher and lower within a wild pattern. This has been the pattern over the past few
weeks and may continue most of the spring. The lean hog contracts had another
impressive day Monday but were left unsupported from the cash and pork cutout sector.
February lean hogs closed $0.70 higher at $70.62, April lean hogs closed $0.47 higher
at $76.62 and June lean hogs closed $0.70 higher at $87.50. USDA reported pork stocks
continued to decline through December reaching the lowest for any month since August
52010. The 408 million lbs. reported in the monthly Cold Storage report was down 20%
from November and was 30% below December 2019. Belly stocks, on the other hand,
increased 7.5 million lbs. in December to 30.7 million. Bellies in cold storage were still
34% below December 2019. The Biden administration's push to halt or reverse Trump-
era federal policies moves to chicken processing plants, as the USDA withdraws a
proposed rule that would have let meatpackers process up to 175 birds per minute,
versus the current ceiling of 140. Food and Water Watch, which criticized the Trump
administration move, says the withdrawal will protect food safety and workers' health.
The National Chicken Council, which has sought faster processing speeds, says the
withdrawal is a typical part of a new administration's process of reviewing under-way
rulemaking, and hopes the Biden USDA will ultimately allow the speed increase.
Firm underlying buyer support remains well rooted in cattle futures following a bounce
higher live cattle trade. Traders continue to focus on the strong technical support seen
the past two trading sessions with April live cattle futures expanding the gap above
$119. Although nearby futures, which are hovering near $123 are still below contract
highs set in early 2020, the ability to quickly and aggressively draw additional buyer
support back into the market given new highs for the market cycle has solidified further
buyer support. The ability to hold recent gains in feeder cattle futures despite the
renewed buyer support moving back into corn markets. Traders remain focused on the
reprieve from higher feed prices, but as buyer interest appears to be redeveloping in
both corn and soybean markets, this could quickly change and limit the recent support
across feeder cattle futures. Limited early activity is expected Tuesday morning with
traders closely monitoring outside market shifts through the week. With a large portion
of feeding country getting blasted by Monday's snowstorm, opportunity continues to
linger in the live cattle market. The live cattle contracts had a successful day Monday
continuing to add to their position and closing higher once again. February live cattle
closed $0.20 lower at $116.52, April live cattle closed $0.42 higher at $112.95 and June
live cattle closed $0.02 higher at $118.82. With both the board and boxed beef prices
trudge higher, the market's now looking to the cash cattle market and yearning for it to
make its mark at higher prices. It's unlikely that trade will be aggressive early this week
with the snow passing through, but after the midweek point trade is expected to be at
least $2.00 higher this week. Monday's cash cattle trade was at a near standstill with
bids yet to develop and asking priced still unknown. Monday's slaughter is estimated at
118,000 head, 6,000 head more than a week ago and 4,000 head less than a year ago.
Monday's cold storage report did share some alarming news for the beef sector. Total
pounds of beef in freezers were up 4% from the previous month and up 11% from last
year. This amounts to be the most frozen beef the industry has seen in the last three
years. Boxed beef prices closed higher, with choice up $3.91 ($226.73) and select up
$2.87 ($216.21) with a movement of 91 loads. Cash is called higher. It's unlikely that
6trade will develop as early as Tuesday, but once the market does decide to trade cattle,
feedlots have a grand opportunity to move the cash market at least $2.00 higher this
week. The corn market took a slight run at regaining some of what the market lost late
last week but for the most part the feeder cattle contracts traded relentlessly, keeping
their profits secured through closing. March feeders closed $0.30 lower at $143.85,
April feeders closed $0.12 higher at $146.25 and May feeders closed $0.62 higher at
$147.65. The biggest gains were seen in the deferred contracts (August 2021 through
November 2021), which closed anywhere from $1.12 to $1.87 stronger.
