Morning Comments February 3, 2022

Soybeans Farnhamville

Another mixed day in the markets, with both March corn and wheat finishing more than 10 lower on the day, while soybeans finished over 10 higher. 

Soybeans caught the attention of traders early yesterday morning when a massive spike in volume around 5:30 a.m. sent the market 20 cents higher in a flash. The initial surge triggered some technical buying before the market settled back a touch when folks realized it was likely an order entry error more than a sign something big was coming.

We did get confirmation of a decent chunk of old crop beans sold to unknown on a flash sale yesterday morning. In addition to the sale to 'unknown' (which everyone has grown accustomed to assuming is China, though that is not always the case) we heard rumblings of some decent volume traded out of the Gulf for March shipment.

As we discussed yesterday, the runup in basis out of Paranagua on Tuesday caught the attention of traders as typically a strengthening basis in the face of what should be increased supply during harvest is a bullish signal. However, the push to the high side was a bit short lived as the increase in futures values combined with harvest progress is incentivizing an uptick in Brazilian farmer selling. Cash indications yesterday took out the 20-cent bump in premium from Tuesday, reverting back to lower levels seen earlier in the week. 

Where cash values settle the end of next week forward will likely set the stage to direct Chinese demand, as much of the country will return from their Spring festival holiday around the 14th of this month. With so much up in the air regarding whether or not the Brazilian cut to production is large enough to push demand back to the U.S., many traders will be watching Brazilian export line ups and any additional U.S. flash sales for old crop beans closely. 

Turning our attention to corn, it has been interesting to watch the corn market seemingly find itself stuck between beans and wheat trying to establish its own story. Of course, with the recent runup in energy values and ideas of increased export demand, corn has managed to trade to new contract highs, though it seems to be struggling to maintain any type of solid move above that $6.40 level.

We got updated ethanol figures yesterday, seeing a slight bump higher for production on the week and another big increase to ethanol supplies. As we mentioned last week, we are now seeing ethanol supply levels at their highest since May 1, 2020, when we were at the beginning stages of the pandemic. 

Midwest levels set another record as poor logistics and squishy demand seem to be limiting movement. There is some talk that with the recent surge in natural gas we could see certain plants reduce output and to resell their gas back into the pipeline. With current ethanol margins for some Western Corn Belt plants turning negative, a downturn in production for a profitable natural gas arb makes sense. 

In addition to a potential short-term slowdown in ethanol production, we continue to monitor export demand waiting to see the much-advertised jump in Chinese interest. Yesterday the Chinese USDA Attache reconfirmed their outlook for reduced corn imports this year. Their import estimate of 20 mmt is in line with their outlook last fall and 6 mmt lower than current USDA estimates. With nearly 10 mmt of U.S. corn on the books and at least another 10 mmt, if not more, purchased from Ukraine, some are starting to wonder if the country's needs are mostly covered. 

Speaking of Ukraine, there have been no real changes in developments this week as Russian troops remained stationed along the border and the U.S. works to solidify whatever diplomatic ties need solidifying. 

Looking ahead, jobs data released yesterday morning showed an unexpected reduction in jobs versus an expected gain, with more indications of economic pinches seen in the Eurozone and surrounding areas. It appears the Central Banks around the world outside of China have their hands tied when it comes to combating inflation, so we will continue to watch developments there working to extrapolate what it means for the U.S.

We will get updated export sales this morning at 8:30 a.m. Eastern and will be watching South American weather forecasts for any signs of rain returning to Argentina in the 11-15-day after a much drier 8-14-day forecast than we've seen recently.

Corn down 6 to 7

Beans down 13 to 15