Afternoon report: Thin holiday trading volumes also take some of the steam out of the ag markets ahead of Thanksgiving
Happy Thanksgiving Week! Remember – a lot of traders are out of the office for the holiday this week, so that can leave a lot of the price variation throughout the week dependent upon algo trading and low volumes.
Which is just a fancy way of saying that while Mom and Dad are away, the quants play! And that there might be some price activity this week that seems erratic and not easily explained. Don’t expect the markets to make or break your 2022 (or 2023) this week but remember that trading will revert back to normal(ish) conditions when everyone returns to the office next week.
Corn
Corn prices faced some headwinds today, falling $0.02-$0.04/bushel following estimates from a Brazilian trade group that the South American country will provide more export competition with U.S. corn growers in 2023.
Corn prices also faced resistance from spillover weakness in the wheat market, worries about a potential railway strike, and thin trading volumes.
Brazilian trade group, Anec, expects that Brazil will export up to 1.97 billion bushels of corn next year, provided that La Ni?a weather conditions do not cause a yield-crushing drought in the coming months in Brazil.
Brazil recently implemented a new trade agreement with China that will increase Brazilian corn export sales to China. Anec officials expect that up to 197 million of those Brazilian corn bushels will be shipped to China, which would make Brazilian corn more competitive with U.S. supplies as China seeks to diversify its grain originators.
Cash corn prices showed some signs of strengthening at an Ohio elevator, an Eastern Iowa processor, an Indiana ethanol plant, and on the Illinois River. Cash prices continue to be offered at a premium in the Western Corn Belt and at a discount in the East.
Processors continue to offer premium cash prices for corn across the Midwest. Ethanol plants in most areas of the Corn Belt have reverted back to offering wide basis bids after earlier production slowdowns this fall. Meanwhile, cash bids at river locations remain at a $0.15-$0.40/bushel discount to nearby December 2022 futures prices.
Overnight, an unlikely group of allies pushed the U.S. Congress to expand E15 blending. The American Petroleum Institute (API for short. AKA Big Oil), Renewable Fuels Association, and the National Farmers Union banded together to urge Congress to eliminate restrictions on E15 sales.
API’s reversal began earlier this year after the U.S. EPA eased some restrictions on E15 sales in corn-producing states across the Midwest this summer to reduce tight domestic fuel supplies. This summer’s EPA ruling, albeit temporary, created too much variation in fuel markets that is not likely sustainable for energy companies.
“A state-by-state approach would create a boutique fuel market in the Midwest and may negatively impact the reliability of gasoline supply to the region,” Will Hupman, API’s vice president of downstream policy, told Reuters last summer. “We urge Congress to pass legislation that allows for the year-round sale of E15 nationwide, cancels the pending requests from the Midwest states, and preserves access to lower ethanol gasoline blends.”
If Congress – and eventually the EPA – agree to scale back these restrictions, it would be a rare win-win situation for Big Oil and Big Ag. It would boost ethanol output at a time when export prospects for U.S. corn are struggling and the cattle herd continues to shrink.
“By ensuring uniformity across the nation’s fuel supply chain, federal legislation will provide more flexibility and result in more consistent outcomes than a state-by-state regulatory landscape,” the groups said in a letter viewed by reporters at Reuters.
USDA released its latest Crop Progress report through the week ending November 20 yesterday. This is the second to last Crop Progress report of the season. Next week’s report will be the last and will only feature harvest updates for cotton and peanuts and winter wheat crop conditions. It’s also the last week of corn harvest updates from USDA! Last week was the final week of reporting for soybean harvest.
As of November 20, 96% of U.S. corn had been harvested, up 3% from the previous week and 6% ahead of the five-year average. Harvest is wrapping up ahead of schedule in every major corn-producing state (except Pennsylvania). Wisconsin, Michigan, and Pennsylvania still have some fields left standing, though the majority of crops in those states have already been combined.
USDA’s 96% completion rate was on the low end of analyst expectations (96%-97%), but with most of the crop already out of fields, the pre-report analyst miss is not likely to make a difference in prices during the overnight trading session.
Soybeans
Soybean prices drifted $0.01-$0.04/bushel lower today amid thin trading volumes and worries about a potential rail strike that would halt movement of soybean supplies and will likely grind production schedules to a halt.
Worries also abounded about rising COVID-19 cases in China. Beijing officials stated that the recent surge is the most severe one yet faced by the country since earlier last spring. Beijing re-implemented some lockdown measures and re-tightened entry requirements in hopes of curbing the virus’s transmission.
But that means that China could face an economic contraction, which would reduce demand for ag and energy commodities and thereby introduce some bearish price trends into these markets.
Cash soybean prices strengthened at an Ohio elevator location today as well as at an Indiana and Iowa crush facility. Cash bids at processing locations around the Midwest range between $0.00-$0.65/bushel, with the higher premiums being offered in the Western Corn Belt. However, cash bids at river terminals destined for the U.S. Gulf remain at a discount to futures prices, varying between $0.00-$0.61/bushel below January 2023 futures prices.
Soymeal futures and cash prices drifted lower today on soft end user demand ahead of the Thanksgiving holiday. Many feed buyers booked soymeal purchases in advance of the holiday, slowing end user orders even as crush margins are profitable and soymeal supplies are accumulating. Spot bids at the U.S. Gulf for export shipments also softened.
Soyoil prices rose over 1% in today’s trading session. The gains followed higher Malaysian palm oil futures prices due to some bargain buying and favorable results from Indonesian biodiesel blending trials, which support higher usage of palm oil.
