Morning Comments December 21, 2021

Bin sunset harvest

Though the morning started out weaker yesterday on Omicron fears, continued concerns on dryness in Southern Brazil as well as some talk regarding new crop wheat production potential helped us work our way back towards unchanged throughout the day, with soybeans closing higher.

Traders continue to struggle with the dryness in Southern Brazil and what it will mean when it comes to production potential as a whole. Some folks are saying that 150 mmt of production out of Brazil is now off the table, indicating the crop will continue to get smaller.

At first glance one would find this type of statement concerning, and likely very bullish, however when all things are taken into consideration it is easy to recognize though the situation is supportive to current prices, it's more in the way of less bearish than actually outright bullish.

Yes, the areas in question account for just over a third of Brazil's soybean production potential, however the areas in question have pockets of extreme dryness with poor potential. Other areas within the circle of dryness have seen some well-timed, much needed rains, keeping production outlooks reasonable.

In addition to uncertainty over just how much of the areas in question are actually struggling, one must ask how much of an increase in production potential we are seeing out of the areas that planted early on and have seen nearly ideal conditions in the north will bring. 

Nonetheless, traders love a good drought and will most definitely use this as an opportunity to punish soybean bears until we see the pattern shift or get a better idea on production as harvest gets underway. Looking at the cash market currently, it doesn't appear as though Brazilian exporters are concerned over their ability to source new crop beans as Brazil took the lion's share of Chinese business last week and their prices remain at a discount to U.S. offers into the summer.

In addition to talk over just what is happening in Brazil, we had a lot of chatter over the last week regarding just what last week's dust storm and terrible weather did to the wheat crop potential in the Southern Plains. 

Lost in a lot of the La Nina chatter regarding precipitation and production potential is how the weather pattern impacts Southern Plains weather as well. Dryness has been a real concern, with many saying the dryland wheat planted last fall has struggled with emergence, with what has emerged experiencing what could only be described as a sandblasting last week.

While experienced traders will warn you wheat is a weed and can experience a lot and still put out a decent crop, we will most definitely need to see a shift in the weather pattern and wetter weather emerge if we want to have any type of decent production potential next year.

Current forecast models do indicate a breakdown in La Nina could be on the horizon, with upper-level patterns and oceanic water temperatures indicating we could see the change take place by late January.

Export inspections were solid again for beans yesterday, though much weaker than we've seen from a trend standpoint the last several weeks. Much of what is shipping now into the first half of next month is the business that was done throughout November that prompted the initial recovery and push higher in the bean market.

Corn shipments came in at a 9-week high, with the majority again going to Mexico. At 39.4 million bushels, shipments are incredibly stout for a normal year, though still lagging the nearly 56 million bushels we need to ship each week to meet current USDA projections. 

Wheat shipments continue to run less than half of what is needed to meet USDA expectations, with U.S. prices continuing to remain head and shoulders above the rest of the world.

Chinese shipments accounted for the bulk of soybean shipments, with just over 8 million bushels of corn shipped to China on the week.

Looking ahead, Omicron concerns continue to plague the outside market structure. The Democratic Party appears to be in disarray as we head into the mid-term election year as well, with many outside analysts worried that the failure to pass Build Back Better combined with Omicron could result in a poor economic outlook in 2022. 

Though one must wonder how healthy the economy truly is if 2 trillion in stimulus is so desperately needed to keep us from a slowdown, or worse yet, a collapse.

Grains appear to have enough bullish unknowns to remain somewhat shielded from outside stressors at this point, though a shift in weather models would likely be a game changer.

Corn steady to 1 higher

Beans 2 to 3 lower