Summary

The grain markets were pseudo on the sidelines this week as it watched the Crude Oil and Equity markets, that were the subject of quite the beating the first two weeks of the year, mount a small rally. The crisis of confidence finally took a back seat while the global economy is trying to digest the developments in China. Early in the week it was reported that China’s Gross Domestic Product (GDP) grew by 6.8% in the 4th and final quarter of 2015. The full year’s GDP growth rate at 6.9% which was the slowest annual growth figure over the last 26 years. There are two ways we can look at this: 1 – we can focus on the slow rate of growth or 2 – on the positive side there is grow.

Last week we released a key level of 27.50 as a potential low for the February Crude contract. The low for that contract was 26.19 when it came off the board on Wednesday but the March contract made a low of 27.56. The March contract closed the week at 16.8% off of Wednesday’s low and 5.92% on the week.

The Grains were not able to keep pace with Crude’s strong reversal. March Corn ended the week up 1.93%, Soybean closed the week in negative territory and Wheat was basically flat. There was some bullish news for Soybeans coming from South America. In anticipation of the Peso depreciating, Argentine farmers are not releasing crop as quickly as initially expected. Their built up supply is now functioning as a hedge to their devalued currency.

Corn

Corn futures posted its best weekly finish in seven weeks. The March contract added 7 cents on the week and the December contract rose 6.75. Some of the factors responsible for the advance in Corn the past two weeks are perhaps the growing import need in South Africa because of the drought damage they are facing which has also led to some short covering. Lastly, US Corn export sales came in at 1.16m tonnes. That was the 2nd highest total of the marketing year, far exceeding the top end of trade expectations figure of 900,000 tonnes. Today’s commitment of traders (COT) report showed speculators net short positions were reduced by 36k contracts.

Soybeans

Soybean producers in the Mato Grosso region of Brazil have had one of the most challenging growing seasons in recent memory. The hot and dry conditions during November and December adversely affected their Soybean crop during a critical time of the growing cycle – when the Soybeans were setting and filling pods. The outcome led to reduced yields for the early maturing crop. Additionally, now that the early maturing Beans are ready for harvest the recent unyielding wet weather keeps producers from being able to harvest their crops.

The USDA is estimating that China will only import 80.5 million tons of Soybeans this year which is below trade estimates of 85 million tons. That is a range of 3.2% to 9% increase from last year’s imports. March Beans closed the week down 2.50 cents and the November contract lost 1.50.

Wheat

The first Argentine shipment to the US post the ‘0’ tax system set in place by President Macri made its way to North Carolina. Russia posted record export sales in December stemming from the devaluation of their currency. The US Wheat continues to lose competitiveness grouped with its strong dollar. Wheat production, use and stocks have all risen for the past 3 years. The International Grains Council (IGC) once again is projecting an increase in world production for this year but is expecting the first decrease in production in 4 years next year.

US wheat export sales were solid at 362,000 tonnes. Trade estimates were in the 300k to 400k range. The US growing regions were pretty much free of weather concerns but the same could not be said of for the former Soviet Union and Eastern Europe. If the weather gets much colder this weekend temperatures in Russia's North Caucasus could get low enough "to cause winterkill". Some spotty winterkill damage could be possible across far eastern Ukraine as well.

July Wheat ended the week marginally higher at 485.25 up 0.75 cents.

Crude Oil

The last couple of weeks we made a case for market cycles being a major player in economic events. One of our small market cycles pointed to a potential low in Crude Oil and Equity markets and it appears that a reasonable low may have posted on Wednesday. It is funny how in the throes of over-production and a rise in Crude Oil stocks (per the EIA) that Crude Oil futures managed to end the week in positive territory. March Crude futures finished the week up 1.80 (+5.92%).