CBOT agricultural futures rally on demand

CBOT agricultural futures rallied in the past week on rising market demand worldwide, Chicago-based research company AgResource noted.

AgResource maintains bullish outlook for agricultural futures as investment flowing into raw materials may increase into early 2022 and inflationary pressures are building.

December corn rallied to a two-week high as market focus shifts rapidly from supply to the rate of consumption. Harvest lows were scored just after the release of the U.S. Department of Agriculture (USDA) October report. A slow but steady bullish trend lies in the offing, with Argentina weather to add to upside momentum if normal La Nina-based dryness persists into mid-winter.

U.S. corn export sales in recent weeks have been 10-20 million bushels above the pace needed to meet the USDA’s annual target. U.S. ethanol last week was near record large. AgResource estimates that the U.S. ethanol industry is operating at 96 percent of full capacity, and production must stay at/near capacity over the foreseeable future. Ethanol stocks are historically low, while gasoline disappearance stays at pre-COVID-19 levels. Production and blending margins are incredibly profitable.

U.S. wheat futures ended sharply higher on the week with spot Minneapolis wheat settling above 10 dollars for the first time since 2012 and December Kansas wheat posting new contract highs. EU and Black Sea cash markets also found new seasonal highs.

It will be difficult for EU to ration future demand amid lofty U.S. prices and a rapidly rising export tax in Russia. Additionally, USDA’s global trade forecast may be too low, which along with another modest downward revision to Canadian production will trim exporter stocks further. Exporter wheat stocks/use in 2021-2022 will be record low by a wide margin.

Acreage expansion and favorable weather are absolutely needed in 2022 to stabilize global inventories.

AgResource remains bullish outlook for wheat, holding breaks in wheat will be shallow and short-lived until much more is known about 2022 production potential.

Soybeans held a narrow range on the week and finished with modest gains. Estimated cash crush margins have surged to 2.40 dollars per bushel on strong meal and oil basis, which has kept processor bids elevated. However, a rally in barge freight rates sent spot bids at export markets sharply lower last week.

After a slow start to the year, the export pace is finally taking off. The Gulf export capacity has returned following the damage from Ida. However, the window for U.S. soybean exports is narrowing every week. Soybean planting progress in the key Brazilian state of Mato Grosso reached 69 percent compared to just 25 percent a year ago. The Brazilian harvest will be underway a month earlier than last year.

Seasonally both cash and futures tend to gain, and AgResource awaits a post-harvest rally to advance sales.