Market Thoughts 12.27.20
Merry Christmas from us all at Lighthouse. Hope all were able to enjoy the time with friends and family.
Corn Complex- A short holiday week of trade with new highs being made in the complex this week. Most of the strength for the week felt like light holiday trade with outside money flow. With no CFTC this week, only estimates are available with trade thinking fund long well beyond the 300k mark. Export sales for the week were well below 10-week average, but still maintain pace above USDA estimates. Ethanol margins have continued to struggle, and many plants have noted slowdowns and continued hand to mouth buying for the next 90 days.
Soybean/Canola Complex- Old crop beans continued to new highs for the week also dragging along the new crop contracts with it as well. Bean complex funds estimated back near 240k+ long, a near record, pushing the market higher. Continued worries about prolonged Argentine port strike putting more quick ship meal and implied bean demand back onto already tight US balance sheet seemed to be the story of the week with outside money flows. Export soybean values in the US have subsided as the market looks to switch to Brazilian origins with the next 60 days. Bean crush values continue to remain strong with the port strike but also outright demand for cooking oil and meal protein for animal feeding remains strong worldwide.
Wheat Complex- A strong week in wheat with the complex helping building strength through the week. MGEX contracts had good gains for the week in both old and new crop contracts. Sep Minnie broke above the $6.00 level on the week triggering a small round of producer pricing. We still have an opinion that new crop Minnie will be fighting for its place in line with the other spring crops this spring as price levels in corn and soybeans (especially in the Dakotas) will force the market to remain competitive to not lose substantial acreage. We continue to monitor supply issues out of the Black Sea region with expectations for a smaller crop year over year. In addition, Russian authorities have passed the export quota and tariff and now their legislature has instituted new laws that allow the government to dictate price controls on basic finished commodity goods if prices are too high. The food inflation story continues to manifest in areas worldwide.
Outside Markets- Equities made new highs for the move this week as well. COVID vaccine distribution has begun across the US and World and marketplace is looking forward to consumer spending growth as more areas look to resume normal activity levels. Of concern and mentioned in previous commentary is post first of the year potential for weakness in commercial real estate delinquencies and bankruptcies as well as a tranche of residential mortgage and eviction freezes could cloud the market enthusiasm when many hit the market in the next 6 months to year.
2021/2022 Projected S&D’s US Corn: We want to refresh 21/22 corn S&D table, threw in the 20/21 Dec USDA estimate as well to the left for comparison. This is a bit of swag, but at this point most estimates are. Assuming trend or near trend yields and small adjustments lower in usage stocks look like they have some breathing room to give up a bit of acreage to beans.
2021/2022 Projected S&D’s US Soy: Beans indicate a much different story than corn with a need for 6-7 million acres increase in plantings and need for trend or better yield. That combination only maintains or slightly grows US ending stocks. It will be critical for Nov new crop futures to remain very competitive against new crop corn to encourage the acreage gains needed to prevent potential future erosion in the balance sheet. We likely see big acreage increases in the Dakotas, the Delta should see increase bean plantings with conducive weather. Additionally, you will see high incentives for double crop soybeans in areas that are able to do so effectively.
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