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All Eyes on January USDA Reports

Friday, January 1, 2021
filed under: Marketing/Risk Management

Markets have been in an interesting “doldrum” over the past 30 to 45 days as of this mid-December writing.
        Corn and soybean and soybean oil futures are trading near the highs set in late November/early December.  They haven’t been able to break through those highs despite bullish fundamental inputs.  Corn and soybean and soybean oil futures are trading near the highs set in late November/early December.  They haven’t been able to break through those highs despite bullish fundamental inputs. We haven’t had a singularly bullish event to push the speculative funds to buy more.  Keep in mind these funds are holding record or near-record large long positions in soybean, soybean oil and corn futures and options.
        World sunflower and canola oil supply continues to tighten.  Stats Canada’s latest canola production estimate was slightly smaller than expected.  “Slightly smaller” is significant when supplies are already tight. 
        Soybean oil futures have responded to this worldwide tightness of vegetable oils, as shown by the March soybean oil futures chart below.  The soybean oil chart looks almost identical to the March soybean and March corn charts.
Soybean Oil Futures / March 2021 – CBOT
soybean oil futures chart

        Basis levels for all grains and oilseeds remain very strong.  Export sales and weekly export inspections (vessel loadings) are far ahead of year-ago levels. The Chinese have taken a break from buying soybeans in December, but their accumulated purchases for this marketing year are impressive.
        The December series of USDA reports weren’t as bullish as many analysts had anticipated.  Most expected USDA would increase the soybean and corn export estimates and reduce ending supplies accordingly.  But USDA made zero changes to the U.S. corn supply and demand numbers.  They increased the U.S. domestic soybean crush by 15 million bushels and reduced the U.S. soybean ending supply number by the same amount.  Markets were very strong in the hours up to the report, but faltered with the USDA’s neutral number.
        This sets up the USDA’s January 12th reports as potentially explosive.  The USDA releases its “final” U.S. 2020 corn and soybean production estimates on that day. They will also release the U.S. quarterly stocks estimates (as of December 1).  Both of these numbers are expected to be bullish with a reduction in the production estimate and a smaller stocks estimate.                                                            
        The December USDA soybean ending supply estimate was 175 million bushels. It was 190 million bushels in the November report.  That compares to 909 million bushels at the end of last August.
        There are estimates around pegging soybean ending supplies as small as 25 million bushels.  That can’t happen because that would be far below “bin bottom” levels.  That means prices will have to increase enough to force rationing or to push more business to Brazil and Argentina.
        Weather in Brazil and Argentina will determine if and how quickly corn and soybean markets push well above the highs established in late November.  Argentina has been excessively dry throughout the entire planting period and now the early growing season.  Early ideas of record corn and soybean production in Argentina have quickly faded.
        The USDA has failed to reduce its Argentine production estimates, but most private groups within Argentina have cut production forecasts.  The market hasn’t paid much attention to weather issues in Argentina.  Instead, and like always, its focus has been on prospects in Brazil.                
        Brazil was also very dry and hot throughout most of the fall season.  Conditions started to improve during the second week of December, with rains somewhat more frequent and moderating temperatures.  Early predictions for record soybean and corn crops in Brazil are now too optimistic, but it’s still too early to come up with accurate production estimates.
        What is important is that soybean futures have rallied more than $3.50/bu in the last six months despite record production estimates for Brazil.
        Wheat has a mind of its own.  Wheat doesn’t have bullish enough fundamentals to support a major rally on its own — at least not yet.  Winter wheat crops across the Black Sea region and the U.S. Southern Plains went dormant under far-less-than-ideal conditions.  Stands and root development were not good since it was so dry. Weather in these areas in late February and March, when these crops break dormancy, will be critical to production.
        U.S. wheat export sales have been slightly better than last year, but not big enough to push prices higher without support from corn and soybeans.                                
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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