Some support was also derived from gains in the energy market after OPEC+ stood by its decision to keep planned output reductions in place going forward, which could constrain global energy supplies.
Wheat
U.S. wheat futures fell $0.01-$0.10/bushel in today’s trading session as worries persisted about a U.S. railway strike and thin trading volumes.
Market players have been speculating that the U.S. has imported wheat from the European Union. An anonymous trader told Reuters that a Florida mill has purchased either German or Polish wheat. E.U. wheat prices traded higher today as the supplies regained a competitive advantage over competing Russian supplies.
Losses were limited by dry weather across the U.S., which continues to stunt winter wheat crop development across the Heartland, but especially in the Southern Plains.
“U.S. hard red winter wheat areas will continue dry biased and warming this week will attempt to stimulate new plant development in the southern Plains,” Terry Reilly, senior analyst with Futures International, told Reuters this morning.
Winter wheat condition ratings held steady at 32% good to excellent for the second straight week. Analysts had been banking on at least a 1% increase in the winter wheat ratings leading up to the report, but USDA did not warrant a change from last week, opening the door to some potentially bullish price action in the overnight wheat markets.
Winter wheat conditions have been improving in recent weeks, but poor conditions this fall due to drought across the Midwest and Plains means that Fall 2022 conditions for the 2023 growing season are likely worse than the 2012/13 season, which had the lowest fall condition ratings prior to this year.
Winter wheat emergence rates surpassed the five-year average thanks to more moderate fall weather and some precipitation across the Midwest and Plains over the past week. As of November 20, 87% of the U.S. winter wheat crop had emerged, 1% ahead of the five-year average for the same reporting period and 6% ahead of last week’s rates.
Rail strike
The U.S.’s largest rail workers union struck down a vote on a deal with railways in protest over paid sick leave terms today. The vote raises the risk that a rail workers strike could be imminent and could shutdown grain and fertilizer supplies for farmers who are already facing logistical hurdles amid low river levels and delayed shipping paces on the Mississippi River.
“We’re heavily reliant on rail and particularly reliant on rail right now because of the Mississippi River,” Matt Ziegler, manager of public policy at the National Corn Growers Association, told Bloomberg late last week. “This potential strike is coming at an inopportune time with that factor and also the fact that we’re finishing up harvest.”
Soaring diesel costs mean that any grain, fertilizer, or other ag supply shipments that need to be diverted from the railways or rivers in the coming weeks are likely to incur a steeply expensive bill – if that option is not already altogether cost prohibitive.
Union Pacific issued notices to fertilizer companies last week to limit shipments via railways to help reduce railway congestion. Lewis Williamson, a managing director at HTS Commodities in Memphis, told Bloomberg that some food companies had idled production amid congested railways and limited car inventories, so the strike is not likely to help ease these supply chain issues at all.
The newly rejected deal, which was written by a board of advisors appointed by President Biden following earlier strike threats in late August 2022, was just narrowly rejected by the railway workers in the transportation division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD) union.
The new worry is that if the dispute between the railways and their workers continues into the new year, workers could see less favorable resolutions if Congress is forced to get involved as the U.S. House shifts to Republican control.
“I see a minimal improvement in sick pay, and huge pressure from the (Biden) administration to accept a deal,” Joe Brock, a former Teamsters local president and current principal at Reliant Labor Consultants, hypothesized in a Reuters article. Brock’s comments suggest that the rail workers may be running out of bargaining leverage after this failed vote.
For more details on the strike, I highly recommend checking out this Reuters article.
Weather
Happy Thanksgiving week! Mostly clear skies are forecasted for the Heartland this week, according to NOAA’s short-term forecasts. A chance of snowfall is possible tonight along the Canadian border in Michigan’s Upper Peninsula, though any accumulation will likely remain light.
NOAA’s 6-10-day forecasts are now trending warmer than average for the Southern and Central Plains and Eastern Corn Belt but cooler for the West and Northern Plains through the end of November. Chances for rain will be above average for the North and Central Plains and entire Midwest during that time.
Those trends will stay consistent in the 8-10-day outlook with only slight shifts expected. Temperature forecasts will remain warmer than usual for the Southeastern half of the country, but cooler temperatures will start to shift into the Upper Midwest during that time. The above average chances for rain will recede slightly from the Central Plains during that period, but will continue to linger above the Northern Plains, Great Lakes Region, and Eastern Corn Belt.
Financials
S&P 500 futures gained 1.36% today, breaking past the $4,000 benchmark to close today’s session at $4,003.58. Trading volumes are thin due to the impending holiday and some of today’s gains are likely attributed to bargain buying after yesterday’s losses.
“The more negative tone out of China yesterday has only added to existing fears about a U.S. recession over the coming months,” said Deutsche Bank strategist Jim Reid in a note, as reported by the Wall Street Journal.
What else I’m reading this morning on our website, FarmFutures.com:
Water Street Solutions’ CEO Darren Frye has three tips so that farmers can use 2022 as a springboard into 2023.
Bryce Knorr has calculated out crop budgets for the 2023 growing season and all signs point to profits as 2022 comes to a close.
Is another rail strike on the horizon? This Bloomberg article reports how farmers will be impacted by a railway shutdown.
The last Feedback from the Field column from the 2022 growing season, which features a yard update!
My latest E-corn-omics column features a recap of the top highlights from last Tuesday’s USDA Data Users’ Meeting.
Last week was a busy one at USDA. Here are all the agency’s announcements over the past week.
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