AgriVisor Market Recap

Friday, November 20, 2020
Buyers surfaced in the overnight session in the soy complex, and again pushed the January contract to another all-time high. Buyers continue to surface on breaks which is putting a floor under the market. This buying remains the result of South American weather and thoughts demand for US soybeans is understated.  We have seen rains move through the driest regions of Brazil and Argentina, but more is needed as the crops mature. We have had several rumors of Chinese buying interest which has provided support, but these were not verified, and initial buying subsided. We did see flash sales on corn of 158,270 metric tons to Mexico and 131,000 metric tons to an unknown, but nothing to China. 

Analysts do not believe enough attention is being paid to US corn demand and balance sheet possibilities at this time. While US exports on corn have not been stellar in recent weeks, they have been better than expected. Most attention is on soybean demand as that commodity is at a stage where price rationing is needed, and corn is not. This could easily change in the near future if weather conditions do not improve in South America and crop projections are lowered. 

Much of the attention on South American production up until this point has been on soybeans, but we are now seeing interest shift to corn. The South American corn crops are going to start their growing season on the dry side, mainly in Southern Brazil and Argentina. This region of South America is showing a rainfall deficiency of 3 to 5 inches from normal. This will need to change soon to prevent yield loss, especially since corn is more susceptible to drought loss than soybeans. 

Officials in Argentina claim the country will need at least four inches of rain in December to prevent additional corn yield loss. According to data from Ag Resources, in years with less than this amount of rainfall in December lead to a 20% reduction to Argentina’s corn crop. The country will likely need even more rainfall this year since it is already at a deficiency. Argentine farmers have been withholding corn from the global market due to tax rate increases this year and worries over potential yield loss will encourage even less selling to take place. 

While Argentina does have a corn reserve, Brazil does not. It is believed that Brazil will have just 5.5 million metric tons of corn when the harvest of the initial crop gets underway. This will elevate Brazil’s corn reserve to a projected 32 million metric tons of stocks until the Safrinha crop is harvested next summer. This will be the second lowest corn supply for that period in Brazil in the past 30 years and prevent the country from making export sales. 

If corn and soybean stocks continue to decline in the United States, we will likely see the food versus fuel debate resurrected. We have not heard this debate since the drought year of 2012 when ending stocks were reduced to today’s levels on soybeans. The difference between now and then is the decline we have seen in renewable fuel manufacturing demand this year due to Covid restrictions. It is not out of the question energy demand could decline enough to help offset some of the reduction that is being forecast to ending stocks. 

Another country that is seeing debate when it comes to usage is Russia. While Russian authorities have announced they may consider export limits next summer, domestic grain processors and users claim that is not soon enough. Domestic grain usage in Russia has propelled grain values to record values and slashed profit margins. The concern with these groups is that if demand is not curtailed it will lead to shortages and cause economic hardship for many, including consumers. 

World food values have been on a steady rally for the past five months. This is mostly from cereal grains which were up 7.2% in the month of September. From a year ago cereals have risen 16.5% in cost. The majority of this is from wheat, but corn is also at a six-year high. The concern is these are getting to levels where food inflation costs are becoming problem for consumers. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.