This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
My catch phrase for the month of February may be the roller coaster continues in the grain markets. The markets are trading South American weather and weather markets are notoriously volatile. On top of that you throw all the additional geopolitical risks and uncertainty and it adds another level of fun. The USDA February supply and demand report came out Tuesday and as expected they made very few changes. Corn beans and wheat all close sharply lower on report day. The funds have built a sizable long position in corn and have been buying their short positions back in beans. Corn has had a strong move higher and beans have held up remarkably well in the face of a large South American crop on the way. But a bull market has to be fed and the bulls could not find much in the USDA numbers to hang their hat on. There has also been a significant shift in the weather in South America this week. Sizeable rains have moved through much of the driest areas of Argentina and Southern Brazil. The rains are forecast to continue and fill in more of the areas that have been missed. Center west Brazil that has been too wet is forecast to start drying out. That region has been receiving too much rain and has put bean harvest behind historic pace. This has also caused second crop corn planting to fall behind. The forecasted dry period should allow them to quickly catch up on both harvest and planting if it is realized.
Corn and beans showed what they are made of this week. Beans took a big hit on the weather shift and have not been able to gain back much of the losses. Corn though was able to bounce back relatively quickly. This reflects the relative tightness of corn in the world right now. Corn exports this week reflected the tightness with sales coming out at the very top end of very high expectations. Corn sales continue to run well ahead of the pace needed to reach USDA’s target for the year. Sometimes we worry about sales being cancelled later if they can be bought cheaper from other origins, but most of the sales made have already been shipped. These sales could be front loaded to countries that are worried about a trade war, but they cannot be cancelled. Ethanol production this week fell from last week’s near record, but ethanol stocks dropped significantly too indicating very strong demand. Soybean export sales were not impressive.
Brazil’s crop is late but instead of continuing to buy from us until they can source Brazilian beans, China has been selling beans out of their reserves. That throws a little cold water on the hope that China was going to start buying US commodities as a good faith gesture going into tariff negotiations. They made almost no attempt to meet the Phase 1 commitments made during Trump’s first term and there is/was hope they may at least pretend to start now when starting the negotiations with the new Trump administration.
Markets are going to continue to trade South American weather and try to price in the rapidly changing geopolitical risks. The next big data points we have coming are the USDA outlook conference at the end of February and then the Prospective Planting and Quarterly Stocks report March 31st.