Soy rally on Brazil harvest delays lifts corn, soy. (Comments are updated by 7:30 a.m. Central Time.)
South American, Chinese supply concerns propel rally in the grain markets
Corn up 6-11 cents
Soybeans up 17-27 cents; Soymeal up $7.40/ton; Soyoil up $0.14/lb
Chicago wheat up 8-9 cents; Kansas City wheat up 8-9 cents; Minneapolis wheat up 10-11 cents
*Prices as of 7:00am CST.
Corn
Corn followed gains in the soy market $0.07-$0.11/bushel higher overnight, as well as a strong opening in the Chinese markets. Gains were capped by advancing second-crop corn planting in Brazil, which appears to be much farther ahead of last year’s paces despite untimely rains delaying soybean harvest in the South American country.
Brazilian agribusiness consultancy AgRural expects that 18% of the country’s first season corn crop has been harvested, up 4% from the same time last year. Second crop corn planting in Brazil’s Center-South region is projected at 24%, up from a meager 3% this time last year.
Chinese markets resumed trade overnight, following last week’s holiday to celebrate the annual Spring Festival (Lunar New Year). “External markets rose a lot during the Spring Festival holiday while the domestic market was closed. Now domestic futures in general rose (following the rally in the external markets),” Zou Honglin, analyst with the agriculture division at Mysteel, a China-based commodities consultancy, told Reuters overnight.
While oil futures sagged overnight in the U.S., though derivative products saw a price bump, China’s exchanges followed last week’s seven-year highs on cold U.S. forecasts and global unrest. Crude oil futures on the Shanghai Futures Exchange jumped up 5% overnight. Liquefied petroleum gas futures prices on the Dalian Commodity Exchange rose 10% higher.
High livestock feed rates in China added some strength to corn prices this morning. U.S. officials pressed for “concrete action” to hold China accountable for its Phase 1 trade negotiations overnight ahead of widely regarded export data to be released by the U.S. Census Bureau and USDA’s Foreign Agricultural Service tomorrow morning.
China has only purchased about 60% of its Phase 1-negotiated volumes as of November 2021. Both sides have traded spats amid the opening of the 2022 Beijing Winter Olympics in the latest signs of goodwill – or lack thereof – between the two countries.
“Because we inherited this deal, we engaged the (People’s Republic of China) on its purchase commitment shortfalls, both to fight for U.S. farmers, ranchers and manufacturers and give China the opportunity to follow through on its commitments. But our patience is wearing thin,” an unnamed U.S. official told Reuters.
“For the specific problems which emerge in economic and trade relations between the two countries, both sides should appropriately solve them in the spirit of mutual respect, equality and consultation,” Zhao Lijian, a spokesman for China’s foreign ministry, said in an overnight news conference.
Soybeans
“Erratic” rains in Argentina combined with rain-induced harvest delays in Brazil renewed supply concerns about South America’s soybean and corn crops in the markets this morning, sending Chicago futures rallying $0.17-$0.27/bushel higher overnight.
Only 16% of planted soy acreage in Brazil has been harvested, compared to 10% last week. Last year, similar rain delays saw soy harvest rates at 4% during the same reporting period. Quality concerns are also popping up as the excess rainfall offsets ideal plant moisture levels at harvest, according to Brazilian agribusiness consultancy AgRural.
Top producer Mato Grosso has been hit hardest by the untimely rainfall, with increasingly rising moisture levels in soybeans delivered to elevators requiring more time to blend or dry down before being shipped further down the supply chain. The hold ups could stall export volumes if the soggy weather continues.
“Despite the good weekly progress, work was slower than expected due to constant rains in Mato Grosso, Minas Gerais, Sao Paulo, Mato Grosso do Sul and part of Goias,” the company said in an overnight statement.
Lagging production and export volumes in top palm oil producer Malaysia contributed to higher soyoil prices this morning while frigid weather continues to drive up domestic livestock demand in the soymeal market.
Rallies in the Chinese markets helped to support gains in the U.S. soy market this morning. On the Dalian Commodity Exchange, soybean meal and rapeseed meal futures shot up 8% after the Spring Festival holiday break. Soyoil and palm oil futures rose 5%-6% higher, to 9.5- and 13.5-year highs, respectively. Rapeseed futures on China’s Zhengzhou Commodity Exchanged topped out at a record high of $2,030.60/tonne.