A new record of 2,829,494 hogs was slaughtered during the week ending January 9,
2021, breaking the old record set in December 2019. Last week’s hog slaughter totaled
2.738 million head, up 1.1% year over year. Since the start of December, hog slaughter
has been down 0.9%, which is 1.6% lower than indicated by the December market hog
inventory survey. Commercial hog slaughter last year totaled a record 131.5 million
head, 1.6 million (1.3%) more than the year before. Hog slaughter in 2020 was record
high for the fifth year in a row. Commercial pork production in 2020 totaled a record
28.3 billion pounds, up 2.4% year over year. Pork production was 1.1 billion pounds
more than commercial beef production. This was the second consecutive year that pork
production exceeded beef production. It is expected to do so again in 2021. Hog weights
continue to be heavy. The Iowa-Minnesota-South Dakota live slaughter weight series
averaged 293.1 pounds for week ending on January 9, 2021. The weekly national
average carcass weight was above year earlier for most of 2020.
Pork exports in 2020 were record high for the fourth consecutive year. Trade data for
December 2020 won’t be available until February 8th, yet through November U.S. pork
exports were 5.1% higher than in calendar year 2019, the previous record holder for
most exports. During the first 11 months of 2020, U.S. pork imports were down 5.5%
and pork exports were up 17.8%. The decline in imports was largely due to less pork
coming in from the European Union. The increase in exports was entirely due to China.
January-November U.S. pork exports were up by 1.006 billion pounds, with shipments
to China up 1.131 billion pounds. For these 11 months, the nation exported 6.65 billion
pounds of pork and imported 0.83 billion pounds. Imports equaled 3.2% of U.S. pork
production and pork exports equaled 25.8% of production. USDA is forecasting 2021
pork imports will be up 33 million pounds from the year before, putting it back at
2019’s level. USDA is forecasting 2021 pork exports will be down 139 million pounds,
making it the second highest on record.
Cost of production is rising fast for hog producers. Cash corn prices in Omaha went
above $5/bushel earlier this month for the first time since May 2014. Calculations by
Lee Schulz at Iowa State University estimate losses for hogs marketed in December at
7$4.40/head. For the year, losses were $2.17/head marketed, the most since 2018. Cost of
production in 2020 was $47.81 of live weight, or $63.74 of carcass. This was the highest
cost of production since 2015. The coronavirus caused slaughter capacity to drop last
spring, thus 2020 had low hog prices and high pork prices. The average retail price of a
pound of pork was $4.12 during December. That was 2.2 cents higher than the month
before and 30.9 cents higher than in December 2019. The average retail price of pork in
2020 was $4.029/lb. That was 18.60 cents/lb. higher than the year before and edged out
by a penny the old record set in 2014. The average pork cutout value in 2020 was
$77.26, the highest since 2017. The average live price for 51-52% hogs was $46. during
December. That was down $4.34 from November but up $3.73 from a year earlier. The
average negotiated carcass hog price in 2020 was $47.30/pound. That was $12.85 lower
than the year before and the lowest since 2002. Negotiated hog prices are far below
formula prices. High retail price and low hog price resulted in record-wide margins for
middlemen. The farm-to-wholesale spread in 2020 was a record 72.9 cents per retail
pound. The wholesale to retail price spread was a record $2.555/lb. pound. Both were
records.
The wide spreads came for reduced slaughter capacity due to COVID-19 in plant
workers. Although barrow and gilt slaughter was up only 1% last year, sow slaughter in
2020 was 10.2% higher than the year before. Over the last six weeks of available data,
U.S. sow slaughter was up 5.14%. Adjusted for sow imports from Canada, net U.S. sow
slaughter was up 5.79%. The futures market is predicting a typical seasonal pattern for
2021 hog prices, with a peak in July and a low late in the year. It indicates spring 2022
hog prices will be a bit lower than 2021. USDA is forecasting 2021 pork production will
be 1% greater than last year, with hog prices that will be 14.6% above 2020. USDA is
predicting 2021 per capita pork consumption at 52.1 pounds, up 0.2 pounds from last
year. The combination of more pork and higher hog prices is unusual and is a result of
the distortions that COVID-19 injected in last year’s market prices.
