Markets enter the quiet season

Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The shortened Thanksgiving week had the grains trading in a mixed fashion with Minneapolis wheat seeing strength in the December contract but pressure in the deferred months. In the end the widening of the spread between the December and March contracts was enough to push Minneapolis to become inverted. An inverted market is one that is calling for product now as we will pay you more today for your product than we will pay you later.

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The winter wheat exchanges lost ground with most of the selling being tied to weather forecasts calling for rain for the U.S. southern Plains. Some rain has blessed the region and that has resulted in a slight improvement in the winter wheat crop condition rating.

Corn continued to be stuck in a trading range as traders look for news to give them direction. Demand concerns continue to weigh on corn. Exports are still running about 50% of last year and ethanol production continues to remain below the pace needed to make USDA’s projections. Not to mention the smaller livestock sector (lower feed demand). Tight supplies and South American production concerns are keeping corn from selling off.

Corn was also impacted by the flip flopping of the Mexican president on the subject of importing U.S. GMO corn . Mexico’s president had announced a couple years ago that Mexico would not import U.S. GMO corn. Mexico is the single largest importer of U.S. corn, buying 600 million bushels from the US yearly. This ban on buying U.S. GMO corn would result in a huge hit to the US corn industry. After a few meetings and reviewing the U.S.-Mexico-Canada agreement, Mexico’s president stated that Mexico will continue to buy U.S. GMO corn to satisfy the animal feed sector but no GMO corn will be used in the in the making of human food.

Soybeans were the bight spot the week of Thanksgiving. Production concerns in South America along with decent export demand has helped soybeans remain strong. Gains have been kept in line from the thought that China is just buying hand to mouth as they wait for Brazil’s soybeans to become available. The heavy COVID-19 lockdowns added to concerns as reports have covid cases hitting record levels for four straight days. Reports have 20% of China’s economy is under some form of COVID-19 lockdown.

The last week of November brought in selling pressure early in the week. Selling was tied to the rolling of positions due to first notice for December futures.

Corn and Chicago wheat are following soybeans while Minneapolis wheat and Kansas City wheat are trying to find their own way. Slow demand and a sharply lower energy sector are weighing on corn. Crude is also under pressure from the massive lockdowns in China which has slowed demand.

Brazil continues to see close to ideal growing conditions with little concerns at this point. Argentina on the other hand is in a major drought. Officials their estimating corn planting is 24% completed, 6% behind last year while soybean planting progress is estimated at 19% completed, 20% behind last year. The delay is due to drought conditions. Officials have started to cut soybean production estimates with one over the weekend putting the soybean crop at 50 million metric tons, down 5 million metric tons from last month. Others are looking for the soybean crop to come in between 47 and 48 million metric tons and corn between 45 million and 47 million metric tons.

Weather forecasts for Argentina are calling for the drought to continue, which helped soybean meal recover, in turn helping soybeans. Argentina is the largest exporter of both soybean meal and soybean oil, so if their production drops dramatically, the US is the only other major player that could pick up the slack.

The Nov. 29 session likely gave us a look into how the grains will trade through December, thin and with little volume. The 2022 growing season officially came for a close at the end of November with the release of the last weekly Crop Progress report. The report was delayed a day due to technical difficulties in Washington D.C., but as expected, the report did not hold much in the way of market moving news.

The report showed harvest activity is wrapping up in most locations and for most crops. Winter wheat emergence was estimated at 91% complete versus 87% last week and 90% average. Winter wheat conditions improved 2% to 34% good/excellent, 40% fair, and 26% poor/very poor. The following states reported these weekly changes: Colorado: +10%, Illinois: -5%, Kansas: -3%, Montana: +14%, Oklahoma: +8%, and Texas: +2%.

North Dakota’s sunflower harvest is estimated to be 95% completed, up only 1% from the previous week and 10% ahead of the average pace. It is likely a lot of those sunflowers will not be harvested

An area of interest is China’s COVID-19 zero tolerance policy. The past few days of protests in China appear to have the powers at be listening. Supposedly there are going to be changes made to allow start reducing the lockdown protocols.

Is there downside potential in the grains? Yes. But it is limited. Stocks for all of the grains remain tight, and with production concerns in South America, it seems unlikely the grains will selloff too much. We are entering the quiet season for the U.S. grain market, filled with holidays and winter, which usually brings out thin light trading. This will likely exaggerate any news item due to thin volume. But look for the market to start chasing product after the first of the year. Basis levels remain tight which is a good sign for cash grain as it shows the need of the product. All of the grains are going to have to bid to acquire acreage or hold onto acreage next spring.

Cattle have traded in a back-and-forth fashion the past two weeks. The week of Thanksgiving had cattle posting losses due to seasonal pressure and slow demand. Cash bids were strong, but cattle are not the feature at Thanksgiving, which resulted in the cattle markets to drift lower.

November’s Cattle on Feed report maybe helped support cattle more than expected, or at least it caused traders to maybe take a step back and look at the cattle market longer term. The report is likely the start of many showing small placements as the number of cattle declines. Slaughter runs have been running ahead of last year, but for two reasons, the continuation of cow liquidation and more heifers being placed in feed. Both of those examples lead to a friendly outlook for cattle, long term. You just don’t rebuild the cattle herd in a year, it takes years. So, if the economy can hold itself together, cattle should continue to be attractive.

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