Midday Comments: 12/2/2020

Grains saw follow-thru selling on Tuesday night that led corn & soybeans to breach uptrending chart support lines drawn from August-September lows.  By contrast, wheat found support at Tuesday’s lows & that prompted some buying that carried into Wednesday’s regular trading session.  While better rain prospects for Brazil have been the main fundamental driver of the post-Thanksgiving grain retracement, technical factors have loomed even larger.  As Monday’s CFTC data reiterated, managed trading funds acquired very large ownership of corn, beans, soy products & hard red winter wheat during the fall rally.  To lock in gains—not to mention their bonuses—fund managers taking some profits on long positions ahead of year-end would be normal.  Corn & soybean prices initially ignored USDA’s monthly corn & soybean crush reports for October on Tuesday night.  That data indicated that soybean crush (196.569 mb) was the largest ever for any month in October, & that corn crush for fuel ethanol (432.713 mb) rebounded sharply (+31.181 mb) from Sept., but last month’s corn crush was still 6.403 mb below last year & the smallest Oct. total since 2014.  At the 7:45 am pause in electronic trading, March corn futures were down 3.5c, July corn was 3.25c lower, Jan. & March beans were each down 13.5c, Jan. soymeal was $7.10/ton lower, Jan. soyoil was down 0.12c/lb., March SRW wheat was up 1.25c & July SRW wheat 1.75c higher.
 
Wheat continues its overnight rally as Wednesday’s regular trading session resumed, lifting corn to gains & helping beans almost erase its losses by mid-morning.  Soybeans drifted back lower after the midday South American weather maps continued to call for rain over the next week, but downward momentum was slowed by 90-day forecasts for Argentina that foresee below normal rainfall & above normal temperatures for December-February.  Corn rebounded back above its uptrending chart support line, suggesting recent sellers were caught in a “bear trap” last night.  Rumors that China is looking for more US corn have circulated without confirmation in recent days, but that has helped cushion the sell-off.  Traders mostly shrugged off this morning’s EIA Weekly Petroleum Status report that indicated US ethanol output declined 4.704 mil.gal. (mg) to 286.356 mg last week, but ethanol stockpiles on Nov. 27 still rose 15.708 mg (+1.79%) for the week to 892.080 mg—their highest since June 12.  Ethanol output was the lowest same-week total since 2016, & ethanol stocks were 25.24 mb (+2.91%) more than last year.  COVID-19 travel advisories limited fuel consumption last week, & the sharp increase in infections & more business restrictions promise to limit usage in coming weeks, too.  Soybeans were holding above its chart support lines during the noon hour as traders remain aware that South American production is more likely to fall below than exceed current USDA forecasts.  At 1:13 pm, March corn futures were up 2.75c, July corn was 1.5c higher, Jan. beans were down 7.5c, March beans were 6.75c lower, Jan. soymeal was down $3.20/ton, Jan. soyoil was 0.10c/lb. lower, March soft red winter wheat was up 11.25c & July SRW wheat was 9.5c higher.
 
Recapping Tuesday’s price action, grains gave back overnight gains for the second straight session as better than expected US & Russian wheat conditions & an 8% jump in Australia’s wheat production estimate lowered the boom on wheat prices & midday weather maps that added more rain for Brazil scuttled corn & soybean rally attempts.  Traders focused on reports from Russia’s weather service that 78% of the Russian wheat crop is in good or satisfactory condition on Tuesday, not the fact that a 7-year-high 22% of that crop is rated “poor.” Australia’s government also boosted its official estimate of 2020/21 wheat production by 2.3 mmt to 31.2 mmt on Tuesday, citing good late-season weather conditions.  Combined with Monday afternoon’s USDA Weekly Crop Progress report that increased US wheat conditions by 3% to 46% good-excellent, wheat plunged to 9-week lows.  News that Egypt bought 4.042 mb of Russian & 2.205 mt of Ukraine wheat for Jan. 26-Feb. 5 shipment was a reminder that US wheat still faces stiff competition.  Corn & beans broke solidly lower following the midday release of South American weather forecasts that added more rainfall for next week.  Monday afternoon’s holiday-delayed CFTC Disaggregated Combined Futures & Options Commitments of Traders data added to market nervousness after it showed managed trading funds added to their already hefty net long positions in corn, hard red winter wheat & soyoil & only modestly reduced large net long positions in soybeans & soymeal in the weekly period ended Nov. 24.  Weather trends in South America remain the key to grain prices as the size of their corn & soybean output will dictate how strong US export demand & ending stocks will be by the end of August. Building on Monday’s key-day downward reversals, March corn futures dropped 5.25c, July corn declined 5c, Jan. & March beans each lost 6.5c, Jan. soymeal edged $0.30/ton lower, Jan. soyoil fell 0.48c/lb., March soft red winter wheat tumbled 7.75c & July SRW wheat stumbled 7.5c lower on Tuesday.
 
In export news, USDA did not report any daily export sales on either Tuesday or Wednesday. South Korean flour mills bought a total of 0.775 mb of US & 0.386 mb of Canadian wheat overnight for Feb. delivery.  Vietnam feed processors booked 68,000 mt of soymeal for Dec.-July delivery from the US & South America on Wednesday. Grain merchants also reported that South Korean feed mills purchased 2.559 mb of optional-origin corn for June arrival, & Thailand feed processors bought 1.984 mb of optional-origin feed wheat for March shipment.  Algeria has opened a tender seeking 1.378 mb of feed corn for Dec.-Jan arrival this week. The strike that halted Argentine port activity on Tuesday ended after 24 hours. Leaders are meeting to chart their next move.
 
Adding detail to Tuesday afternoon’s USDA grain processing reports, the record-large soybean crush of 196.569 mb was near trade expectations & thus not a surprise.  In fact, the mid-November NOPA crush report implied October crush could have been 197 mb or more. Cumulative bean crush since Sept. 1 stands at a record-high 367.625 mb—18.103 mb above the initial 2019/20 crush pace & 14.417 mb above the previous Sept-Oct. high set in 2018/19.  The record crush led to a 29,970 short ton rise to 342,914 tons in soymeal stocks, 7,731 tons above last year.  Oct. 31 soyoil stocks of 1,963.866 mil.lbs. (m#) were 115.336 m# above the previous month, but 157.092 m# below last year as usage continued to be brisk.  With CBOT crush margins still running about $1.15/bu., bean processors have plenty of reason to keep the running full bore.  The corn crush data was more sobering, but still somewhat encouraging.  While crush for fuel of 432.713 mb was down 6.403 mb from last year, cumulative crush since Sept. 1 has reached 834.245 mb—only 10.556 mb (-1.25%) lower than 2019 even though the economy operated with low unemployment last year & this year is vastly different.  Corn crush rates will leap higher—comparatively—by March.  Corn ethanol usage is getting a small boost from the fact that grain sorghum is hardly being used as a feedstock this year.  For the second straight month, USDA did not reveal any milo usage for fuel in October to protect the few processors that did use the grain from being identified. 
 
The switch from the December to the March option for corn & wheat pricing & the rollover from November to December sent basis levels higher on Tuesday.  Locally, corn basis jumped 7c higher, soybean basis surged 11c higher & wheat basis gained 5c on the first day of the new month.
 
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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.