This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Well after making a big deal for the last few weeks about how the December USDA report was going to be a nonevent and there were not going to be major changes, I had to eat my words a little on Tuesday. It is much easier to eat my words when it is a bullish surprise from USDA. The surprise was that they raised demand and dropped domestic corn carryout by 200 million bushels, which is a huge amount. This actually takes corn carryout below last year’s. We knew exports and ethanol demand were running way ahead of the pace needed to reach their estimate for the year but thought they would be pretty conservative on making adjustments since there are so many unknowns going into the new year with the incoming administration. The question is if these exports are really front loaded as countries rush to buy bushels now as a buffer for a possible trade war. Is the pace going to fall off dramatically later in the marketing year? Even with this large change you can say this was a conservative change from USDA since we are still well ahead of pace to reach the new higher estimate of exports.
After a 200 million bushel reduction to the balance sheet, March corn closed up 7 cents. There are many years we would expect a limit move from a 200 million bushel shift in the balance sheet. One thing that has kept the market from rallying more is farmer selling. There is a lot of the crop that needs to be priced and March corn has rallied 25 cents since Thanksgiving week. Basis is strong across most of the country so a lot of farmers have let corn go on this strength. I do not always like to run with the herd but in this case I think it is wise to be getting corn priced. If demand continues to improve, we could see additional upside and i hope we do. But there is always risk in the unknowns and we have a lot of unknowns right now.
As expected, USDA did not make any meaningful changes to wheat or beans. We are ahead of the pace needed to reach USDA’s target on beans as well, but seasonally we expect that to fall off dramatically as we get closer to the South American crop. The weekly export sales recap this week was very disappointing for corn, beans and wheat. Corn sales were below even the lowest trade estimates and at an 11 week low. Soybean sales were also lower than expected and at a marketing year low. The one bright spot was soybean oil. Soybean oil has been the leader helping pull beans higher despite no threatening weather in South America still. A vegoil rally may give us pricing opportunities but i do not see a scenario where it can give us a sustained meaningful rally in soybeans. It is going to take a weather problem in South America to get a sustained rally. So far the weather has been close to ideal, if anything they have maybe been a little too wet so a short period of dry will not be perceived as a threat to the crop. However as we move into Jan and then Feb the water requirements of the crop will continue to go up so regular precipitation will be required. There is no threat on the horizon right now, but they still have a lot of growing season left. If they make a bumper crop there will be some downside in the market, but if we see a weather threat the market is going to have to react.