Grain markets found heightened volatility this week with corn futures posting gains while soybeans traded lower. In the cash market, basis for both corn and soybeans were unchanged on average across the country this week, but that masks a fair amount of movement by end users and exporters.
For corn, ethanol users backed off on bids by a penny a bushel this week, but there are signs that more weakness could be in store for the ethanol sector. In Iowa, spot ethanol prices tumbled 32 cents a gallon to reach $1.68 a gallon. At the start of December, ethanol prices were as high as $2.42 a gallon. So far, ethanol production continues to exceed last year's tally at this time of year but that should change as current margin are now a $1 a bushel lower than the same time last year. On the export front, sales have been pace to reach USDA's export target for their year but recent approval by China to accept Syngenta's MIR 162 variety may give a slight boost there for corn & DDG exports. Basis levels at river terminals were up 2 cents on average thanks to some weakness in barge rates.
In soybeans, the Gulf export market was off 9 cents on basis for the week which triggered some weakness at river terminals even with falling barge rates. On average, river terminals were off 4 cents a bushel. At soybean plants, basis levels were off 2 cents a bushel.
Corn and wheat led the market higher for the week ending December 18th, 2014. Corn added 12 ½ cents, wheat improved 57 ¾ cents and soybeans declined 7 ¼ cents on the week. The wheat market continued to focus on the developments in Russia as another announcement from the Veterinary and Phytosanitary Surveillance Service restricted grain export certificates for some countries.
Coming into this week there were two major soybean demand announcements that analysts were watching closely. The first was NOPA crush numbers which analysts were expecting to set a record high for November and the second was a publicized purchase event where six major soybean buyers from China were expected to buy large amounts of soybeans on the 16th.
NOPA crush numbers were released on Monday at 11 AM CST and came in on the low side of analyst expectation with 161.211 million bushels crushed in November. The average expectation for this report was 165.404 million bushels compared to last year's November total of 160.145. Analysts ranged from 161 to 176 million bushels.
Tuesday the 16th the Chinese soybean buyers signed agreements to purchase of 1.5 million metric tons of soybeans which seemed to do little for the market. Analysts viewed this sale as “routine” compared to a similar signing event back in September which produced 4.5 million metric tons of sales.
With both soybean demand announcements producing little excitement by the market, there is a reason to be concerned that prices could start to come under pressure in the near future. Bull markets need to be fed positive news, and with Brazil soybeans 100% planted and Conab expecting a 4.9% increase in soybean acres year over year there is little in the way of Bullish news coming from South America. Brazil's soybean crop is currently rated 75% good and 25% average with rain expected to improve crop development in the 15 day forecast. In Argentina they are still planting due to excessive rainfall in the northern regions early on in the season. There has been some dryness in parts of the growing region which could hurt final yield numbers but the longer term outlook is for increased shower activity. No major concerns have developed in Argentina yet.
This week China has approved a genetically modified strain of corn developed by Syngenta which was the reason behind many rejected cargoes of DDG's and corn late last year. The strain being approved could foreshadow stronger demand for corn or corn based products out of the U.S. Last week Chinese firms bought 900,000 metric tons of DDG's from the U.S. for delivery between December and March.
On Wednesday the EIA report showed another increase in weekly ethanol production. Production jumped 2,000 barrels per day, setting another marketing year high at 990,000 barrels per day. Despite the strong weekly numbers there seems to be a slowdown on the horizon. The average ethanol prices in Iowa have been declining over the last couple weeks with late November ethanol prices going from $2.31-$2.52 dollars per gallon to around $1.88-2.15 per gallon. Crush margins have fallen accordingly from $3.42 per bushel to around $2.90.