MARKET SUMMARY 11-10-2021
World wheat ending stocks were tabbed at 275.8 MMT, down from 277.18 MMT on October, and below market expectations. The tighter global supply forecast pushed prices back to challenge most recent highs. Stock-to-use globally is still relatively high, but where the wheat is located is a big factor for the price strength. China wheat carryout is 141 MMT, or over half the global supply, and this in not available to the export market. With Production in United States and Canada at historical lows, concerns for European and Russian wheat, global wheat prices have trended higher. In addition, importers and very concerned about tight supplies and are aggressively trying to lock-in supplies to help build some food security. All combined, global wheat prices are trending higher. The strength in wheat could turn the commodity into a leader in the grain markets, helping to support the other grain markets.
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CORN HIGHLIGHTS: Corn futures, despite a sharp rise in the US dollar, rallied finishing the session with gains of 7-3/4 (December 2022) to 14-1/2 higher (December 2021), closing at 5.69-1/4. It appeared managed money was exiting energies and equities and pushing into commodities, in particular row crops. With the November WASDE report now out of the way, traders may have been more aggressive buyers, as no negative surprises were noted. Supportive ethanol margins were noted yet that alone may not be enough to explain today’s stronger trade.
It may make some sense that after nearly an 80 cent rally and then a pullback, that prices had corrected enough and after the report indicated a slightly supportive stocks number, traders took this as a cue to take a stab once again at the long side. Some private estimates continue to suggest the USDA has overrated the crop and that ultimately a lower yield will be reflected through adjustments on future reports. This argument could have merit considering the vast amount of corn crop that was either in dry weather regions or struggled with tar spot or other diseases. A storm system over the next several days could slow harvest progress, yet with close to 90% complete we are not convinced this is a driver in today’s trade. Talk of China buying Ukraine corn and potentially in the market for US corn could have been enough reason for prices higher today. China has been mostly absent from the US market. Rising internal prices would suggest they may be looking for more inventory.
SOYBEAN HIGHLIGHTS: Soybean futures finished with modest gains of 4 to 5 cents. January gained 4-3/4 to close at 12.16-3.4 and November 2022 plus 3-1/2, closing at 12.24-1/4. Moderate gains in soymeal and oil were noted. New positive news was lacking for the bean complex with today’s positive gains likely attributed to strong closes on corn and soybeans. Traders, however, may also have been buying wheat and corn while selling soybeans on spreads as both commodities have a friendlier fundamental picture.
The bean market is at a crossroads. On the one hand, fundamental factors have turned more negative over the last two months, as increasing carryout has alleviated concerns of rationing. At the same time, expectations for another record crop out of Brazil and, due to high fertilizer costs, more acreage in the US suggest carryout could continue to rise in the months ahead. Harvest is winding down implying that bullish traders will be more likely to buy anticipating farmers will be light sellers. The problem we see at present is that the bean complex is suffering from a perceptive issue. That is, there isn’t a bullish story. Big picture supplies are expected to grow, and the market has little reason to attract buyers especially after price jumps as was noted from last week. A rally of 50 cents was quickly met with strong resistance and heavy selling.
WHEAT HIGHLIGHTS: A bit of a shocking day in wheat futures following yesterday’s USDA report. Dec Chicago wheat gained 24-1/2 cents, closing at 8.03 & Dec KC wheat gained 24 cents, closing at 8.17-1/2. Although today’s trade did not take out Dec Chicago’s high of 8.07, that is the highest close that contract has achieved.
One would like to say today was expected or easily explained, but honestly, it is not. At first, it was a bit of a mystery with crude down hard today, the US dollar up, and that the grains were able to fight off outside market pressure as much as they did. However, for wheat to lead the pack was definitely the question of the day. Yesterday’s USDA report was friendly, but to think it was 20 plus cent friendly on top of yesterday’s 10+ cent gains, is hard to justify that the report was the culprit of today’s move. Russia announced another tax increase on exports again this Friday to $70/mt, and said it could move to as high as $100/mt. However, tax included, Russian wheat is still cheaper than US wheat. As the day progressed, it is more likely that today’s market move was fueled by sovereign wealth funds buying cereals today hard after inflations numbers from the US and China were released. The US announced that inflation rates were as higher than they’ve been in 30 years, causing several markets to react today. This isn’t the first time we’ve seen wheat break away in recent times. When the pandemic began, corn and soybeans fell apart while everyone ran to the stores for bread, pizza, and cereal – wheat soared as a result.
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