Market Thoughts 2.12.23
March corn gained 3’0 to close the week at 680’4. Corn continues to consolidate with this being the sixth time in the past seven weeks closing between 675 and 683. The weekly low and high were printed a few hours apart on Friday as futures had fallen to 669’2 before rallying sharply into the close. March soybeans closed the week right on their highs at 1542’4, a gain of 10’4 and new highest weekly close since June. March spring wheat gained 8’6 to close at 930’2 as it’s now been six weeks since wheat had a weekly loss.
Feb WASDE Report Highlights:
Corn ethanol grind was cut 25mln bu and U.S. ending stocks increased by that amount. The resulting carryout of 1.267 bln bu was right in line with trade expectations.
Soy crush decreased 15 mln bu and U.S. ending stocks increased likewise. The resulting carryout of 225 mln bu came in just above trade expectations and perhaps slightly bearish.
All-wheat carryout was nearly unchanged at 568 mln bu and right in line with pre-report estimates.
Brazilian corn and bean production were both left unchanged and right in line with pre-report estimates.
Argentine corn production was lowered 5 million metric tonnes and bean production 4.5 million metric tonnes; both production numbers landed toward the low end of trade estimates and were somewhat supportive.
The Feb WASDE report was largely a non-event and grains continue to trade in the same general range they’ve been in since the Jan WASDE report; something we expected would be the case back then. This however is still somewhat of a pivotal time. As grains work their way through crop insurance pricing on pace for record corn and bean pricing, we had worried a week ago that things were getting stale and prices may not hold this range through Feb. Now though, a couple of friendly stories should keep grains supported through February. First, Brazilian soybean harvest delays.
Brazilian Soybean Harvest Delays
This isn’t so much an issue for beans as they’ll get the crop gathered up eventually. But it’s starting to creep up on the optimal window to get second-crop corn planted. About 75% of Brazilin corn production is second-crop and if it isn’t planted by late February, there is a strong correlation with sharply reduced yields.
The Russian war is once again supporting grains. It’s been widely reported that Russia is planning and preparing for a major new offensive that now appears imminent. Russia announced on Friday it was slashing oil production by 500k barrels/day in response to EU energy sanctions that took effect in early February. Higher energy prices, fresh war anxieties, Brazilian harvest delays, and lingering Argentine drought concerns should be plenty to keep grains supported in the short term.
We continue to see a low probability of significant rally for corn/beans this winter and still expect new crop prices to be sharply lower next fall. But again, whether that long-term view is correct or not, prices should stay supported through February and it’s likely grains retest recent highs again soon.
Last week we made the case that the recent energy price collapse was way overdone and energies were about to rally. Crude oil did in fact rally nearly 10% this week, one of its best weekly performances of the year as over half of those gains came prior to the Russian announcement on Friday. From a chart perspective, Crude is still in a downtrend and needs further gains to break through resistance and change the trend. But we remain bullish on energies and expect energy gains to continue supporting grains in the short term.
March Spring Wheat
Spring wheat broke through downtrend resistance in late January and has been holding above it since. Friday’s price action looks to be day one of a possible breakout higher. We continue to be lukewarm about wheat’s long-term prospects but this chart looks pretty bullish at the moment.