The winter weather that has hit the United States is creating logistic issues for the ag industry. Country movement is practically non-existent as bitter cold temperatures and heavy snows have impacted nearly every state of the Corn Belt and beyond. River logistics are also being disrupted as ice is slowing barge movement on the upper river system. Basis incentives have been posted for quick ship deliveries as a result, but these are failing to generate much interest, especially with the majority of old crop bushels already marketed.

Logistics are also becoming an issue in Brazil as harvest gets underway. While the main supply line highway in the country, BR-163, has been fully paved, other issues remain. A main one of these is port capacity. Trucks in Brazil are now making it to ports faster than they can be unloaded which has led to a backlog of 10,000 trucks waiting to unload over the weekend. Brazil also has other highways that need paving, which will likely take years to complete. This is why emphasis has been placed on building rail lines in the country instead.

Chinese officials have released projections for elevated corn production this coming season. For the past several years China has cut back on corn production to help prevent its burdensome stocks from building even more. Chinese farmers also opted for crops with higher returns such as rice and soybeans. Once corn demand started to rise this led to shortages and record corn values. Chinese farmers are also looking at ways to up their corn yields which are currently about half of those in the United States.

Even with these thoughts, China is reported to be shopping for corn in the global market over the next several months. Reports indicate China is shopping bids for corn from Brazil for delivery between July and September. This is typically when the Brazilian corn harvest begins and soybean exports slow. Brazil may not be an active corn exporter this year, though, as the country is seeing its domestic demand rise.

Traders are starting to monitor the Chinese ethanol industry. China’s government has waived ethanol blending in regions of the country where corn stocks have risen to record high levels. This is being done to ease the economic burden on other sources of corn demand, mainly the livestock industry. If China continues to do this it may alter their yearly corn demand forecasts. There are also thoughts other countries could follow suit and suspend ethanol blending at times of record corn values.

Domestically we are starting to see some U.S. corn usage doubts arise. One is on ethanol where manufacturers have been suffering from negative margins and production is starting to slip. Another is in feeding where some livestock producers are cutting back on animals due to high feed costs. It is not out of the question that elevated export demand may simply be offset with reduced domestic use.

Even with uncertainty starting to build, it is believed the U.S. ethanol industry will use as much corn as currently predicted this marketing year. Monthly corn usage for ethanol has been holding above 430 mbu, even with the recent reductions. This means for the remainder of the year monthly corn usage needs to average 419 mbu which should be possible. Thoughts are we will see even higher ethanol demand this summer as travel restrictions are lifted, further benefiting the entire energy complex.

We are starting to see more interest on U.S. projected acreage for the upcoming year. The recent rally we have seen in the market has focused more on the spot contracts than the deferred months as the market is more focused on rationing demand. We need to start seeing more attention on the new crop contracts to ensure adequate soybean plantings or next year’s balance sheets will remain just as tight. Given current projected returns the market is unlikely to see much of an acreage shift at all.

Weather in the United States will soon become more of a factor in price discovery. Recent rain and snow events in the U.S. Plains have benefitted the winter wheat crop, especially in Kansas. The Kansas wheat crop rating improved 13 point in the month of December as soil moisture improved. While this is favorable for crops, there are still portions of the United States where drought is present, especially in Iowa and Illinois. Trade will closely monitor these as we approach the spring planting season.

Basis levels across the United States have seen elevated volatility in recent weeks. Basis is the spread between futures and cash bids. Average spot basis values are currently a negative 17 cents on corn and a negative 49 cents on soybeans. These are actually little changed from a year ago at this time, even though futures are considerably higher. This shows us just how little country movement is taking place at the present time. 

RISK DISCLAIMER: The risk of loss in trading commodity futures and options is substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. The information contained in this report is believed to be reliable but is not guaranteed to accuracy or completeness by AgriVisor, LLC. This report is provided for informational purposes only and is not furnished for the purpose of, nor intended to be relied upon for specific trading in commodities herein named.  This is not independent research and is provided as a service.  As such, this is considered a solicitation.