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Sunday, February 19, 2023 9:15:03 PM
What I'm Watching This Week In The Grain Markets
By: Barchart | February 19, 2023
We survived another week of what could only be described as violently range bound trade in corn and soybeans, while wheat continues to struggle with what appears to be plentiful nearby supplies, but an extremely uncertain future.
Not much has changed from a purely fundamental standpoint in grains over the last 6 weeks or so it seems. The US crop size has been established when it comes to old crop supplies, with all eyes on every nuance of demand until we get closer to putting seeds in the ground.
South American production remains key in the short-term as it will have long lasting implications on US demand for corn and beans, both old and new. At the start of the month Brazilian bean production estimates seemed to be increasing according to cash traders in the country, with some talk of production working towards 155 mmt, versus the USDA’s 153 mmt estimate. However, recent dryness across southern portions of the country, especially in Rio Grande do Sul have some analysts reducing their production outlook, with one private group taking their estimate down to 150.9 mmt, from 152.9 last month.
Argentina continues to battle unprecedented weather events, with a frost over the weekend impacting some parts of the country’s key production areas. The amount of production lost by frost may be difficult to put a number on due to the variability of conditions across the country and the wide range of crop maturities due to an extended planting season. While major losses because of the frost will be isolated, traders are now beginning to discuss the possibility of Argentina's bean crop falling below 30 mmt—potentially worse than an 08/09 style loss that produced a 32 mmt crop.
It is interesting to note, though, the growth in production achieved by surrounding countries since that time, and what it could mean for the global pipeline. Brazilian production in 2008/2009 was around 95 mmt (3.49 billion bushels) less than forecasted for this year. The US produced 4.3 billion bushels of soybeans last year to put that growth into perspective.
The increase in available supplies from surrounding countries and continued strong crush margins for Argentina processors will likely result in record imports for Argentina. While it takes time to rework grain flow as will be required to accomplish record imports, a sharply inverted margin structure will encourage buyers and sellers to work as quickly as they can to capture maximum returns.
While soybean production in South America is down to determining the last 10% or so worth of potential, the bulk of corn production risk is just beginning. Of course, crop losses in Argentina will take center stage first as early planted corn has suffered the most from heat and dryness. While only 25% or so of Argentina’s corn was planted in the early window, the loss there combined with a slow start to safrinha planting in Southern Brazil could create an interesting short-term supply pinch in the region.
Farmers in Mato Grosso have just over half of their second crop corn planted now as of last Friday, an increase of over 16% on the week, but still trailing last year’s pace by over 18%. The optimum planting window is beginning to close, though prices will keep producers planting as long as the weather allows.
Models are pointing to below normal precipitation risks for March, April and May across much of Brazil, raising concern, but with Mato Grosso seeing around 7” of rain on average in the month of March and nearly 5” on average in April, below average precipitation does not necessarily mean crop damage, though the risk warrants watching.
In addition to South American production and export outlooks we continue to watch what is happening with the Fed and monetary policy. The resiliency of the US economy has surprised even the most optimistic analysts at times, with talk of falling inflation and Fed pivots seemingly premature. The recent increase in hawkish rhetoric combined with strong economic data has put a floor under the dollar, allowing it to claw back nearly a quarter of its recent losses over the last few weeks.
What kind of economic landing we have remains hotly debated, with talk of even no landing, where we just kind of remain suspended here with costs elevated across the board, but economic activity continuing as it has somehow. What happens in the world economy can have big implications on demand, especially in the energy sector, which will spill over directly into ethanol and other biofuel demand around the world.
Perhaps the biggest thing I’m watching though in the weeks ahead is what happens between the US and China. The spy balloon story has not gone away, with China continuing to insist the US is overreacting over a weather balloon, with one Chinese official calling the US hysterical. US officials remain undeterred, saying it is just one balloon in a vast program of spy balloons that have been spotted in 40 different countries around the world.
US policies towards China have quietly taken a much more aggressive stance when it comes to communication and trade over the last couple of years from both parties, putting China on the defensive in a big way.
Not only are we seeing a war of words over the balloon, but China also remains angry over the US involvement in Taiwan as well as recent trade policies they claim have seriously damaged their chip industry.
Perhaps the most concerning development though happened this weekend, with the US saying they have intelligence indicating China is moving to potentially provide lethal support to Russia in their war with Ukraine. US Secretary of State Blinken and other administration officials say Chinese companies have already provided Russia with non-lethal resources like helmets and other protective gear, narrowly avoiding sanctionable offenses. However, they say signs point towards a strengthening relationship between the two countries, with Blinken meeting with allies to discuss the risk at this weekend’s security conference in Munich.
We aren’t far enough removed from the Trump era trade war to completely forget what losing China as a major buyer does to the market. With the recent spate of supply shortages China has had no choice but to buy US products in a big way whether they were happy with our relationship or not. This of course remains true so long as supplies remain tight, but a confirmation of adequate stocks in the coming months could see a tremendous increase in rhetoric surrounding trade, with potentially massive implications in the years ahead.
I can’t help but feel we could be on the cusp of a major realignment in global trade without even realizing it.
Looking ahead, without some type of major Black Swan event, this week should be more of the same. We eventually break out of the tightening ranges we’ve seen recently in a big way, though it feels like at this point there are far too many unknowns to see a move with conviction just yet.
As always, let me know if you have any questions, you can find my contact info on our website at www.consusroi.com. Have a great week!
