March corn added 35-1/4 cents this week to close at 531-1/2. December corn futures added 20 cents this week to close at 460-3/4. Corn futures traded lower today. Beneficial rains in Argentina may have triggered some profit taking. However, prices are up for the week on a bullish set of USDA reports issued on Tuesday. The biggest surprise was the belated adjustment to last season’s carryout and a larger than expected reduction to yield. This, and expectations for continued strong demand, has fueled buying interest. Argentina and Brazil production estimates were reduced by a combined 2.5 million metric tons and the global ending stocks-to-use are expected to drop to 2012 levels. Now that the January USDA data dump is behind us, the market will focus on South America weather and the pace of demand. The USDA reduced their estimate for ethanol demand however we could see fuel demand increase as the US and the rest of the world recover from global pandemic and restrictions are lifted.
March soybeans added 42 cents this week to close at 1416-3/4. November soybeans added 36 cents this week to close at 1197-3/4. While the market experienced some profit taking ahead of the long weekend, soybeans finished the week 3% higher on a supportive USDA report and continued strong demand. More large sales to China were reported this week as well as a near record level NOPA crush. NOPA reported today that its members processed 183.16 million bushels of soybeans. This was below trade expectations but up from 181.02 mmt in November and 174.81 mmt in December 2019. It was the second-largest monthly crush on record only falling behind October 2020.
The main takeaways from this week’s USDA report is that the numbers came in very close to pre-report estimates. The US carryout could fall below 100 million bushels unless China demand slows dramatically after Brazil’s crop hits the market. World production is estimated to fall below demand for the second year in a row. This means the market can continue to price in a weather premium ahead of South American harvest and into the US growing season. South America needs to get timely rains to avoid further crop losses but the USDA did not lower their Brazil production estimate from 133 million tons (4.9 billion bushels) on the last 2 reports. The trend remains higher but prices have moved into overbought levels on momentum charts and could be setting up for a correction.
All wheats higher this week
March CBOT wheat was 36-3/4 cents higher this week to close at 675-1/2. March KC wheat was 48-1/4 cents higher this week to close at 643 and March spring wheat added 36-1/4 cents this week to close at 643-1/4. Wheat surged higher on smaller US ending stocks on the USDA report than trade expected, dryness in the plains and Russia export tax. The USDA lowered global wheat supplies on this week’s report by 3.3 million metric tons which was on the low end of trade estimates. While this is still ample to meet current demand, a post-covid recovery and ideas that supplies could be reduced further due to continued drought in the western US Plains has pushed the front-month KC wheat contract to its highest level in six years. Russia‘s agriculture ministry proposing higher wheat export taxes this week also supported prices.
Futures Ignore Lower Spot Trade
The Class III milk market traded dramatically higher last week on the announcement of the 5th round of the Farm to Families program. But, this week we did not see the same follow-through to the upside we have seen on the announcement of this program’s extension in the past. Price action was volatile in futures with the market posting a limit down day early in the week before starting to recover once action. The market was able to finish the week only 4 cents away from the all-time high on the 2021 Class III average. But the sloppy price action this week does bring into question whether or not this rally will look the same as the previous rallies we saw in 2020 where the market went parabolic into $23-$24/cwt area.
The spot market was a big disappointment for the futures market this week as we saw the block/barrel average trade to $1.7013/lb down 8.375 cents on the week. This again looks a lot different than the previous runs the spot cheese market took on the extension of the farm to families program with cheese prices taking very minimal setbacks on those moves higher. The butter trade was even worse as the market traded to new lows for 2021 down 9 cents at $1.29/lb. But, the spot market wasn’t all negative as both non-fat powder and whey products traded to new highs for the year.