Weather: There is a trough over the West and a ridge in the Southeast. The trough will
move northeast through the country this week while a ridge develops behind it. Another
trough will build just off the West Coast in the middle of the week and a couple of
pieces of energy will move through the country at the end of the week and early next
week. The main trough will move into the middle of the country in the middle and end
of next week as a ridge builds across the Eastern Pacific. The U.S. and European models
are fairly similar. For the outlook period, temperatures on Sunday will be below normal
along the West and East Coasts and above normal in middle of the country.
Temperatures will turn to a more cool-west and warm-east pattern in the middle of next
week as the main trough advances eastward. A system will move through the eastern
half of the country over the weekend into early next week. Moderate precipitation will
8be possible with snow across the northern Midwest. A larger storm may build in the
Plains in the middle of next week.
Dry weather in Brazil dominated Minas Gerais with rains of .25-.75” falling in around
90% of the rest of the Brazilian growing regions. Rains of 2-4”+ will fall across RGDS
and Santa Catarina, with totals of 1-2”+ seen for the rest of the Brazilian growing
regions this week, except for Minas Gerais, which looks to see mainly dry weather
occur. The rains in Santa Catarina and RGDS will likely lead to some flooding, as heavy
rains have already fallen in these areas in the past 7 days. The 6-10 day forecast sees
more rains of 2-4”+ to fall in RGDS, Santa Catarina and possibly into Parana. This
would only worsen any flooding potential in RGDS and Santa Catarina. Totals of 1-2”
look to fall in most of the rest of the Brazilian growing regions. Temps will run below
average in most of their growing regions in the next 10 days. Rains of .25-.75” fell
across around 75% of the Argentine growing regions yesterday. Dry weather looks to
continue across the southern 1/3rd of Buenos Aries and La Pampa, with rains of .60-1.5”
falling in the rest of the Argentine growing regions in the next 5 days. The 6-10 day
forecast sees rains of .50-1” to fall in all areas. This is a drop from yesterday’s ideas of
1-2”, but the rains will still be welcomed in Buenos Aries and La Pampa, as well as far
southern Entre Rios/Santa Fe. Temps will run above average across the Argentine
growing in the next 5 days and then cool to below average in the 6-10 day period.
An area of low pressure brought snows of 6-12” to north central KS and the southeast
1/3rd of NE, with 6-10”+ in the southern ½ of IA. Lighter snows of 1-3” fell across the
western ½ of KS and rains of .25-.75” fell in eastern sections of KS, OK and TX. Rains
of 1-2” fell across the OH River Valley, with totals of .25-.75” in most of the rest of IL,
IN and OH. Overnight, snows spread into WI, MI and northern IL, with totals of 1-5”
falling so far. snows fell across MN, eastern IA, WI and far northern IL early in the
weekend. The current system will finish up across the Midwest in the next 12-18 hours,
with additional snows of 1-4” in IA, WI, MI and northern IL. A weak follow up system
looks to bring a few inches of snow to KS, IA, MO, IL and southern IN/OH tomorrow.
Things will then be quiet in all of the Midwest for Thursday and Friday. By Saturday
another fairly strong low will develop rains in the eastern 1/3rd to ½ of KS and OK and
then spread them into the southern ½ to 2/3rd of IA and most of MO, IL, IN and OH.
Rains look to be in the .50-1”+ in all but IN and OH, where totals look to be in the .20-
.60” range. That low also looks to bring snows of 2-5” to northern IA, far southern MN,
most of WI/MI and far northern IL. The 6-10 day forecast sees fairly quiet weather to
occur in most of the Plains for the period, with just a bit of light snow in western KS,
OK and the TX panhandle and light rains in eastern KS and OK. The Midwest will be
fairly quiet through Tuesday of next week and then an area of low pressure looks to
bring snows to areas north of a line from around Omaha to Green Bay, with rains to the
9south. Very early estimates on amounts are in the 6-12”+ range for snow and .60-1.50”
range for rains. Temps will run below average in most of Plains and northwest Midwest
this week, with above average temps in the southeast Midwest. The 6-10 day sees
average to above average temps in the Plains and Midwest. No cold air threats are seen
for the winter wheat crops in the Plains and Midwest in the next ten days, although
temps this morning were in the single digits in northwest KS and tomorrow sees more
single digits in the northwest 1/3rd of KS, with the potential for some single digits below
zero in far western KS.
