Demand is starting to become more of a focal point in today’s markets and price discovery. Demand has been strong to start the marketing year, but a noticeable slow-down has started to take place. After becoming almost a daily occurrence we have not seen much for flash sales in recent weeks, and almost no sales to China. That said, for soybeans, any sale now generates a response in futures given the tight U.S. balance sheet projection and the need for rationing.

We are now one-quarter of the way through the new crop marketing year and U.S. soybean exports already total 1.1 billion bu. This is a record volume and a 69 percent increase on the year. This also equates to 26 percent of last year’s crop. The main reason for the large demand is China who is showing what appears to be a never-ending appetite in the global market. Some analysts believe this demand will carry into the second quarter, cutting U.S. ending stocks to a minimal amount.

The price spread between the United States and Brazil on soybeans is nearly equal in the spot market. Brazil is not offering soybeans for export, though, which is benefiting U.S. sales. This changes as we get into February, as even with the price spread still relatively flat, freight greatly favors Brazil as a soybean source, especially into China. While China may source its soybeans from Brazil from that point forward, other buyers are expected to step in and fill the void in the U.S. market.

Trade is also interested in corn and wheat balance sheets and demand estimates, but there is much more inventory to work with on the grains than soybeans. One benefit for the grains, especially corn, is that the United States is the only source for exports at the present time. The next harvest on corn in the world market will be next summer when the South American crop becomes available.

We are starting to see a difference in opinion on the Brazilian corn production. It is thought dry conditions have lowered the potential on first crop production by 3 to 5 million metric tons. The Safrinha crop is expected to be larger than initially thought, though, as rains are expected to develop before that crop is seeded. It is not out of the question that these improved conditions could give us a larger crop than currently being predicted.

Opinions on total production in Brazil have a wide variance this year. On soybeans we have seen analysts lower production to 130 million metric tons in recent sessions while other have bumped the crop up to 133 million metric tons. The same trend is developing on corn with production ranging from 104 million metric tons to more than 109 million metric tons. The reason for the increase in some estimates is improved weather, but also from thoughts acres are expanding as well.

Aside from production in South America, a story that is getting more attention is the volume of old crop inventory still being held. Brazil has mostly exhausted its exportable supplies of soybeans and corn, but the same is not true for Argentina. In fact, Argentina is thought to be sitting on record supplies of both right now as high taxes have prevented sales from taking place. Farmers in the country are selling just enough to generate immediate cash flow coverage. This has been beneficial for the U.S. crush industry as it has created a void in the world market on soy products.

Trade is waiting for China to start their new crop corn purchases to see if demand will be as great as stated. Chinese officials have stated their corn imports for the 2021/22 marketing year will total 30 million metric tons. This is a considerable increase from the 7.2 million metric tons predicted for this year, although we have already seen imports surpass this number. Some doubt is rising on the Chinese estimate given their recent shift to alternative feed grain imports, mainly sorghum.

Basis values across the interior market are starting to show more volatility. Many of the earlier sales that were made are now being delivered and buyers are backing off basis as a result. This is especially the case on soybeans where basis values have widened considerably. Corn basis is not as weak but is definitely showing signs of softening as processing margins are fading, mainly on ethanol.

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