Midday Comments: 11/16/2020

Grains were mixed on Sunday night, but followed the pattern seen last week with soybeans leading corn higher & wheat remaining on the defensive.  Soybeans got a boost from South American weather trends.  Modest weekend rainfall failed to reverse the dry trends in southern Brazil & Argentina.   While there is rain for southern Brazil over the next 3-5 dahs, the 6-15 day outlook calls for rain to move back northward, keeping soils in Parana, Santa Catarina & Rio Grande do Sul in Brazil & northeastern & eastern Argentina wanting for moisture.  Outside markets were a mixed bag as news that a vaccine being developed by the US firm Moderna seemed to be 94.5% effective in preventing COVID-19 infections in a trial of 30,000 patients. Equity & crude oil futures were solidly higher, but US interest rates also rose on the news.  That supported the US dollar, which in turn weighed on wheat prices.  Reports that China’s hog herd are 26.9% larger compared to Oct. 2019 & that demand for Chinese state-owned wheat stockpiles continued to be strong bolstered grain usage ideas, while reports that Russian & Ukraine grain prices were on the rise underpinned US prices as well.  At the 7:45 am pause in electronic trading, Dec. corn futures were up 2.5c, March corn was 1.75c higher, Jan. beans were up 5c, March beans were 5.25c higher, Dec. soymeal was up $2.10/ton, Dec. soyoil was 0.09c/lb. higher, Dec. SRW wheat was down 2c & March SRW wheat was 3c lower.  Although wheat led grains off their overnight levels early in the regular trading session, grains eventually rebounded thru the noon hour as weekly soybean export inspections were again strong & monthly soybean crush data from US processors was record high in October.  At Monday’s close, Dec. corn futures rallied 5.75c, March corn gained 4.75c, Jan. beans jumped 5.5c, March beans rose 6.5c, Dec. soymeal edged $1.20/ton higher, Dec. soyoil rebounded 0.30c/lb., Dec. soft red winter wheat reversed 4.5c higher & March SRW wheat rose 2.75c.
 
Recapping Friday’s trading, grains rallied during the regular session following two-sided Thursday night trade. With solidly higher equity, precious metals & crude oil & a weaker dollar lending outside market support, corn, soybeans & wheat retraced part of Thursday’s losses despite a third straight day without any flash USDA export sales announcement & 4-week-low weekly export sales in corn, 9-week-low weekly soybean export sales & 25-week-low weekly wheat export sales. Much of Friday’s grain rebound looks chart-based.  Corn & wheat tested their August-November chart uptrends & reversed higher after soybeans recovered after falling below Thursday’s lows.  At Friday’s close, Dec. corn futures rose 2.25c, March corn was 1.25c higher, Jan. beans gained 2.5c, March beans rallied 3.25c, Dec. soymeal was unchanged, Dec. soyoil edged 0.08c/lb. higher, Dec. soft red winter wheat was up 5.25c & March SRW wheat was 4.75c higher.  For the week, continuation charts of corn gained 3.75c, but settle well below their post-report upward spike.  Soybean surged 43c higher & within 9c of their post-WASDE peak. SRW wheat declined 8.5c for the week, & ended at a 6-week weekly chart low. Last week’s price action reflects the fundamental picture which argues soybeans has the strongest supply-demand outlook & wheat the weakest fundamental picture. 
 
Post-report price reaction suggests that grain prices have digested the current supply-demand outlook & prices will now revolve around South American weather.  On Friday, Dec. corn futures settled 2.5c below their pre-report level & 17.5c below Wednesday’s contract high.  Dec. SRW wheat settled 13.75c below Tuesday’s 10:59:50 am pre-report price, 20c below Wednesday’s high tick & 44.75c below the 71-month high set on Oct. 20. Soybeans are retesting “round number” resistance at $11.50 to start the week.  Nov. soybean futures expired at noon on Friday after having peaked at $11.5025 on Wednesday.  
 
Soybean futures should be most sensitive to South American weather.  USDA’s WASDE data forecast record-high global soybean output in 2020/21 as record-high South American production more than offsets US crop loss. Even with bean output forecast in Brazil at 133 mmt, Argentina at 51 mmt, Paraguay at 10.25 mmt, Bolivia at 2.90 mmt & Uruguay at 2.09 mmt, USDA still expects global usage (369.03 mmt) to exceed production (362.64 mmt) this year, dropping world soybean ending stocks (86.52 mmt) to the lowest since 2015/16 (80.41 mmt)& 2020/21 soy stocks vs. usage (23.4%) to the lowest since 2013/14 (22.4%).  The average US farm gate soybean price was $13.00/bu. in 2013/14 & prices peaked at $15.3675.  If South America were to lose 10 mmt of soybean output & US exports rose 100-150 mb to capture up to half that loss, US prices would almost certainly rise to ration US & global use of the crop.  Current prices may reflect a 1-3 mmt smaller soybean crop than USDA foresees for Brazil-Argentina, but not a 10 mmt decline.
 
