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Grain Insights - Bowling Green Office

By: Kendra Dauer, Risk Management Consultant

Grain Insights: Bowling Green Office

Cash Market Update: 1/6/21

Santa Clause brought a rally to the grain markets to wrap up 2021. This has helped push some bushels out of the producer’s bin. End-users feel covered, and basis has weakened coming into the new year. This has been the case across the entire corn belt but the CH:CK spread does not reflect this while currently trading around even money. One issue that is not helping the CH:CK spread is the funds being pushed into grains as a hedge against inflation. Speculators tend to place their bets in the front month. Is now the time to look at Calendar Spread Options?

Bean basis has backed off as well coming into the new year, but the SH:SK spread has been favorable to those who are looking to carry. Splitting hedges into between March and May looks to be a viable option as the SK:SH spread has a chance to continue to widen.  - Drew VanWinkle

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Weekly Insight:
South American production and weather concerns continue to be a hot topic in grain market news. Weather issues in Brazil have fed into the recent volatility we’ve seen in soybeans; the November 2022 soybean contract rallied last month – trading at the highest level since July. StoneX cut their production estimates earlier this week, with many traders expecting the USDA to do the same on January 12th. StoneX lowered their soybean production estimate by 11 mmt from last month, with the corn production estimate down 2.5 mmt. Our “Boots on the Ground” report from the StoneX Brazilian team confirms that there was a lack of rain in the month of December, leading to the potential of significant losses in a small portion of the country. Timely rains over the next month or so could aid in production estimates maintaining their current levels. Large old crop stocks have limited Brazilian soybean basis from rallying, especially with harvest approaching. Basis post-harvest will be the attention grabber of news wires, especially if the crop size continues to decline. The 14-day forecast looks to be wetter, however some areas continue to miss out on much needed rain. - Kendra Dauer

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Brazil will have more planted acres this year than ever before, up more than 3 million acres than last year. USDA had Brazil’s final production at 138 mmt in the year of 2021 and was projected at 144 mmt for 2022. WASDE has an estimated demand for Brazil above 140 mmt. If production problems are occurring in South America, it could lead export interest to the U.S during Brazil’s export season. - Drew VanWinkle

 

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