Perspective: Mid-Day Commentary for December 20

By: Arlan Suderman, Chief Commodities Economist

Mon, 20 Dec 2021, 17:28

Perspective: Midday Commentary

Arlan Suderman

Chief Commodities Economist

December 20 - Stocks remain under significant pressure at midday, as Wall Street worries about the negative economic impact of increasing global restrictions to slow the spread of the Omicron variant of Covid-19. The VIX is trading near 25 at midday, while the dollar index is trading near 96.4. Yields on 10-year Treasuries are trading near 1.40%. Crude oil prices are down by nearly 6% on Omicron fears, which puts them down 22% from their October highs. However, the Ag commodities are performing relatively well thus far in this broader "risk-off" atmosphere, with soybeans and wheat trading mixed to higher, while corn prices post modest losses, along with the protein sector. Soyoil prices followed crude oil lower, helping to support soymeal in crush spreads, which pushed soybean prices into the green. Demand for wheat remains strong on the recent price break as well, while corn prices continue to consolidate just below areas of significant chart resistance. Meanwhile, the sharp sell-off in the equities weighed on the protein complex today, keeping it in the red.

USDA inspected 61.7 million bushels of soybeans for export shipment in the week ending December 16, as shown in the graphic below, along with 39.4 million bushels of corn, 12.5 million bushels of grain sorghum and 7.8 million bushels of wheat. The portion of the above shipments that were heading to China included 34.7 million bushels of soybeans, 8.2 million bushels of corn, 12.3 million bushels of grain sorghum, and no wheat. We're a little over half way through the wheat marketing year currently, and just over a quarter of the way through the marketing years for the other three above mentioned commodities. Marketing year to date wheat shipments fall short of the seasonal pace needed to hit USDA's target by 25 million bushels, so there is some risk that USDA may need to further cut its target. Marketing year grain sorghum export shipments to date fall short of the seasonal pace needed to hit USDA's target by 9 million bushels, but sales to China have been strong in recent weeks, and shipments are picking up the pace, so that target may actually need to increase down the road.

That puts the primary focus on corn and soybean shipments in the weeks and months ahead. My corn export target is currently 2.4 billion bushels, down 100 million from USDA's target of 2.5 billion bushels. This year's sales on the books exceed the seasonal pace needed to hit USDA's target by 197 million bushels, largely due to big sales to China last winter and spring, which have yet to be shipped. But actual shipments fall short of the seasonal pace needed to hit USDA's target by 186 million bushels. Whether we end up above or below USDA's target will likely hinge largely on buyer perceptions about the 2022 crop amid record high fertilizer prices and regionalized shortages. Dependence on U.S. supplies increases if the world fears a shortage, while the opposite is true if those fears ease in the months ahead. As for soybeans, export sales to date fall short of the seasonal pace needed to hit USDA's target by 37 million bushels, while actual shipments exceed the pace by 9 million bushels. Note in the graphic below that weekly shipments started slow, were strong in October and November, but that they are rapidly trending lower again as we approach the Brazilian harvest of cheaper supplies that will soon be available. It's this early availability of those cheaper Brazilian supplies that makes me fear an early demise of our seasonal export season, leading USDA to have to cut its target.

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