Morning Comments February 9, 2022

Grain bins dryer

In a change from recent trends, we saw corn and soybeans spend much of their day weaker yesterday, while wheat finished the day strong.

Outside market moves, with some selling in other commodities, put pressure on corn and beans for much of the day. Wheat traded higher thanks to lower-than-expected wheat stock figures from StatsCanada.

The major reduction in Canadian wheat production is a well-known market factor this year as the country struggled to produce half a wheat crop. However, even with the production reductions factored in, the pre-report estimate from traders on wheat figures was still over 2 mmt higher than what government figures showed. 

The reduction in overall Canadian supply was part of what pushed wheat prices to new contract highs late last year. Though some of the pressure on the global pipeline has been taken off due to a massive Australian crop, the near empty Canadian pipeline and continued dryness concerns will likely support wheat prices in the months ahead.

Updated government data was behind some of the weakness in corn and beans yesterday, as well as the group responsible for agriculture in Mato Grosso updated their production outlook for the state. According to their figures, soybean production will be a new record, up decently from their December projection thanks mostly to increased acreage.

In addition to a solid soy crop for Brazil's largest producer, they expect the Safrinha crop in the area to fare well as over 90% of it should be planted in the ideal production window. There are some concerns over continued rains potentially slowing bean harvest in the area, but most farmers are used to working in less-than-optimal harvest conditions and are happy to be planting corn into moisture.

Much of today's attention will be placed upon the updated USDA supply and demand figures we will get at noon Eastern. Traders have changed course significantly these last few weeks, shifting from an idea we see soybean carryout increase to nearly 500 million bushels domestically, to believing we see the USDA cut ending stocks in today's report.

The average trade estimate of 310 million bushels for this month would be down 40 million bushels from last month thanks to expectations of increased demand. 

While the recent strength in export sales and continued strength in shipments has come as a bit of a surprise to market bears, we still remain well behind last year's pace and potentially slow enough on old crop sales as a whole to keep the USDA from making any major moves.

However, with South American production expected to decline again from last month, the USDA has to do something to solve the balance sheet conundrum that comes from a significant reduction in overall supply. Some traders have hinted that a reduction to Chinese soybean imports could be seen, as both hog and crush margins there remain poor. 

On the subject of Chinese soybean imports, it is interesting to note that now that we have all 2021 trade data accounted for, China actually reduced the volume of beans purchased from the U.S. last year. Though the value of the beans purchased was similar to the year prior, thanks to higher costs, the reduction in volume purchased left the country short of its Phase 1 trade deal commitments. 

U.S. officials claim the country needs to do something concrete to live up to its end of the deal, with Chinese officials reiterating the part of the agreement stating they would not have to do so if market conditions were poor. At this point, many market watchers have pointed out inflationary pressure may keep the U.S. from pushing too hard to see increased demand, as vegetable oils, soybeans, and corn are all trading at multi-year, if not all-time, highs.

Corn exports to China from the U.S. were a record high last year, with strength in beef, milo, and wheat exports also seen.

Though today's updated soybean figures from the USDA will gather the most attention, traders will be watching corn updates as well. At this point the average estimate puts us slightly lower carryout-wise, coming in at 1.512 bbu versus last month's 1.54 billion. Global production figures are expected to come in lower with reductions to both Argentina and Brazil's crops.

Whether or not the USDA reduces expected import demand from China will be interesting to see as they currently stand 6 mmt above local government and attaché estimates.

Wheat carryout is expected to come in a touch higher than last month as we continue to struggle with a slower-than-usual export pace due to high domestic prices.

We'll have the updated USDA figures after their release.

Corn up 3 to 4

Beans up 9 to 10