“There is continued expectation that the new soybean crops in South America, including Brazil, Argentina, and Paraguay forecasts would fall. Crude oil is also rising, which supported edible oilseeds as well,” Zou Honglin continued in overnight comments to Reuters.
Wheat
A weakening dollar and dry forecasts for the U.S. Plains sent wheat prices following those of corn and soybeans higher this morning. Ongoing Ukraine-Russia invasion concerns and inflationary pressures also appeared to be welcoming more investment funds into the ag commodity space.
“Wheat continues to receive support from political tension between Russia and Ukraine, with concern a possible conflict could disrupt Black Sea wheat exports,” StoneX commodity risk manager Matt Ammermann told Reuters overnight.
“Grains and soybeans are also receiving support from the fear of inflation now in focus in the outside financial markets. If markets fear inflation, they commonly trade this by investing in grains and energy commodities.”
Weather
Another day of mostly clear skies is forecast for the U.S. Heartland today after heavy winter precipitation activity last week, according to NOAA’s short-range forecasts. A chance of snow showers is possible overnight in the Great Lakes region, though any accumulation over the next 24 hours is not likely to be significant.
Financials
USDA’s Economic Research Service released its first look at 2022 farm-level profitability on Friday. Even though annual net farm income projections are slightly lower than last year’s eight-year high (in nominal terms), 2022 will likely be another profitable year for U.S. farmers.
Below is a recap of Friday’s report. For a full summary, you can read our team’s coverage of the report on our website. Have a good week!
USDA’s Economic Research Service (ERS) released its first look at 2022 Farm Financial Indicators today and the results were somewhat mixed for Farm Country.
While 2022 cash receipts for crop and livestock sales are expected to rise 5.1% and 8.9%, respectively, on soaring commodity prices and inflationary pressures, the same phenomena will also limit the profit outlook. ERS forecasts an $18.1 billion (5.1%) annual increase in production costs and lower government assistance programs to farmers will be the contributing factors to the $5.4 billion annual loss in on-farm profits this year, leaving net farm income at $113.7 billion in 2022.
“All crop farms will see production costs rise and lower government payments in 2022,” Carrie Litkowski, senior economist and program leader in the Farm Economy Branch within ERS’ Resource and Rural Economics Division, said in a webcast on Friday afternoon.
The ERS revised previous forecasts for Calendar Year 2021 on-farm income $2.3 billion higher since December 2021 to a record-setting $119.1 billion on rising commodity prices late in the 2021 calendar year, which boosted cash receipts for crop (+$5.3B) and livestock (+$3.6B) sales.
To be sure, USDA’s 2022 farm income forecast of $113.7 billion is nothing to shrug at thanks to the high revenue potential of soaring commodity prices. It is the third largest annual net farm income in nominal terms in the history of the U.S. farm economy, trailing only 2013’s $123.7 billion and last year’s $119.1 billion net farm income hauls.
But for farmers struggling to navigate a high-cost environment and persistent supply chain issues, that fact likely offers little comfort especially as many operators begin to develop longer-term forecasts.
High production costs & inflationary pressures
“Nearly all categories of expenses are forecast to be higher in 2022, with feed and fertilizer-lime-soil conditioner purchases expected to see the largest dollar increases,” the ERS Farm Income team stated on its website.
Litkowski observed that when adjusted for inflation, 2022 farm input costs will be the highest since 2015. “We’re expecting production expenses to increase in both 2021 and 2022 in the inflation-adjusted series,” Litkowski noted.
Total production expenses in 2022 will rise to the highest level since 2015, after being adjusted for inflation. Much of that increase is tied back to higher feed prices, which are derived from high grain prices currently trading in the market. Feed is also the largest expense in the farm sector, magnifying the ag industry’s pain.
“We’re forecasting higher prices to continue trending into 2022,” Litkowski warned. Fertilizer costs in 2022 are slated to rise 12% – the largest annual increase from 2021 of all the aggregate input costs. High NPK prices are the chief driver behind the surge, but Litkowski also hinted that USDA is forecasting higher acreage in 2022 that will require additional fertilizer spending.
Waning government support
Government payments to farmers in 2022 will drop 57% from last year to a mere $11.7 million – the smallest subsidy volume directly paid to farmers since 2017. Government payments in the four previous years totaled an astounding $108.9 billion due to ad hoc programs, such as Market Facilitation Program and COVID-19 relief payments.