Global Weather Highlights: Scattered showers fell in Brazil across western and southern
areas this weekend but continued to be very spotty or dry in the east as was the case last
week. Showers will be a little more widespread this week, but amounts are likely to be
below normal except for the south, an area that will benefit as more of the crop goes
further into reproduction. To the north, the lower rainfall amounts may lead to stress and
continue to be insufficient for filling soils for the safrinha corn season. Some isolated
showers fell in Argentina across the north this weekend, but central and southern areas
were dry, continuing the trend from last week of complete dryness. The surplus
moisture from the prior week led to increased crop ratings but the dryness may have
more stressful effects. A couple of passing systems this week could bring more shower
activity to central and southern areas, but the heaviest rains will be over the north. Better
chances exist this weekend as a front stalls across the region. Showers will likely be
timely for many of the crop that is heading into reproduction. Scattered showers moved
through much of Europe this weekend, benefiting developing winter wheat across the
south and maintaining adequate moisture for dormant crops over the north. Two systems
will bookend this week with one early and another late to maintain favorable prospects.
Tropical Cyclone Eloise made landfall over southern Mozambique this weekend,
causing flooding and wind damage into northern South Africa. The low center is going
to stall over southern Botswana this week, providing more moisture to the main crop
areas through the week. Outside of Eloise's damage, crops remain in favorable
conditions. Some isolated showers fell in eastern growing regions of Australia but much
of the country was dry this weekend. Tropical moisture will move through southeastern
areas early this week, benefiting cotton and sorghum, but northeastern areas will see
little rainfall, causing more irrigation to be used. Reserves remain adequate, however.
Showers have recently been more isolated across western areas of Indonesia/Malaysia
over the past week. Despite the dry spell, adequate to surplus rainfall so far this season
should produce excellent prospects in the region and rainfall is on the increase.
North American Weather Highlights: Below normal temperatures will continue in the
northern Plains through Wednesday, putting more stress on livestock as we get into
calving. Temperatures should rise above normal at the end of the week. Showers will
10largely miss the region with the next few systems moving through the country. A system
produced heavy snowfall over Kansas and Nebraska over the past couple of days. Some
benefit to the driest sections across Nebraska will be felt but areas closer to the Rockies
did not receive nearly as much precipitation. A weaker system will move through later
Tuesday into early Wednesday with light snow for Kansas and Nebraska. Temperatures
will warm significantly thereafter into early next week, melting some snow and adding
soil moisture to the profile. A system continues to produce moderate to heavy snow
across the northeast Midwest Tuesday. Western areas saw quite a bit of snowfall in
Iowa, helping to relieve moisture deficits for some of the area. Another system is
expected this weekend to bring moderate precipitation to much of the region.
Macros: The macro markets were modestly supportive as of 8:30am EST, with Dow
futures up 0.2%, the U.S. dollar index is down 0.2%, crude oil is up 0.3% and gold is up
0.1%. The S&P 500 on Monday closed 0.36% higher, the DJIA lost 0.12% and the
Nasdaq 100 gained 0.87%. Bullish factors included strength in technology stocks that
boosted the overall market and pushed the Nasdaq 100 to a new all-time high, and the
unexpected 0.21 point increase in the U.S. Dec Chicago Fed national activity index to
0.52, stronger than expectations for a decline to 0.10. The U.S. stock market weakened
on Monday after Senate Majority Leader Schumer said he expects to get a pandemic aid
bill passed by mid-March. The markets had been hoping for quicker action. There has
already been significant Republican resistance to President Biden's $1.9 trillion
pandemic aid bill. President Biden is trying for a bipartisan pandemic aid bill, but the
chances are growing that Democrats will have to use the more complicated and time-
consuming budget reconciliation process to pass the aid bill, which would by-pass a
Republican filibuster. The Senate currently has its hands full confirming cabinet
officials and trying to pass an organizing resolution so that committees can be
revamped. Mr. Trump's trial is then due to begin in the week of February 8. By early or
mid-February, the House may have passed a pandemic aid bill, forwarding it to the
Senate for its consideration later in February after the Trump trial is over. The Trump
trial is not expected to take more than 2-3 weeks. The betting odds at PredictIt.org, for
whatever they are worth, are at only 13% that Mr. Trump will be convicted within the
first 100 days of President Biden's term. The consensus is for today's Jan Conference
Board U.S. consumer confidence index to show a small 0.4 point increase to 89.0,
recovering a small part of December's 4.3 point decline to 88.6. The consumer
confidence index remains in dismal shape at only 2.9 points above April's 6 ½ year low.
