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Ground Hog Predicts 6 More Weeks of Winter...Prepare For Some Arctic Air

Update for February 4th, 2022

Corn and soybean prices have been on a bit of a “roller coaster” this week. A lot of the responsibility of these price swings can been attributed to the flow of investment money. Spec funds have been holding a near record of net long positions for months and are close to reaching their peak in long corn contracts. But, there are other bullish and bearish influences to consider as well.

· SAM production estimates. There have been a wide range of projections for the first season corn and soybean crops. Stone X recently reduced their estimates for both crops, soybeans saw the largest cut while the firm made no early adjustments to the Safrinha yields the existing corn yield was lowered by 1.5 MMT down to 116.1.

· Corn used for ethanol has increased and so have stocks which are up 30% from the October low. According to the USDA Grain Crushing’s report corn used for ethanol production increased by 19 million bushels from November to December. Profit margins for ethanol producers were large a short time ago but those margins have since eroded and are now below break-even. With profitable margins disappearing and supplies growing how long will it be before plants begin to reduce production levels?

· Ongoing acreage debates have offered a wide-range of guesses for our upcoming growing season. Some of the more “reliable” sources are looking for 92 to 94 million U.S. corn acres in 2022. It’s also important to note that, as always, cooperative weather will ultimately play an important role in the final split again this year.

· Where are Chinese corn supply levels actually at? Domestic corn prices within China are at a record high which supports the speculation that the Chinese supply of corn is insufficient to meet the demands of the rebuilt hog-herd. If supplies are as low as many indicate, the forecasted global demand for corn may be under-estimated.

Given current prices the new crop corn/soybean ratio clearly favors soybeans in regards to 2022 acreage. The ratio sits near 2.44 : 1 which helps to support the ongoing acreage battle and is seen as a “generally supportive” to corn prices.

· The money flow into the soybean market has a long way to go before they reach record long contract numbers.

· Even with improved weather conditions in portions of Argentina, Brazil and Paraguay analysts speculate that the USDA may still be overestimating the SAM soybean yield by 10 to 15 MMT.

· Crop Consultant Dr. Michael Cordonnier further reduced his estimate for Brazil’s soybean by 4 MMT down to 130. For Argentina he lowered his soy projection by 1 MMT to 42. Stone X has cut their Brazilian soybean estimate by 7.5 MMT to 126.5.

· U.S. soybean prices remain competitive in the global market even at current levels which has analysts discussing the strong fundamentals and “what if’s”. There are several “what if’s” present right now: weather uncertainties, Chinese demand, U.S. acres, shrinking supplies, increasing demand and bio & renewable diesel.

The importance of a favorable growing season in the U.S. this year with few weather concerns or yield drag is obvious.

DTN has been following fertilizer retail prices for weeks and through the final week in January many of them continued to hit all-time highs. Anhydrous prices increased from $1,433 per ton to $1,492 per ton in only one week. 28% Nitrogen prices also continue to rise and is now $601 per ton and 32% prices have increased by 2% from the previous week and are now $699 per ton.

More Arctic air may be on the horizon for February 10-17th. The GFS was already hinting of this a week ago but models continue to vary from each other every day. Predicted temperature departures from normal are shown below in the GFS models for February 10th and 11th.

GFS February 10

GFS February 11th

The EURO does not show the drastic blast of Arctic air arriving as early as the GFS model. The anomaly from normal on the EURO model for Friday, February 11 is shown below.

The EURO model expects the arrival of the cold air a week later than the GFS. The EURO temperature departures from normal for February 17th are shown here.

The lack of consistency between the models leads to less confidence in the exact outcome but in general plan on some colder than normal temps, just how cold remains unclear.

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