Market volatility is likely going to be intense for corn and soybean futures in the coming weeks. The dramatic price swings from 2021 will be equally dramatic for 2022. More is at stake now with nine grain and oilseed commodities with tight ending stocks and all are competing for acres. Let’s focus on soybeans and corn, and potential price scenarios.
The January U.S. Department of Agriculture report set the supportive tone for soybean futures for first quarter of 2022. On the report, for the 2021-22 crop year, the USDA lowered 2021-22 harvested acres to 86.3, down from 86.4 million acres while increasing yield to 51.4 bushels per acre (up from 51.2). The result was an increase in production to 4.435 billion bushels, up from 4.425 billion bushels in December. There was no change to the demand categories on the report. The ending result was a slight increase in ending stocks, now pegged at 350 million bushels, up from 340 million bushels in December.
Impressive at the time was the fact that the USDA did acknowledge the challenging growing conditions in South America by reducing production for both Argentina and Brazil. Yet, without any immediate bullish news from the report, March 2022 soybean futures had a 50-cent pull back after the January report was released. With hindsight, that 50-cent break was the location where buyers stepped in. Soybean futures then rallied over $1 a bushel in just two weeks’ time.
While the USDA report showed little fresh news to spur bullish momentum, traders quickly turned their focus instead on the adverse weather conditions in South America. Images surfaced on social media to suggest that the mid- to late-January rains were not going to fix the dire condition of the heat- and drought-stressed crop. Many traders and economists are suggesting that the South American crop might actually be smaller than year ago levels. With global ending stocks already trending lower, any hint of further demise in South American soybean production will reduce global supplies and global carryout.
How high can soybean prices go is a question that many producers are pondering. With the March 2022 contract now through the $14.45-1/2 a bushel high price from June 7, 2021, the next technical upside target is $15. A close above $15 points to a final potential technical “swing objective” to $16 a bushel for front month futures contracts. Additional news is needed to justify $16 futures, and that news would have to come in the form of confirmed smaller South American soybean production and an increase in U.S. exports of soybeans, soymeal and soybean oil.
Switching to corn, since digesting the Jan. 12 USDA report, March 2022 corn futures found support at $6 a bushel with short term resistance at $6.40 a bushel. For March 2022 corn futures price to rally higher than $6.40 a combination of four factors would likely need to occur; a lower U.S. dollar to help attract export business, stronger exports to then actually occur, continued poor weather in South America, and a continued fight for acres in the U.S. this spring. Let’s take a closer look.
Corn exports are now pegged at 2.425 billion bushels, down from 2.5 billion bushels in the December 2021 USDA report. But will this change now that South American weather is in question, and Ukraine might be tied up with Russia, and potentially not available to export any corn to food and feed hungry China? Will U.S. exports of corn increase more than expected in the weeks to come?
China corn prices remain very high, near a record $11 a bushel and this might encourage more imports of corn soon. So far for this marketing year, China has imported an estimated 13 million metric tons of U.S. corn. According to the USDA China will likely be importing nearly 26 million metric tons of corn this year, primarily from the U.S. and Ukraine.
Looking to South America, the first crop corn being grown in Brazil is likely needed to stay in South America and will likely not be available to export. Hence, the focus then shifts to second crop corn in Brazil. Remember the Safrinha crop accounts for 70% of total Brazil production and this is the crop that is exported in late July or early August.
The world will be watching China in the weeks to come. Will the Chinese be importing more U.S. grain due to the smaller South American crops? February will be a busy month in China. Be aware that the Chinese New Year begins in early February, and traditionally the Chinese do very little grain buying during that time as they are celebrating. Next is the Olympics, which will consume China’s attention for the duration of the month. We have no idea if China will solely focus on the Olympics or make time for other political events. What happens when the Olympics are done and China doesn’t have to put on a good face to the world anymore? These are unknowns for grain prices.
This week it was said that U.S. corn is still some of the cheapest in the world. Spot European cash corn is said to be near $7.40, while Brazil spot cash corn is near $7.80. This should also help increase exports in the near term.
Lastly, it is important to note that a close above $6.40 on the March chart, from a technical standpoint, does potentially point to $7 futures prices. The question would be if there is enough time for the March 2022 contract to achieve that before expiration, or is it something that the May 2022 contract will do? Looking at a continuous weekly chart of only the May 2022 corn futures, there is a gap on the chart, which would be filled if May 2022 corn prices could rally to $6.85.
It is again exciting times for American agriculture. Stay vigilant of the pricing opportunities in front of you. While the outlook is currently friendly, many political events could occur in February that could change the tone of the market quickly. Expect volatility, dramatic price ranges and many twists and turns in the weeks to come.
Editor’s note: Naomi Blohm is a marketing advisor with Total Farm Marketing by Stewart-Marketing and she is a regular contributor to the Iowa PBS series “Market to Market.” She can be reached at [email protected].