The recent surge in the pandemic has hurt U.S. consumer confidence due to the renewed
lockdowns and weakness in the U.S. labor market. The only good news is that the 7-day
average of daily new U.S. Covid cases has fallen to a 7-week low of 169,000, which has
raised hopes that the pandemic peak has perhaps passed.
11Shares opened higher in Europe on Tuesday after a broad retreat in Asia driven by
renewed worries that troubles with COVID vaccine rollouts and the spread of new
variants of coronavirus might delay a recovery from the pandemic. Germany's DAX
surged 0.7% to 13,738.24 and the CAC 40 in Paris gained 0.4% to 5,493.14. The FTSE
100 in Britain picked up 0.5% to 6,674.87. U.S. markets looked set for a downbeat start,
with the future contract for the S&P 500 down 0.3% while that for the Dow industrials
lost 0.2%. Traders are keeping a wary eye on rising coronavirus infections in various
countries and a bumpy rollout of vaccinations in the U.S. The spread of variants that are
thought to be more easily transmissible and might be less effectively targeted by
existing vaccines is adding to alarm. Vaccine maker Moderna said Monday that it will
study whether a booster shot would be needed to protect against variants of the
coronavirus, "out of an abundance of caution." The Hang Seng in Hong Kong gave up
2.6% to 29,391.26. Japan's Nikkei 225 index declined 1% to 28,546.18, while the
Shanghai Composite index dropped 1.5% to 3,569.43. South Korea's Kospi lost 2.1% to
3,140.31. Shares also fell in Southeast Asia. Markets in Australia and India were closed
for holidays.
Stocks swerved to a mixed finish on Wall Street on Monday, ahead of a deluge of
corporate earnings reports scheduled to arrive this week. The S&P 500 rose 0.4% to
3,855.36 while the The Dow Jones Industrial Average dipped 0.1% to 30,960.00. The
Nasdaq composite, which is packed with tech stocks, rose 0.7% to 13,635.99 and
another record. The Russell 2000 index of smaller stocks fell 0.3%, to 2,163.27. The
yield on the 10-year Treasury sank to 1.03% from 1.07% late Friday. More than 100
companies in the S&P 500 are scheduled to tell investors this week how they fared
during the last three months of 2020. They include American Express, Johnson &
Johnson, 3M, AT&T and Tesla. As a whole, analysts expect S&P 500 companies to say
their fourth-quarter profit fell 5% from a year earlier. That's a milder drop than the 9.4%
they were forecasting earlier this month, according to FactSet. President Joe Biden has
proposed a $1.9 trillion plan to send $1,400 to most Americans and deliver other
support for the economy. But his party holds only the slimmest possible majority in the
Senate, making approval uncertain. Several Republicans have already voiced opposition
to parts of the plan. The coronavirus pandemic is also worsening and doing more
damage by the day. A UN agency said Monday that four times as many jobs were lost
last year as in 2009, during the global financial crisis. In other Tuesday trading, U.S.
benchmark crude oil lost 23 cents to $52.54 per barrel in electronic trading on the New
York Mercantile Exchange. It gained 50 cents to $52.77 per barrel on Monday. Brent
crude, the international standard, shed 24 cents to $55.44 per barrel. The U.S. dollar
strengthened to 103.80 Japanese yen from 103.76 yen late Monday. The euro dropped to
$1.2130 from $1.2141.
