Morning Comments February 2, 2022

Corn closeup

It was Groundhog Day in the bean market yesterday with another double digit move to the upside, closing nearly 40 higher on the day for old crop. Corn and wheat joined in, with corn rallying back to close near its 6.38 resistance level on the March.

Open interest for soybeans has increased an astounding 134,000 contracts since the start of the year as managed money has flowed. As one market watcher pointed out, funds have bought more bushels in the last 4-6 weeks than Brazil has lost and then some. 

Traders are attributing a drier forecast for Argentina for much of yesterday's strength as it is easy to point to a weather map. While forecasts did turn a touch drier in the 8-14 day, the reality is there is a whole host of events taking place creating a welcoming environment for any speculator looking to make a nice chunk of money trading in the ag space.

Cash markets in Brazil caught the eye of many market watchers yesterday as basis values or premiums paid for beans in the port area of Paranagua moved 20 cents higher on the day. As we have mentioned countless times before, the cash market tells the truth about the actual flow of physical grain, so many traders see an increase in basis values as a sign buyers are struggling to source beans, hence confirmation of a much reduced crop.

However, one local market participant explained yesterday that the development of the Northern Arc has changed grain flow in the region, thus reducing the significance to a certain extent of what changing bids in Paranagua may mean. He estimates upwards of 70% of Mato Grosso's production now ships out of the Northern Arc, versus heading south as it used to.

Interesting reading on the subject here: from the University of Illinois, discussing the shift in grain flow and just how much infrastructure investment went in to making this possible.

With the shift in logistics and the slow start to harvest in the southern portions of the country, values offered out of Paranagua will be important to monitor over the next 4-6 weeks for sure as harvest in Parana and surrounding states really gets underway. 

Outside of South American weather and cash developments we continue to monitor developments out of Russia. Secretary of State Blinken was set to have a phone conversation with his Russian counterpart yesterday. With Moscow claiming there are no plans for any further conversations between the two, it may not have gone as well as hoped. 

Putin spoke out again yesterday, reiterating his claims that the U.S. and NATO are inflaming tensions. Adding that the U.S. ignoring his demands regarding Ukraine being banned from ever joining NATO is only further fueling tension.

We got updated ethanol and crush figures for December from the USDA yesterday. Both demand figures came in on the high side of expectations with soybean crush coming in at an all-time record. With margins at or near record highs for the month, it should come as no surprise processors were running on all cylinders if they were able.

Looking ahead, we got updated Eurozone inflation data overnight, with the region seeing its largest year-over-year jump in consumer prices on record. U.S. data is expected to show similar issues, only further fueling a need to see major adjustments to central bank monetary policy around the world. 

We will get updated energy figures this morning. Some players in the ethanol market report some improvement in logistics, though there are concerns the massive winter storm currently moving across the heart of the country could take some of that progress backwards. 

With record profits reported for many, big energy producers in 2021 and forecasts of $100+ oil we are seeing an increase in operating rigs and spending projects on tap taking place in real time. It will be interesting to see how long it takes before price encourages supply to start outpacing demand as we have seen so many times before.

Corn up 2 to 3

Beans up 20-23