Last week, I made a big deal about having to write a column for a week in which nothing ever happens. I made the case for a slow week of trading between Christmas and the New Year, and then I fell on my nose.
In fact, last week the March corn futures gained over 12 cents, March soybean futures gained 391⁄2 cents, and Chicago March wheat gained 18 cents.
In the case of wheat, the market rallied Dec. 30 without any news to support the move. This defines a technical correction, where the chart argues for a move that nobody watching fundamentals sees coming.
In hindsight, traders talked about the two issues that you have read about here. That is, the fall drought that has caused unknown damage to the hard winter wheat production in the Great Plains and the continued war in Ukraine that many of us expect to create large production and export problems, but that are currently being ignored by the market.
As I have been saying, it is hard to understand why Ukraine is one of the world’s crucial wheat exporters, but the price of wheat is lower than when the war began.
The corn markets are more of a mixed bag. There are bullish news items and bearish. It is bullish that Argentina is having weather problems that will significantly limit their corn crop.
The planting was delayed by dry weather, since the farmers will not plant without significant moisture that will germinate the seed. The planting was cut off short of expectations eventually, so acres are limited. The result is one private estimate of a crop of 46 MMT, down from 51.5MMT last year.
Argentina feeds 13MMY a year, so they may be short 12 MMT. That does not sound like a lot until you realize it is 8% of all exports available in the Western Hemisphere.
Then, there is the Ukraine problem. Ukraine is known for wheat, but is a large corn exporter. News comes this week that insurers are not wanting the risk of underwriting war risk coverage in Ukraine, Russia and Belarus.
I did not know that insurers issue rates the first of the year, so this was not a huge cost this year as I had assumed. Now, for 2023 the risks are that the cost is higher and that the insurance in some cases will not be available.
The other risk to the market is that Russian destruction of infrastructure, especially in the ports, could cut the expected exports that we have factored into our prices.
Negatives and unknowns
On the other side of the equation, we have negative factors and unknown factors. It is a negative that our ethanol production fell last week to an 11-week low. This was also down over 9% from the same period last year.
At the same time, ethanol stocks were at a record for the week, up over 18% from the same period last year. A little imagination answers the ethanol questions posed.
A theoretical ethanol plant (DTN provides a watch on this, which assumes current financing of facility construction, current cost of inputs and current value of sales) is now losing several cents a gallon.
Ethanol value fluctuates closely with the price of gasoline because so much ethanol is used to replace 10% of the volume of gasoline while it provides a clean air effect and an octane boost.
Our four-week gasoline demand is down 6.7% from last year. Currently gasoline prices have been lower, but corn prices have been creeping up. The result is a squeeze for the ethanol producers. A side effect may be a tendency to hold ethanol as much as possible, hoping for a higher price and thus an increase in inventory.
Another negative for corn prices is a perceived lack of demand for exports. For the fifth week in a row, our exports were below the exports for a similar period last year. Total export commitments are down almost 50% from last year.
China especially has been a disappointment. Last year, for the first time, China was a large importer of our corn. This year, their contracts are a fraction of what we saw last year, and, of course, we had hoped last year would become the norm.
While corn prices have fluctuated, the soybean prices have mostly been in an uptrend since the March futures low of $13.71 Oct. 6. We hit $15.371⁄2 for a high the last trading day of the year, Dec. 30.
Meanwhile, March Chicago wheat futures gained over 68 cents in the last three weeks of the year.
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