Since Brazil & Argentine corn exports are the highest from May onward, corn prices will likely take a little longer than soybeans to be impacted by South American weather.  To estimate potential price ranges for corn, let’s look at CBOT price ranges since 1969/70 compared to the average farm price forecast. The $4.00/bu. US farm gate corn that USDA forecasts would on average result in a $3.56-$5.36 price range in weekly continuation futures between now & the expiration of the Sept. 2021 corn futures contract. How did we get that?  The average high futures price during the previous 50 years was 133.9% of the average farm price & the average CBOT low was 88.9% of the average farm gate price.  If actual farm prices vary from the current $4.00 forecast—after all, USDA did boost its corn price estimate by 40c/bu. last Tuesday—the averages would also change.  That said, this year’s continuation market-year corn low has been 3.605 & the high $4.28.  Another way to estimate prices would be to compare year’s with similar carryover stocks.  USDA now projects end-season corn carryover stocks at 1,702 mb.  In 2014/15, corn ending stocks were 1,731 mb & the season’s high futures price was $4.3875.  In 2015/16, corn carryover was 1,737 mb & the market-year high was $4.3925.  Both of those years saw prices peak as doubt about new-crop prospects was at its zenith.  That would argue either South American or US crop weather will likely determine how high US corn prices rise this year, too. 
 
Monday’s USDA Weekly Grain Export Inspections data for the weekly period ended Nov. 12 were again friendly for soybeans, but well below the average shipping rates needed for corn & wheat.  Corn inspections were a 4-week-high 32.183 mb, but that was still far below the 55.8 mb average pace needed to reach USDA’s 2,650 mb upwardly adjusted 2020/21 export forecast. Cumulative corn inspections (330.491 mb) are 133.827 mb (+68.0%) above last year’s abysmal early season shipping rate, but 141.310 mb below the 2018/19 pace at market week #11.   Soybean inspections were a 6-week-low 82.304 mb, but that was still more than double the 33.3 mb average inspections pace needed to reach USDA’s 2,200 mb 2020/21 export forecast.  Also notable was USDA’s upward revision of the previous week’s inspections by 13.052 mb to 104.775 mb.  That’s the largest total for 2020/21, & the fifth-largest weekly inspections ever.  Cumulative soybean inspections now stand at 815.025 mb, the best ever by 41.409 mb at market week #11.  Grain sorghum inspections totaled 4.607 mb last week, below the 5.4 mb shipment average needed to reach USDA’s 260 mb export forecast.  Cumulative milo inspections (35.614 mb) are still the highest at market-week #11 since 2015/16.  Wheat inspections of 11.977 mb rebounded to a 3-week high, but were still well below 18.4 mb weekly pace needed to reach USDA’s 975 mb export forecast.  Cumulative wheat inspections now total 441.995 mb, 4.041 mb (+0.9%) above last year & highest week #24 total since 2017/18.  China remained the top corn (10.993 mb), milo (2.414 mb) & soybean (62.748 mb) destination last week, but again takes no US wheat.
 
Soybeans also garnered support this morning from crush data released by the National Oilseed Processors Association.  NOPA member crushed at record-high 185.245 mb in October, the most ever for any month.  Crush was up 23.754 mb compared to September, & 9.848 mb above last year’s total.  Even though soyoil production was also record-high for any month, soyoil stocks rose only 54.038 mil.lbs. to 1,487.332 mil.lbs., the second-lowest stockpiles in the past 11 months.  Soymeal output was also record-high, but exports slipped to 945,835 short tons.  That was down 45,299 tons from September, but 51,018 tons more than last year.   The 11 am NOPA data release provided soybeans an uplift that continued into the close.
 
In daily export news, USDA did not report any daily export sales on Monday, the fourth straight business day without a sales announcement.
 
Locally, corn basis was a penny higher, soybean basis was steady & wheat basis jumped up 6c on Friday.  For the week, cash corn rose 15c, beans soared 49c higher & wheat was down 2c.  Basis was trending higher on Monday as terminals shifted to last-half November, taking advantage of lower freight costs/
 
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"Closing Comments" are written by David Marshall, First Choice Commodities LLC, Nashville, IL.  To learn more about his farm marketing advisory or commodity brokerage services, contact him at dmarshall@firstchoicecommodities.com or call (618) 327-4370 (voice/fax) or (618) 314-0918 (cell). This commentary is not intended for specific trading strategies. We strive to insure this information is reliable, but we cannot guarantee its accuracy or completeness.  Commodity trading involves risks. You should fully understand those risks before trading.