12Summary: March corn closed up $.11 at $5.11 ½ Monday, a quick response of support
after Friday's $.23 ¾ drop. The 7-day forecast turned more favorable for crops in
Argentina last week and remains favorable again Monday with moderate to heavy rains
expected for Argentina and Brazil. Aside from tight soybean supplies, the main bullish
source of support for corn prices has been the advantageous export environment for U.S.
corn, an edge which should remain intact until at least late June when Brazil's second
corn crop nears harvest. May corn on China's Dalian exchange was down 1.3%
Monday, following Friday's lower U.S. close, but prices are still expensive at the
equivalent of $10.93 a bushel. Earlier Monday, USDA said 54.8mb of corn were
inspected for export last week, roughly the amount needed each week to reach USDA's
export goal of 2.55 billion bushels (bb) by the end of August. Monday's U.S. weather
map shows a mix of snow, ice and rain from Nebraska and Kansas, stretching eastward,
with heavy snow amounts expected across Nebraska and Iowa. After last year's dry
finish, the moisture will be helpful, but of course, spring will be the important season
for rain. Friday's CFTC report showed a small drop of noncommercial net longs in corn,
but that was as of Jan. 19, so Friday's heavy selling was not included. Fundamentally,
corn remains high priced and continues to get support from tight soybean supplies and
the anticipation of 1.55 bb ending stocks in 2020-21, the lowest in seven years. From a
technical view, the trend in March corn remains up despite the recent correction. Prices
have traded above the 30-day average since August and the average is now at $4.79.
March soybeans closed up $.31 ¾ at $13.43 ½ Monday, taking back over half of
Friday's $.58 ½ drop after non-commercials likely liquidated a chunk of their large
bullish holdings. We won't know how many positions were let go until this Friday's
CFTC report on Jan. 29, but CFTC did say noncommercial net longs were down to
226,687 as of Jan. 19, down over 55,000 contracts from their November peak. As we
have often warned, the heavy presence of speculative holdings in corn and soybean
markets increases the potential for price volatility, especially at these higher prices.
Ironically, last week's selling in soybeans was actually bullish for soybean prices as it
made soybeans even cheaper for potential importers and increased the incentive to draw
U.S. soybean supplies down even further. Earlier Monday, USDA said 72.7mb of
soybeans were inspected for export, another bullish amount that shows China eagerness
to get its purchases shipped home. March soybeans on China's Dalian exchange were
down 2.9% Monday, responding to Friday's sell-off in the U.S. and will likely reflect
Monday's rebound in the U.S. on Tuesday. China's soybean prices remain expensive,
translated to $17.14 a bushel. Meanwhile, Brazil's soybean harvest remains on track for
a record crop and should start showing increased shipments the next several weeks.
According to Brazil's Canal Rural, the private consultant AgRural kept its latest estimate
of Brazil's soybean crop at 131.7mmt or 4.84 bb. From a technical view, the trend in
13March soybeans remains up in spite of the recent pullback. Prices continue to trade
above the 30-day average at $12.98.
March KC wheat closed up $.14 at $6.27 ¼, participating in Monday's rebound of grain
prices and was also helped by a 1.5% gain in France's March milling wheat contract.
Monday's weather map shows a mix of snow, ice and rain in Nebraska and Kansas with
more precipitation in the 7-day forecast for the central and southern Midwest and the
southeastern U.S. The moisture will be beneficial for SRW wheat and will reach some
HRW wheat areas, but much of the HRW wheat region remains threatened by drought.
There is also light to moderate precipitation expected for the white wheat areas of the
Pacific Northwest. Crop conditions this spring in Russia and the U.S. will have a lot to
say about where prices go from here. In the meantime, U.S. wheat exports have been
nothing to brag about, but USDA did show 19.2mb of wheat inspections for last week,
the most we've seen in several weeks. This month's decision by Russia to protect
domestic wheat supplies at home suggests the U.S. could see more export business
ahead, but Europe is likely to be first in line. Fundamentally, this year's lower U.S.
wheat supplies are keeping wheat prices well supported this winter and prices are also
being helped by $5.00 corn. Technically speaking, the trends remain up for all three
March contracts of U.S. wheat with significant bullish help from corn and beans.
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