Payments trended lower following 2020 and have fallen $34 billion in the two years following the pandemic’s onset and disastrous trade relations with China. “Government payments are another source of income for farmers and have been rather volatile in the last several years,” Litkowski surmised.
Thankfully, strong cash receipts will play a major role in offsetting much of the pain associated from less government support, especially as smaller sums are paid out from crop revenue insurance programs such as the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs in the era of high commodity prices.
“In 2022, net farm income, less net federal indemnities and government payments, will rise 2.9%,” Litkowski shared, offering little hope for further government assistance in 2022.
Implications for row crop producers
While cash receipts are on the rise, the timing of farmer sales will factor heavily into 2022 profit outlooks. “Crop receipts are forecast to increase $12 billion in 2022,” said Litkowski. “But about $9 billion in crop sales in 2022 are expected to be from 2021 inventories.”
The ERS increased 2021 cash receipts for crops and livestock by $5.3 billion from earlier December 2021 forecasts to reflect sales of 2021 crops in the 2022 calendar year at current high forecasted prices. Crop sales accounted for more than two thirds of the revised uptick.
And it’s a trend that will likely stick through the 2022 calendar year. Litkowski’s team found that higher quantities of soybean, corn and wheat sales in 2022 are likely to be the driving force behind the record cash receipts. Corn and soybean cash receipts will top out at the “highest level since their peak in 2012,” Litkoski noted.
“We can do a simulation to find if the change is coming from higher prices or higher quantities sold,” Litkowski explained, citing National Agricultural Statistics Service (NASS) data as the primary source of farmer selling patterns in the marketplace.
Unfortunately, price could be a limiting factor for the cash sales. USDA expects more acres to go into crop production in 2022, which could limit upward price potential for row crop farmers.
Dynamics in the livestock market are likely to be opposite. “I think it’s very interesting that crops and livestock tell such a different story when you look at it from this perspective,” Litkowski mused after explaining that higher livestock cash receipts in 2022 are likely to be earned on higher prices and fewer quantities sold this year.
Also worth a read on our website, FarmFutures.com
Bill Biedermann breaks down potential grain market impacts if Russia invades Ukraine.
My latest E-corn-omics column examines why cattle consumption of corn is facing headwinds in both the U.S and Canada.
Even with a smaller cattle herd, Naomi Blohm expects that corn fundamentals will remain bullish in next week’s WASDE report.
Roger Wright explains why soybean prices jumped $0.20/bushel higher in a minute last Wednesday.
Morning Ag Commodity Prices – 2/7/2022
Contract
Units
High
Low
Last
Net Change
% Change
MAR ’22 CORN
