Export Trends vs Grain Futures Topping Out
Grain markets all took a big hit this past Friday, as farmer selling in cash markets and technical selling and profit-taking on the futures board led to significant losses. Corn futures were limit-down for a hot second on Friday, but closed about a quarter down, its biggest one-day loss in 1.5 years. For the week, corn futures lost 31¢ USD/bushel but soybeans had it worse, falling nearly 60¢ USD/bushel on Friday alone, leading to (and as the table below shows) a one-week loss for front-month contracts of more than a full dollar!
After being in a bullish uptrend for the last few months, the fundamentals remain healthy, but there weren’t enough headlines to continue to drive it this past week. Further, when money managers are sitting on massive long positions like they are in corn and soybeans, when the selling gets going, the herd follows, hence this major drop. From a fundamental standpoint, some better weather in South America and the transition of the Oval Office were some of the bearish risks for grain markets this week that led to players moving a bit of their money to the sidelines.
From a new crop perspective, canola, oats, and HRS wheat didn’t take as much of a hit, largely because robust trade we’ve seen in 2020/21 is expected to continue into the 2021/22 crop year. However, new crop winter wheat futures dropped on a bigger Russian harvest forecast from SovEcon, thanks to heavy snowfall in recent weeks. Looking at the bullish side of things for winter wheat, dryness is expected to persist across both the U.S. Southern and Northern Plains, while worker strikes at Argentine ports could challenge the 12.5 MMT the USDA is expecting the South American country to do in 2020/21.
On the other side of the world, China has imported a record 8.4 MMT of wheat in the 2020 calendar, a 40% bump year-over-year, as they secure substitutes to high-priced corn for their feedstuff rations. Of these wheat imports, about one-third or 2.7 MMT came from Canada, representing nearly 15% of Canada’s 2020 calendar year wheat exports! To put in perspective just how much Canadian wheat sailed across the Pacific Ocean in 2020 to the People’s Republic, it was 1.5 MMT or 130% more than what was done in the 2019 calendar year!
Speaking in 2020/21 crop year terms, 1.24 MMT of Canadian wheat has sailed to China through December, which is 4.5x more than what had sailed in the first 5 months of 2019/20. Comparably, U.S. total wheat shipments to China in 2020/21 are 12x higher than the same timeframe in 2019/20, with 2.45 MMT shipped thus far. The increased demand from China should certainly help U.S. wheat exporters meet the USDA’s full crop year export forecast of 26.8 MMT (a bump of 2% year-over-year), but aggregate shipments have seen their usual seasonal slow down in recent weeks: with 15 MMT sailed through Week 32, that’s tracking 3% behind last year’s pace.
As a reminder for both countries, the Great Lakes / St. Lawrence Seaway is now officially closed and will not open until some time in mid-to-late March 2021. While this usual freeze-up period slows things down, through week 24 of 2020/21, Canadian wheat exports are tracking 29% higher year-over-year with 9.22 MMT sailed. Comparably, total durum shipments are up 11% year-over-year, with 2.55 MMT exported out of the country. While many expect these strong shipment trends to continue, I’m cognizant of how some cold weather on the horizon could slow down trains a bit.
Overall though, last week’s sell-off in grain futures will see some impact in the cash markets, and this volatility should continue for the next few weeks. Over this timeframe, we’ll start to get more acreage estimates of what Plant 2021 could look like, as well as any major trade policies that U.S. President Biden may implement that differ from his predecessor, namely on China. Amidst the volatility though, there’s a clear risk to the downside as the trade starts focusing more on new crop potential. To help aid farmers during this important time in grain marketing, a new feature, Target Offers, is launching on the Combyne Ag Trading Network, which gives you the ability to put in customized freight and target prices with up to 10 of YOUR buyers, without any risk of it being double-contracted.
President & CEO | FarmLead.com