Morning Comments January 4, 2022

Bin sunset harvest

While the markets started their first trading day of the new year strong, corn and wheat faded by midday finishing lower, with beans closing over a dime off their highs, but still up double digits. 

The market was flooded with new production updates out of Brazil yesterday, confirming the concern over production the market has been pricing in for the last couple of weeks. Officials from the government of Parana declared a state of emergency for farmers, claiming the drought has taken nearly 40% of their earlier production potential. If realized, this would take the state's soybean crop from an estimated 21 mmt down to around 13-14 mmt.

StoneX (formerly FC Stone) released their updated Brazilian production estimate yesterday as well, cutting production for the country by 11 mmt from their previous estimate, down to 134 mmt. This estimate is by far the lowest and caught some folks off guard as many feel the gains to the north will go far in offsetting the losses to the south, likely stabilizing overall production potential around 140 mmt. 

In any event, December weather for much of the southern third of Brazil was incredibly dry and very warm, taking crops backwards and likely limiting early production in some areas. It may be important to note, though, that due to such a long growing season farmers in the region are looking at crops at various stages of production. Some may be too far gone, but others may be working their way towards pod fill, with reports of planting still rolling just up the road. 

Bottom-line, when all is said and done the Brazilian crop cycle is far more multifaceted than anything we are used to in the U.S. and still has the potential to surprise us in both good ways and bad as we move ahead over the next 5-6 months. 

Forecast-wise, meteorologists agree when it comes to a bit of a reprieve from La Nina conditions and a wetter pattern shift for Southern Brazil into Argentina for the last half of January. If realized, production potential may not only stabilize from here, it will likely grow. As a wise friend of mine once said, “The most bearish piece of information you will ever get is the last bullish one.” Keep this in mind when looking at marketing opportunities. 

Outside of Brazilian weather, traders were disappointed in yesterday's export inspection figures, with total shipments for corn, soybeans, and wheat coming in below expectations. At 23.5 million bushels shipped, corn shipments came in at a 15-week low and far less than half of what is needed to ship each week to meet current USDA estimates. China took 2.6 million bushels on the week.

Soybean shipments came in at a 13-week low, down nearly 15 million bushels on the week. Year over year soybean shipments are down 23%, with the USDA projecting a 9.5% decline year over year. 

Wheat shipments came in at 5 mbu, or under a third of what we need to ship each week to meet USDA expectations.

Some were quick to say the holiday was the reason for the slump, though a quick look back at last year's figures for the same week would indicate that wasn't the case a year ago.

After the close we got updated ethanol grind and soybean crush figures from the USDA. Ethanol grind came in higher than expected, continuing to support the idea of increased corn used for ethanol in upcoming USDA reports. The fact that the USDA is too low on current ethanol projections has been widely discussed for the last couple of months, with the USDA slow to pull the trigger on any major adjustments this early in the marketing year.

Soybean crush came in lower than expected, but still decent on the month. 

Looking ahead, traders will continue to trade South American production ideas and weather as we work through the day. Tomorrow marks one week until the USDA updates all aspects of supply and demand with their January 12th report, so it is likely we will start to hear more about what traders are expecting there as well as see some position squaring start to take place. 

Corn up 2 to 4

Beans up 5 to 6