Weekly Grain Market Recap

This week, it was a roller coaster ride in the grain markets between a friendly USDA report on Tuesday and a somewhat disappointing export sales report to round out the week on Thursday. Corn could not break through 450 on the first test since early October, while soybeans and wheat remain tightly rangebound. Volatility remains very low across corn, soybeans, and wheat and presents both traders and hedgers with a substantial opportunity to extend hedge coverage or directional exposure via long options. 

Corn: 

Corn was the star of the show on Tuesday. In lieu of a strong start to the marketing year, USDA opted to elevate domestic corn export projections by 150 million dollars. The move was warranted, as corn exports are off to their best start in more than 5 years, and USDA also increased domestic corn used for ethanol in a corresponding adjustment. The net result for the improved demand outlook was a larger-than-anticipated 200 mil bu reduction in ending stocks.  Optimism following the report sent March corn futures higher and laid the groundwork for the first retest of the psychologically significant 450 handle and 100-day moving average. Though March corn futures came within a penny of the October 2nd high, the inability to maintain the strength led to technical selling. That technical selling accelerated on Thursday with the disappointing export sales report that totaled just 945k MT – down 45% from the previous week. If corn futures can find support near the 437 ½ low from this week, we could see another retest of the early October highs sooner rather than later. Managed money also built into the hype, nearly doubling their net-long position to 165,890 contracts between futures and options. Overall, the outlook for corn is strong. In spite of the slow week in export sales, the U.S. remains very competitive on an FOB basis. 

Soybeans:

The WASDE was a virtual non-event for soybeans, as no changes were made to the domestic balance sheet. As such, soybean futures remained in a range-bound trade again this week, with March futures bouncing between 990-1000. Sooner or later, we’re bound to have a 20-25 cent move; the question is whether that move will be up or down. On the surface, the outlook for corn is much more friendly than soybeans. But is the risk of a South American production hiccup underpriced? Have tariffs been fully priced in at this point? In other words, there’s been a lot of bad news in the market for some time, and soybeans have defended the lows. Moreover, the long 2 corn-short 1 soybean spread has widened substantially (displayed below). With corn fundamentals improving, a catchup trade in soybeans seems more probable than a technical breakdown in corn. It’s again worth noting that volatility in soybeans is very low due to the coiling up in prices, which means that options premiums are deflated. Long options provide traders and hedgers the best immediate avenue to gain exposure in the direction they believe prices will eventually break out. 

Wheat: 

The domestic wheat balance sheets benefitted from a tightening global balance sheet in Tuesday’s USDA report. Between aggressive production shortfalls coming out of the EU, and Russia’s implementation of an export quota, U.S. wheat exports were bolstered by 25 mil bu. Arguably the most important takeaway from Tuesday’s report was that global wheat stocks are at their lowest level since 2017/18. Unfortunately, this has not had much effect on price as we’ve remained in rangebound trade akin to soybeans, but with wheat holding closer to its lows. To stage a turnaround, wheat bulls must defend 545 to make the argument for a head-and-shoulders bottom. 

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