Merlin: Rail strike averted, changing market dynamics

Over the past few months, grain markets have been plagued by two transportation problems that threaten to stall domestic grain movements.

First, there was a natural disaster that caused the water levels in the Mississippi River system to become very low. Drought in the Midwest has pushed water levels in Memphis 12 feet below normal, with 13 feet representing a complete stop to barge traffic.

The water level cut barge traffic in half as usual, resulting in grain shortages and high transportation costs. Barges carrying manure up rivers were similarly affected.

It was then threatened with a nationwide rail strike that affected not only bulk freight but also a high proportion of all manufactured inputs and consumer goods. It became clear that it would not ratify the proposed agreement. As a result, Congress passed an emergency bill to force unions to accept the terms of the deal.

So we dodged some marketing bullets. The river is recharging below Memphis to near-normal levels. In any case, the Northern River shipping season is coming to an end. Because the time has come to freeze and hinder navigation. The rail system may be subject to some protest slowdowns, but it will run.

corn

These two transportation issues have dominated thinking lately, but the futures market remains weak. March corn futures fell 25 cents last week and recovered only marginally earlier this week.

This was written on the morning of December 6th, March corn was up 1.5 cents to $6.42. The last strong day for him was November 15, when he increased the dime to 6.691/4. December 5th low is $6.373/4.

In addition to negative transport, weekly export volume for the current marketing year was the second lowest. We looked at the EPA report on projected ethanol production and cellulosic biofuels showed great production expectations, but our expectations weren’t raised.

It will produce 630 million gallons from biomass this year and is projected to produce 2.13 billion gallons by 2025. Of course, this helps us position renewable energy, but it doesn’t come directly from corn.

A slowing economy and shutdowns in China are reducing demand for petrol and diesel. Lowering the price of gasoline reduces the value of 10% ethanol by volume.

One of the good news in the corn market is that Mexico has stressed that it will ban non-GMO corn in 2024 as feared, but only food.

Since our exports to Mexico are almost entirely #2YC and our food corn is non-GMO, we no longer worry about how we can resolve this issue with our largest corn trading partners.

It remains to be seen what impact the US Department of Agriculture’s December 2 WASDE report will have on the market. The market expects closing stocks to rise, but we’ll have to wait and see.

soy

The soybean market did not see the same decline as the corn market. In fact, January futures rose 23⁄4 cents last week. There, the market was dominated by weather news from South America.

With a week of variable rains, Brazil is expected to harvest 154 MMT, compared to last year’s drought-hit crop of 125 MMT. Note that it is expected to return dry. Dry areas are more common in Argentina than in Brazil, where switching to late maize in dry conditions is a hot topic.

An interesting sidebar on South America’s impact on the market is the impact of Argentina’s decision to reinstate its soybean special exchange rate. The official exchange rate is 165 pesos to the dollar, but soybeans trade at 230 pesos to the dollar. This counteracts the drag on the market caused by a weak currency.

For farmers, there is a temptation to hold soybeans during periods of weaker pesos. Because as long as the soybeans are in the bin, the beans will be a kind of “foreign currency”. A special exchange rate allows farmers to easily proceed with their sales.

Chinese purchases this year are a matter of speculation. Will COVID lockdowns reduce demand for soy products in China, or will the Chinese stick to their current diet? In both cases, switching origins to South America once crops become available So the fact that exports appear to be doing well doesn’t last forever. Last year, drought caused China to buy from the US later than usual.

wheat

Chicago Wheat fell 36 cents last week, continuing the pattern of Friday closing lower than Monday opening for nine weeks.

March futures are currently trading 3.5 cents higher at 7.641⁄2. Wheat prices have been sluggish since his September, and the market appears to be ignoring Ukraine’s problems.

In the heart of the Great Plains, where drought persists, there are real production problems. WASDE’s report may show that the rest of the world is doing well, but the market cannot ignore this forever.