$ / BSH
6.32
6.2475
6.3175
0.1125
1.81%
MAY ’22 CORN
$ / BSH
6.3325
6.2625
6.3325
0.115
1.85%
JUL ’22 CORN
$ / BSH
6.2975
6.2275
6.2975
0.1125
1.82%
SEP ’22 CORN
$ / BSH
5.9425
5.8975
5.9425
0.0825
1.41%
DEC ’22 CORN
$ / BSH
5.81
5.7725
5.8075
0.07
1.22%
MAR ’23 CORN
$ / BSH
5.8775
5.8425
5.875
0.0675
1.16%
MAY ’23 CORN
$ / BSH
5.9025
5.87
5.8975
0.0625
1.07%
MAR ’22 SOYBEANS
$ / BSH
15.84
15.6525
15.83
0.295
1.90%
MAY ’22 SOYBEANS
$ / BSH
15.865
15.6725
15.855
0.28
1.80%
JUL ’22 SOYBEANS
$ / BSH
15.8175
15.625
15.805
0.27
1.74%
AUG ’22 SOYBEANS
$ / BSH
15.42
15.25
15.4175
0.265
1.75%
SEP ’22 SOYBEANS
$ / BSH
14.65
14.4475
14.64
0.245
1.70%
NOV ’22 SOYBEANS
$ / BSH
14.2125
14
14.2025
0.245
1.76%
JAN ’23 SOYBEANS
$ / BSH
14.16
13.945
14.1575
0.235
1.69%
MAR ’23 SOYBEANS
$ / BSH
13.88
13.695
13.8675
0.19
1.39%
MAY ’23 SOYBEANS
$ / BSH
13.75
13.635
13.75
0.165
1.21%
MAR ’22 SOYBEAN OIL
$ / LB
66.45
65.07
65.56
0.2
0.31%
MAY ’22 SOYBEAN OIL
$ / LB
66.5
65.12
65.61
0.21
0.32%
MAR ’22 SOY MEAL
$ / TON
452.3
445.9
452.1
8.2
1.85%
MAY ’22 SOY MEAL
$ / TON
450.6
443.9
450.5
8.7
1.97%
JUL ’22 SOY MEAL
$ / TON
447.9
440.8
447.3
8.5
1.94%
AUG ’22 SOY MEAL
$ / TON
436.6
429.3
436.4
8.6
2.01%
SEP ’22 SOY MEAL
$ / TON
419.1
413.3
418.6
6.1
1.48%
MAR ’22 Chicago SRW
$ / BSH
7.765
7.6625
7.7325
0.1
1.31%
MAY ’22 Chicago SRW
$ / BSH
7.8325
7.735
7.7975
0.0975
1.27%
JUL ’22 Chicago SRW
$ / BSH
7.755
7.655
7.7275
0.11
1.44%
SEP ’22 Chicago SRW
$ / BSH
7.7525
7.675
7.735
0.105
1.38%
DEC ’22 Chicago SRW
$ / BSH
7.7975
7.71
7.775
0.1
1.30%
MAR ’22 Kansas City HRW
$ / BSH
7.9925
7.8925
7.97
0.1125
1.43%
MAY ’22 Kansas City HRW
$ / BSH
8.0175
7.9325
8.005
0.11
1.39%
JUL ’22 Kansas City HRW
$ / BSH
8.0375
7.9425
8.02
0.1125
1.42%
SEP ’22 Kansas City HRW
$ / BSH
8.07
7.9825
8.06
0.115
1.45%
DEC ’22 Kansas City HRW
$ / BSH
8.13
8.0825
8.13
0.1075
1.34%
MAR ’22 MLPS Spring Wheat
$ / BSH
9.24
9.1625
9.23
0.1
1.10%
MAY ’22 MLPS Spring Wheat
$ / BSH
9.215
9.1375
9.205
0.1
1.10%
JUL ’22 MLPS Spring Wheat
$ / BSH
9.135
9.07
9.13
0.1025
1.14%
SEP ’22 MLPS Spring Wheat
$ / BSH
8.9075
8.87
8.89
0.0775
0.88%
DEC ’22 MLPS Spring Wheat
$ / BSH
8.7975
8.7975
8.7975
0.0475
0.54%
MAR ’21 ICE Dollar Index
$
95.62
95.365
95.37
-0.11
-0.12%
MA ’21 Light Crude
$ / BBL
92.73
90.73
91.53
-0.78
-0.84%
AP ’21 Light Crude
$ / BBL
90.97
89.08
89.86
-0.47
-0.52%
MAR ’22 ULS Diesel
$ /U GAL
2.9318
2.878
2.9003
0.0252
0.88%
APR ’22 ULS Diesel
$ /U GAL
2.7939
2.7475
2.765
0.0049
0.18%
MAR ’22 Gasoline
$ /U GAL
2.72
2.6697
2.6874
0.0089
0.33%
APR ’22 Gasoline
$ /U GAL
2.8162
2.7671
2.7847
0.005
0.18%
MAR ’22 Feeder Cattle
$ / CWT
0
#N/A
166.1
0
0.00%
APR ’22 Feeder Cattle
$ / CWT
0
#N/A
171.425
0
0.00%
FE ’21 Live Cattle
$ / CWT
0
#N/A
142.05
0
0.00%
AP ’21 Live Cattle
$ / CWT
0
#N/A
146.875
0
0.00%
FEB ’22 Live Hogs
$ / CWT
0
#N/A
87.025
0
0.00%
APR ’22 Live Hogs
$ / CWT
0
#N/A
100.075
0
0.00%
FEB ’22 Class III Milk
$ / CWT
20.84
20.73
20.73
0.03
0.14%
MAR ’22 Class III Milk
$ / CWT
21.7
21.66
21.7
0.04
0.18%
APR ’22 Class III Milk
$ / CWT
21.96
21.89
21.96
0.16
0.73%
