Grains lost ground before the holidays

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It is amazing how fast four years can go by. Martinson Ag started writing this column four years ago and in that time we have seen an unprecedented time in agriculture. We have seen floods followed by drought, and sometimes both within the same year. Currently the markets seem to be in another transition, as the U.S. sees strong production and a slowdown in export demand which is starting to increase stocks. But a new fledging use is starting to gather attention that could become the next big thing:

renewable diesel fuel

and

sustainable aviation fuel

. This will be Martinson Ag’s last article for Agweek. We would like to thank our readers for the past four years. It is always an honor to hear from you who read the article and we appreciate your feedback.

The third week of December had the grains losing ground once again. The grains started the week on the defense, extended those losses midweek, and then spent the rest of the week trying to dig their way out of the hole they had dug. It was a rough week to gather strength due to thin holiday trading. Money flow could be an issue as traders start to look to rebalance their portfolios ahead of year end. The latest news from the Federal Reserve has brought more confidence into the stock market and that could result in the exodus of some money out commodities.

The grains put in a mixed performance Dec. 18 with wheat and corn ending lower while soybeans and the soybean complex all closed with gains. Wheat is seeing a bit of pressure from rain in the U.S. southern Plains, which has helped improve the winter wheat crop. Selling is also tied to reports out of Argentina of better-than-expected yields, but quality is starting to become an issue to the heavy rain.

Corn followed wheat lower as corn continues to search for news. A 2 billion bushel ending stocks estimate continues to weigh heavy on corn, but it is a victory that corn does not sell off harder due to lack luster exports. Corn seems to be patiently waiting to see the outcome of Brazil’s safrinha corn crop.

Soybeans were able to shake off early selling pressure and push higher on Dec. 18. Support continues to come from Brazil as hot and dry conditions continue. That is expected to linger for the next 5 to 7 days and then general rains are expected to move into the northern regions of Brazil.

The grains put in a mixed session on Dec. 19, with once again, the grains trading in the opposite direction of the day before. Wheat pushed higher on rumors of Mexico purchases while soybeans were lower on weather forecasts that, for the first time this season, has put rain for northern Brazil in the 3-to-5-day forecast. Corn followed soybeans lower, closing at a new low.

The Dec. 19 session had soybeans pushing lower due to weather forecasts putting the much talked about rain even for northern Brazil in the short-term forecast. Up until now, the rain event was always six to 10 days out, now the system is expected to start moving into the northern regions of Brazil midweek and expand over the weekend. The models are not in agreement with this rain event so we will see which one is correct.

Another interesting development in soybeans. January futures are about to go into delivery. First notice was on Dec 29, which means that all longs not willing to take delivery of soybeans needed to either liquidate or roll their positions by close of markets Dec. 28. That would result in the need to sell the January futures contract and if rolling position ahead, the need to buy a further out contract. This would result in the spread between the January and further out contracts to widen (selling January would force January lower while buying the deferred would be supportive).. But just the opposite has been happening. January is gaining on the deferred months, which is a signal of strong demand. The spread has gone from 19 cents on Dec. 12 to only 6.5 cents by the end of the week prior to Christmas.

The grains put in a lower performance on Dec. 20. Wheat and corn took the path of least resistance and faded lower while soybeans were pressured by rain in northern Brazil. The rain finally showed up, but the traders are not convinced that it will help much as the market is not selling off as hard as one would expect.

The Dec. 20 session seemed to be more about profit taking and evening up positions ahead of the holidays than it was about anything else. Wheat was the weakest performer as once wheat started to come under pressure there was nothing under the market to slow down the selloff. Slow demand and reports of higher production in Russia all added to the pressure in wheat. Technically wheat is holding above lows. Demand is still the main missing ingredient for wheat.

Corn continues to play the follower role as once wheat came under pressure corn took the path of least resort. And the fact that corn does not have to do much in the short term added selling pressure. Stocks at just over 2 billion bushels show corn has plenty of supply available to bridge the gap until the 2024 crop is harvested, and with demand stagnate for corn, there doesn’t seem to be a reason to be concerned stocks won’t remain plentiful. That is until we get a better handle on the safrinha corn crop. Analysts continue to trim the size of Brazil’s corn crop due to expectations that the safrinha crop will be much smaller than originally expected due to late planting and lack of return corn is showing. This won’t be known until the middle of January to mid February. So don’t look for corn to start getting interesting for another month. Technically corn did trade to another new contract low.

Soybeans continue to be quite interesting. The rain has finally arrived in northern Brazil but soybeans only posted modest pressure. To add to the support, a couple private analysts released their production estimates for Brazil soybeans. One put their estimate at 153 million metric tons, which was down 5 million metric tons while Celeres put their estimate at 156.5 million metric tons. Add in the rumor China bought 3 to 4 cargos of U.S. soybeans (no confirmation) and you have a friendly situation.

The grains were able to put in a decent performance to close out last week, trimming the losses for the week slightly. Improving weather conditions in Brazil and thin light holiday trade were the main reasons for the pressure.

As of Dec. 15, Brazil’s soybean planting progress was estimated at 97% complete versus 95% the week prior week and 98% average. First crop corn planting was estimated at 98% complete versus 97% the week prior and 100% average.

Last week the U.S. dollar sold off to recent lows which is supportive, while gold and the Dow surged to new contract highs, which is concerning as although it is friendly as if shows an improving economy, it is slightly concerning as the stronger financial sector could start to lure money out of the commodities and into the stock market.

Cattle pushed higher during the third week of December with most of the support being tied to technical buying and position squaring ahead of USDA December reports as well as ahead of year end position squaring. The U.S. Department of Agriculture’s December Cattle on Feed report was slightly negative cattle as the on feed estimate was above expectations as was the placement category while marketing was below expectations. Cash activity took place between $171 and $172, $3 to $4 higher than the previous week.

The Quarterly Hogs and Pigs estimate was also slightly negative. All hogs and pigs were higher than expected, kept for breeding was below expectations, and kept for marketing was above expectations. All weight groups were also above expectations.

“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”