Commentary:
Corn, Soybeans, and Wheat all broke during overnight and morning business hours, but again found willing buyers on the dip. Corn broke 7 cents to 536, but rallied to close at 552, above key resistance. March 21 soybeans broke all the way to 1342, but finished the day approximately 30 cents higher to close at 1371. Key resistance is at 1382. Wheat may have been the big head scratcher as Chicago broker to 6.25 but like the other grains rallied 23 cents to finish the day at 6.48. Given the inflationary back drop of commodities, demand and weather have been the drivers in the grain sector so far. Old crop contracts led the way here and a question I have moving forward in looking deeper into 2021, are old crop values now a bit overvalued, or are new crop contracts too cheap? For beans, the domestic carry at 140 million bushels and stocks to usage below 3 percent warrant futures prices between 1350/1400 in my view. Delayed harvests in Brazil for beans and La Nina exacerbating hot and dry growing conditions that could lower yields and production is not bearish in my view at this time. On top of all this Truckers who demand better freight-transport prices in Argentina are blocking roads access to ports on the Atlantic coast, delaying grain exports. On top of all that, due to wet weather in Brazil, Brazil’s soybean harvest is at the slowest pace in 10 years. This has triggered a logjam of ships at major ports with no soybeans to load, delaying supplies to China. The Brazilian situation will work itself out eventually. However, the optimal time for their secondary corn crop to be planted is February. Further delays decrease the optimal growing season window for corn while the potential for reduced yields increases. Weather in Argentina turns hot and dry again for the next two weeks per Euro model forecasts.. All these factors in my opinion have funds and specs buying the dips.
Two big reports in the next few sessions. Tomorrow is export sales and Tuesday we have the WASDE report from the USDA. China/Unknown destinations bought 230 million bushels of corn last week for future shipment. That is a record amount per USDA for one week. That makes 700 million bushels unshipped for this marketing year. China has been releasing a lot of wheat out of their reserves as well along with importing barley and grain sorghum. Will some of these sizable commitments be rolled to 2021/22 or cancelled? In my view, the USDA will be faced with a decision about its U.S. export target when it revises its balance sheet next Tuesday. Look for USDA to add the 100 million bushels back that it recently took off its export target from the last report, and it may go higher. It will also need to decide if it’s going to bump its ethanol demand back up based on industry reports of ethanol sales to China. Average trade guess for now is for corn ending stocks to move down 1.374 billion bushels from 1.55 billion. Watch tomorrows export sales report. There’s whispers in the trade that have China in for another 1.5 to 2.0 million metric tons that haven’t been reported in the daily flash sale announcements. For corn the average trade guess for export sales is from 6 mmt to 7.8 mmt. China alone booked 5.8 million metric tons last week. If you are looking to catch the next move and you think new crop futures are undervalued, look at shorting put spreads in new crop while using futures in the front months. I think a static option strategy far into the future is a better risk management tool than futures. Lots of “Wild Cards” in the market regarding price discovery longer term so a strategy that is defined risk is preferred in my view. Use futures in the front months and always use appropriate stop loss orders for proper risk management.
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