Brooks Schaffer Market Report for Friday February 2

This is the Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

Corn and soybeans posted key reversals Tuesday. That is a technical trading term that is used when a market makes new lows but then closes higher. Bulls hope that means the market has run out of willing sellers and then moves higher. The longer we can hold those lows, the better the support is at those levels. The markets have not managed to gather enough strength for a good rally following the reversal, but at least they have been able to hold the lows. We have gotten some supportive news items this week. Argentina is experiencing a sudden heat wave that seems to be increasing next week. This increases the importance of the rains forecast in the 10 day models as the uptick in production in Argentina is needed to offset the losses in Brazil. Brazil harvest continues to progress with the early yields disappointing but the early beans are going to be the worst. The market expects yields to get better as we get into the later crop. Soybean meal exports were solid this week and higher than expected but bean sales were lower than even the lowest guesses and at a marketing year low. We saw a flash sale to Mexico but China’s absence has been a big weight on the market. There is still no shortage of news items pointing to concerns of the health of the Chinese economy. US December crush was just a little below expectations but still set the all time record high for any month. Crush margins have weakened significantly since December though so the market expects crush to start slowing down going forward. 

On corn we saw a much needed rebound in ethanol production. Output was up 21% from last week when many plants were forced to idle during the extreme weather experienced by much of the country. We also saw a big drawdown of ethanol stocks indicating a rebound in demand. The drawdown was the second biggest decline on record as gasoline demand rebounded. Exports on corn were solid and actually above expectations this week giving another reason for optimism. Wheat has also found a little optimism on rumors that China was sniffing for offers which gave corn another bullish nudge. 

We get USDA’s latest supply and demand update next Thursday, Feb 8th at 12 noon but the February report is usually a nonevent. They are not going to change the US supply side and typically only make minor changes on the demand side. They will update South America estimates which will be closely watched but USDA’s South American estimates are always taken with a grain of salt. 

I look for beans to remain more volatile than the other grains as we continue to trade a weather market watching South America production. I think we are still in a market that we need to be sellers of rallies.