Market Insider

Holiday Discounts?

Cereals and corn markets pushed lower last week, while oilseeds continued to stand tall as weather and technical activity drove trading sentiment. While the USDA’s December WASDE report was released on Friday, as is usually the case for this month, it was mostly a non-event with hardly any changes to the overall balance sheet. With ongoing drought issues in Argentina, the world’s largest soymeal exporter, soymeal hit new contract highs thanks to the weather premium, which in turn supported soybeans and canola a bit. On the other hand, managed money moved their net long position in corn to the smallest in the last 2 years, while the net-short position they hold in Chicago SRW wheat is the largest in more than 2 years.

Much of the reason traders are less excited about corn prices is the pace of U.S. exports, which is logically why the USDA lowered their total crop year estimate by 1.9 MMT, and also raised ending stocks by the same amount. Currently, U.S. corn exports sales are down nearly 50% compared to the same time a year ago, thanks to a strong U.S. Dollar pushing demand elsewhere and low Mississippi River levels limiting just how much corn can get to an export position.

One other factor I’m watching in the U.S. corn markets is China’s purchases, as with 1.79 MMT bought so far, that’s down over 80% from the 10.74 MMT they had bought by this time a year ago. With weaker demand for U.S. corn, this puts pressure on the likes of wheat and barley prices. Conversely, some of you may be concerned about Mexico stopping its imports of non-GMO U.S. corn, which is a 15 – 17 MMT per year market for U.S. corn. However, I believe that American politicians will surely get in the way over the next 2 years and help adjust what this really means before the Mexican Presidential decree is supposed to become law, 2 years from now in 2025 (I repeat: 2 years from now).

Switching gears back to wheat, over the weekend, Russian drone strikes in Ukraine’s Odesa region damaged their electricity grid, and while the city, including port operations, will regain power over the next few days, complete restoration is unlikely for at least 2 -3 months. That said, through last week, December grain exports from Ukraine sit at just 1.09 MMT, almost 50% below where they were at this time a year ago. Similarly, despite harvesting a record wheat crop, Russian wheat exports are dragging behind last year’s pace by about 50% as well! Nonetheless, we are starting to see shipments out of Russia start to pick up, which could also explain some of the recent weakness in wheat markets.

The bullish news for wheat this week came from South America as the USDA finally acknowledge what most of us know about Argentina, as they dropped their production estimate for the 3rd straight month, this time by 3 MMT to 12.5 MMT (the USDA’s estimate was 19 MMT as recent as September!). This is the smallest harvest by Argentine farmers since 2015/16 and because of It, exports were lowered by 2.5 MMT to 7.5 MMT, their smallest shipping campaign since 2014/15.

Amazingly, soil moisture levels in Argentina are actually worse than they during the 2008/09 campaign, a crop year in which the local wheat harvest totaled only 8.3 MMT. Comparably, local Argentine grain markets analyst Rosario Grains Exchange is currently estimating the harvest at 11.8 MMT, and while they admit this could fall more, they also believe that the current corn and soybean planting campaign could slow down if no rain shows up in the coming weeks. For reference, the Argentina corn crop’s good-to-excellent ratings currently sit at a paltry 8%, eons away from 53% G/E rating a year ago!

The biggest bearish news in the market came from the other side of the world, as the USDA raised the Australian wheat harvest to a new record that local government agency, ABARES, has suggested of 36.6 MMT, up 2.1 MMT month-over-month. Wheat exports out of the Australia were also raised to a new-record 27.5 MMT, as with the large amount of feed quality coming out of eastern areas of the country-continent, Aussie feed wheat will surely be competitively priced for Asian importers.

Back here at home, the USDA acknowledged the smaller Canadian wheat crop of 33.8 MMT that StatsCan suggested on December 2nd, and as a reminder, this is still Canada’s 3rd-largest wheat crop ever. Despite the smaller production number, the USDA stayed their estimate for total Canadian wheat exports at 26 MMT, which makes sense, given the elevated pace of shipments seen thru the first 40% of the 2022/23 crop year.

Overall, the USDA’s December WASDE was a bit of a snoozefest, and without fresh excitement to jump on, markets moved lower. It’s not to say that there’s nothing bullish about the wheat or corn balance sheets, but more that there haven’t been net-new headlines to spark net-new bullish buying. Further, with the high prices that we’ve seen, we may have seen demand slow down a little bit in some areas, which suggests higher future available supplies. Therein, perhaps, some of the shine of the last few months is starting to fade, and traders are happy to take some profits and step to the sidelines going into the holidays.

To growth,

Brennan Turner

Founder | Combyne Ag