By Karl Setzer

The Omicron variant of COVID-19 is again causing issues in the market as more countries impose travel restrictions in an effort to contain its spread. This is renewing worries over the state of the global economy and what it may mean for the recovery that was taking place. The overall impact of COVID on commodity demand has been limited, but that does not mean it has not affected the markets. This is because of the managed money flow and how this is altered, and in turn, causes swings in commodities. As a result, any COVID-related losses in the commodity market may be shorter lived than in other markets.

Last week, the Argentine government announced it would be limiting the volume of corn and wheat exports this marketing year to try to contain the country’s food inflation. Now Argentina is considering an increase in export taxes on corn to try to further eliminate demand. This could end up being a benefit for the United States, even if tax rates hold steady. The simple threat of an increase may be enough to deter buying interest and push importers to the United States for coverage.

Demand of U.S. soybeans has become erratic in recent weeks. Import buyers have started to surface on breaks but then retreat when futures rally. Buying on a whole has quieted down which is not uncommon at this time of the year. All import interest is currently on South America, especially with their soybeans being offered at a sizable discount to the United States. The question now is how comfortable buyers are with South American production and if they will start making purchases from the United States for deferred delivery in case production losses do take place from the La Nina event.

When it comes to South American soybean production, nearly all interest is on Brazil. We have started to see some adjustments to crop estimates, but so far, these have been minimal. The current estimate range on Brazil’s soybean crop is from 142 million metric tons (mmt) to 148 mmt. This range is down 2 mmt from the previous range but falls in line with what the USDA is using in balance sheets. Even at the low end, this is still a bigger soybean crop than Brazil produced last year.

Corn planting in Argentina is currently at a record slow pace. It is believed that just 60 percent of the Argentine corn crop has been seeded, the least amount for late December on record. While dry weather is being credited for this, many farmers in Argentina simply delayed their planting season to try to avoid the worst part of the country’s growing season conditions. History shows that any corn seeded past Jan. 10 in Argentina tends to see yield drag, but this may be less than if the crop was subjected to extreme conditions during the growing season.

Earlier this marketing year there was a considerable amount of concern voiced over the quality of this year’s corn crop. These worries have mostly passed, and data from the United States Grain Council shows new crop corn is actually quite average. The average test weight of this year’s corn is 58.3 pounds per bushel, just under last year, but above the five-year average. The crop is also in line with 2019 and 2020 when it comes to toxin levels. The Grains Council claims timely rains were a great benefit for this year’s corn quality.

Over the past week we have started to receive reports of idled ethanol plants resuming operations. This comes as profit margins remain elevated and farmers are again making country sales. Commercial corn movement is also up, and these plants are seeing a steadier flow of deliveries. The concern with this taking place is what it may do to future economics in the industry, especially if production rises and demand falters. Given new travels restrictions around the world due to rising COVID cases, this product flow will be closely monitored.

A large amount of risk premium has been added to the U.S. commodity market in the past week. This is a direct result of the hot, dry weather that is taking place in Southern Brazil and Paraguay in South America. While this premium may be needed, it has driven U.S. commodity values well above the global market and may start to impact out export demand. This is especially the case on wheat, where the United States was already over-priced in the global market.

One buyer that the U.S. futures market is still well under is China. At the present time, corn is China is trading at $10.50 per bushel and soybeans are at $17.90 per bushel. These are both at values where imports would be economical, even after the rally in U.S. futures. China has a large volume of to-arrives from other sources on the books though, which is tempering their buying regardless of the price spread.

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