While feed market volatility remains a major issue, the steep rally curve appears to have stalled or at least slowed as far as old crop corn and soybean meal futures are concerned. Cargo ships resumed traffic through the black sea in some capacity, but until traders regain full confidence in that lane old crop values will probably hold firm near recent highs.

 

The new crop contracts have stepped into the spotlight and look as though they’re now building in a little more risk premium. The question now falls on how much of a crop will get planted this spring in Ukraine, and what will the region look like when harvest and export demand ramp up in the latter half of the year. Depending on how things play out, you can argue a case for both $6 and $9 corn futures, and the fact is no one can honestly say they know where this market is headed. 

 

The same is true in the protein market, though arguably there is less room for error there with a slightly tighter balance sheet globally.

 

The World Agricultural Supply and Demand Estimate (WASDE) for March included a disclaimer effectively stating that uncertainty around Ukraine played a minimal role in the updated data. Corn exports and ethanol demand were both hiked from February’s number, but the market’s muted response would indicate that those increases had already been factored into the price. South American production saw less of a cut than expected, a positive sign for end users considering the weather concerns in that part of the world. We’ll have to keep an eye on that as well as adjustments to Ukrainian exports in the April WASDE. The March data is summarized in the table below.

 

Yet, soybeans saw sizable reductions in both the Brazilian and Argentine crops, while U.S. stocks were relatively flat. The market has been accounting for that with a further rally in new crop meal. Domestic crush has been running at capacity for some time and high prices have influenced Chinese meal demand to a degree. However, with fewer beans available, Argentina, the world leader in meal exports will leave buyers short-handed and looking to the U.S. to fill the gap. Soybean and soybean meal futures seem to be following corn to compete for acres.

 

The biggest story comes in the way of rail freight and its impact on basis values. Almost immediately after news broke that the U.S. would ban imports of Russian oil, rail markets spiked $3-$8/ton higher. The added demand for freight to move U.S. oil around the country takes away capacity to move other products such as feed. In many cases, mills in destination markets pulled their contract offers as they await updated values from their shippers in the Midwest. 

 

If I take a broad stroke at approaching this market, I think basis is now in a holding pattern for both old and new crop. The fireworks have already hit the oil and freight markets so let the dust settle, and we’ll re-evaluate. Maybe we can own a value a little closer to what was available last week and if so, I think get it bought. If not, then give the railroad and feed vendors a little more time to stop their heads from spinning before jumping headfirst into this move. Call options on the futures side of your price look to be the better value as of right now, but one size does not fit all so reach out and we’ll be happy to address your individual needs. If you’d like to get a look at what your basis is doing you can use our new calculator at quotes.ever.ag. Again, I’ll be happy to help you talk through that and your current market if you’d like. We’ll have a video tutorial up soon as well.