Read Full Story »»»
DiscoverGold
By: Barchart | February 19, 2023
We survived another week of what could only be described as violently range bound trade in corn and soybeans, while wheat continues to struggle with what appears to be plentiful nearby supplies, but an extremely uncertain future.
Not much has changed from a purely fundamental standpoint in grains over the last 6 weeks or so it seems. The US crop size has been established when it comes to old crop supplies, with all eyes on every nuance of demand until we get closer to putting seeds in the ground.
South American production remains key in the short-term as it will have long lasting implications on US demand for corn and beans, both old and new. At the start of the month Brazilian bean production estimates seemed to be increasing according to cash traders in the country, with some talk of production working towards 155 mmt, versus the USDA’s 153 mmt estimate. However, recent dryness across southern portions of the country, especially in Rio Grande do Sul have some analysts reducing their production outlook, with one private group taking their estimate down to 150.9 mmt, from 152.9 last month.
Argentina continues to battle unprecedented weather events, with a frost over the weekend impacting some parts of the country’s key production areas. The amount of production lost by frost may be difficult to put a number on due to the variability of conditions across the country and the wide range of crop maturities due to an extended planting season. While major losses because of the frost will be isolated, traders are now beginning to discuss the possibility of Argentina's bean crop falling below 30 mmt—potentially worse than an 08/09 style loss that produced a 32 mmt crop.
It is interesting to note, though, the growth in production achieved by surrounding countries since that time, and what it could mean for the global pipeline. Brazilian production in 2008/2009 was around 95 mmt (3.49 billion bushels) less than forecasted for this year. The US produced 4.3 billion bushels of soybeans last year to put that growth into perspective.
The increase in available supplies from surrounding countries and continued strong crush margins for Argentina processors will likely result in record imports for Argentina. While it takes time to rework grain flow as will be required to accomplish record imports, a sharply inverted margin structure will encourage buyers and sellers to work as quickly as they can to capture maximum returns.
While soybean production in South America is down to determining the last 10% or so worth of potential, the bulk of corn production risk is just beginning. Of course, crop losses in Argentina will take center stage first as early planted corn has suffered the most from heat and dryness. While only 25% or so of Argentina’s corn was planted in the early window, the loss there combined with a slow start to safrinha planting in Southern Brazil could create an interesting short-term supply pinch in the region.
Farmers in Mato Grosso have just over half of their second crop corn planted now as of last Friday, an increase of over 16% on the week, but still trailing last year’s pace by over 18%. The optimum planting window is beginning to close, though prices will keep producers planting as long as the weather allows.
Models are pointing to below normal precipitation risks for March, April and May across much of Brazil, raising concern, but with Mato Grosso seeing around 7” of rain on average in the month of March and nearly 5” on average in April, below average precipitation does not necessarily mean crop damage, though the risk warrants watching.
In addition to South American production and export outlooks we continue to watch what is happening with the Fed and monetary policy. The resiliency of the US economy has surprised even the most optimistic analysts at times, with talk of falling inflation and Fed pivots seemingly premature. The recent increase in hawkish rhetoric combined with strong economic data has put a floor under the dollar, allowing it to claw back nearly a quarter of its recent losses over the last few weeks.
What kind of economic landing we have remains hotly debated, with talk of even no landing, where we just kind of remain suspended here with costs elevated across the board, but economic activity continuing as it has somehow. What happens in the world economy can have big implications on demand, especially in the energy sector, which will spill over directly into ethanol and other biofuel demand around the world.
Perhaps the biggest thing I’m watching though in the weeks ahead is what happens between the US and China. The spy balloon story has not gone away, with China continuing to insist the US is overreacting over a weather balloon, with one Chinese official calling the US hysterical. US officials remain undeterred, saying it is just one balloon in a vast program of spy balloons that have been spotted in 40 different countries around the world.
US policies towards China have quietly taken a much more aggressive stance when it comes to communication and trade over the last couple of years from both parties, putting China on the defensive in a big way.
Not only are we seeing a war of words over the balloon, but China also remains angry over the US involvement in Taiwan as well as recent trade policies they claim have seriously damaged their chip industry.
Perhaps the most concerning development though happened this weekend, with the US saying they have intelligence indicating China is moving to potentially provide lethal support to Russia in their war with Ukraine. US Secretary of State Blinken and other administration officials say Chinese companies have already provided Russia with non-lethal resources like helmets and other protective gear, narrowly avoiding sanctionable offenses. However, they say signs point towards a strengthening relationship between the two countries, with Blinken meeting with allies to discuss the risk at this weekend’s security conference in Munich.
We aren’t far enough removed from the Trump era trade war to completely forget what losing China as a major buyer does to the market. With the recent spate of supply shortages China has had no choice but to buy US products in a big way whether they were happy with our relationship or not. This of course remains true so long as supplies remain tight, but a confirmation of adequate stocks in the coming months could see a tremendous increase in rhetoric surrounding trade, with potentially massive implications in the years ahead.
I can’t help but feel we could be on the cusp of a major realignment in global trade without even realizing it.
Looking ahead, without some type of major Black Swan event, this week should be more of the same. We eventually break out of the tightening ranges we’ve seen recently in a big way, though it feels like at this point there are far too many unknowns to see a move with conviction just yet.
As always, let me know if you have any questions, you can find my contact info on our website at www.consusroi.com. Have a great week!
Read Full Story »»»
DiscoverGold
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