AgMaster Report - Thursday, Jan. 21


A not unexpected but substantial 90 cent correction welcomed traders back from the long MLK holiday W/E & easily alleviated an extremely overbought mkt! Reasons attributed to the drop made sense – rain in S. Brazil & Argentina & comments from soon to be Treasury Secretary Janet Yellen about “getting tough” with China! But solid underlying supply/demand fundamentals seem to suggest this correction is simply just that with more upside anticipated into US planting! These include ongoing S/A weather concerns, stellar exports, shrinking carryover stocks, an eroding US Dollar & a robust economic expansion this year! With a reduced S/A crop forcing 6 yr low stocks, there’s no margin for error for our upcoming US crop.


Even more impressive than Mar Corn’s stunning $2.00 rally ($3.35-$4.40) since Mid-Aug was its ability to do so without any help from domestic ethanol demand – which has been all but shut off due to Covid! One can only imagine the “demand component” going into mid-2021 when the economy recovery reignites ethanol demand thru increased driving – and this is added to already record exports! And the US Corn’s “ace in the hole” of course is the simple fact that it is the cheapest feed grain in the world mkt – even after this impressive 5-month rally! And further “greasing the export slide” is a falling US Dollar! And just like beans with tightening stocks, the corn S/D balance sheet desperately needs a solid US production to replenish stocks! And that’s no guarantee – given the El Nina weather pattern! Already, the US Winter has been warmer & drier than normal! So we see a “grind-up mkt” until we have some idea about the potential size of the US Crop!


Despite the Russian Export Tax & some weather issues in the US Plains & Black Sea, wht doesn’t seem to have the supply fundamentals to mount a stand-alone rally without some help from it sister mkts – corn & beans! And it's always fighting the headwind of record global stocks! So Mar Wht joined the bean/corn correction in the past 3 mkt days! yet China has expressed increasing interest in the US wht!


Feb cat has languished in a $7.00 range (116-109) for 3 months! The mkt is supported by vaccine optimism that sees increased beef demand as the restaurants slowly reopen in 2021 but is restrained by soaring feed costs (corn & meal) & the current Covid-inhibited demand! We feel the resurgent economy will win out as more restaurants, theaters, museums & sport events re-open – leading to greater demand


Much like Feb Cat, Feb Hogs have been locked in a broad trading range (72-63) for 5 months as China’s uncertain 2021 China’s Pork Imports are forecast to be way off of last year’s levels & this is curtailing any rallies! However, the US Economic Recovery in 2021 & its accompany surge in Pork Demand will hopefully more than offset the deficit!

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