Morning Comments January 6, 2022

Winter Bales

Corn and wheat ran into some selling pressure yesterday after their surge higher Tuesday. Beans held on to gains, but March beans stopped dead at the $13.99 resistance we mentioned yesterday, running into some strong selling at that level.

We continue to see private South American production estimates trimmed as the hot and dry December left its mark in Southern Brazil. A local government group dropped crop conditions hard again in Parana, taking the amount of corn and soybeans rated good down to the lowest level seen in recent history. 

Of course with rains only recently starting to arrive with more in the forecast, crop ratings over the next 2-4 weeks will likely give us a better indication of actual production potential than current values. 

Forecasts continue to point to conditions turning wetter in the driest regions of South America as we wrap up January. These rains will be vital as Argentina is expected to remain hot and mostly dry until we get there. Big rains falling in late January into February would likely make for a decent crop as many farmers in the country are just working to wrap up planting the remainder of both corn and beans, with an estimated 30% of corn left to be planted yet. 

Outside of South American weather, we continue to focus on what is happening in China. Margins for crushers in the country remain well in the red, even with cheaper Brazilian beans on the horizon. Sitonia Consulting, a private analytical group out of the country contends that most buyers in the area are covered through March, with little in the way of buying interest happening at these levels. With pork prices off 45% in the country year over year, hog producers are in the same boat, contending with negative margins. 

Covid concerns continue as well. Globally we are seeing case levels surge to record highs. While Omicron does appear to be far more mild, its level of contagiousness is a great concern as China has tried its best to maintain a zero Covid policy.

With the Olympics set to start the first week of February there is great concern Omicron could spread like wildfire throughout the country as outside travelers arrive. The Chinese government has had a city of 13 million on lockdown since the 22nd of December, due to a rise in cases. What a lockdown of multiple cities would look like when it comes to long-term demand definitely raises some concerns. 

Here in the U.S. we saw the combination of Covid concerns and the holiday push gasoline demand down to early March 2021 levels. Continued tales of flight cancellations and staffing shortages are giving folks pause when it comes to resuming travel as well. Oil seems to be shaking much of these concerns off however, as we see crude work its way to 6 week highs, completely erasing the initial drop after Omicron was discovered.

In other energy news, we saw ethanol production fall off to its lowest level since Thanksgiving as brutal cold weather, snowstorms, and the holiday slowed production a touch. Stocks were up slightly week over week, with logistical issues starting to pop up again keeping stocks higher than usual in the Midwest. 

Looking ahead, markets were down hard overnight as concerns over just what is happening in China both economically and when it comes to Covid are starting to weigh heavily on some traders' minds. There is talk of fund buying needing to continue in soybeans though, so whether the pressure of the overnight market holds in the face of additional fund buying, if it shows, will be interesting to watch. 

We're starting to get more in the way of private estimates ahead of next Wednesday's major USDA report as well. Traders seem to be expecting increases in both corn and soybean carry outs next week, with a reduction to global ending stocks expected as we see South American production estimates lowered.

Quarterly stocks remain the biggest unknown, with their ever-present potential to hold a major surprise one way or another; how we trade after Wednesday's figures remains a wildcard. 

Corn down 2 to 4

Beans down 14 to 16