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Ag Summit Outlook Updated     01/18 05:00

   Grain Markets Shake It Up Early in 2022

   Just past a month after presenting price outlooks at Ag Summit for corn, 
soybeans and Kansas City wheat in 2022, there have already been several changes 
to note.

Todd Hultman
DTN Lead Analyst

   It's hard to believe it's been more than a month already since we gathered 
in Chicago at DTN's Ag Summit. Since then, time and the holidays have gone by 
in a blur. In the markets, however, there have been several changes since I 
offered price outlooks on Dec. 7 for corn, soybeans and Kansas City wheat, 
making this a good time for an update.

   Before we get to the three crops, I gave an overview in December that showed 
how the economy and U.S. energy production were still suffering from the 
disruption caused by the initial pandemic in 2020. At the time of the talk, the 
U.S. economy was missing 3.5 million jobs from the pre-pandemic peak of 158.7 
million. U.S. employment data for December now shows the number of missing jobs 
down to 2.7 million. In spite of a record surge of new coronavirus cases in the 
U.S. in January, it's impressive that job growth continues to show progress, a 
vital part of untangling logistical logjams.

   U.S. oil and gas producers took severe financial hits in 2020, and at the 
time of the talk, U.S. oil production was down 1.4 million barrels per day 
(bpd) from the pre-pandemic peak of 13.0 million bpd. The most recent update of 
oil production was down 1.3 million bpd from the peak, as of Jan. 7, slow 
progress that is contributing to a spot crude oil price near its highest level 
in seven years. Rising energy prices continue to be a key component of the 
rising inflation numbers that are getting plenty of headline attention.

   As expected from the Dec. 7 presentation, corn prices have held support so 
far, but there have been a few changes to note. Ethanol margins that were 
highly favorable have in December succumbed to seasonal pressures as ethanol 
inventory climbed to its highest level since February 2020. On Jan. 12, USDA 
increased its estimate of corn demand for ethanol by 75 million bushels (mb) to 
5.325 billion bushels (bb), but it also reduced corn's export estimate by 75 mb 
to 2.425 bb.

   USDA's lower export estimate was a bearish surprise and happened at the same 
time USDA's corn crop estimates for Brazil and Argentina were lowered by a 
combined 3.5 million metric tons (mmt) or 138 mb. Ukraine's crop estimate, 
however, was increased by 2 mmt, or 79 mb, and it looks like USDA expects the 
U.S. to lose some export business to Ukraine.

   USDA acknowledged Brazil's first corn crop suffered limited damage from dry 
conditions, but the larger, second crop has yet to be planted, so there is 
still plenty of uncertainty for corn prices ahead. My expected price range for 
DTN's national index of cash corn prices remains at $4.80 to $6.50 in 2022 with 
the best chances for the highest prices in the first five months of the year. 
Current prices near $6 are extremely attractive for producer selling, a 
proverbial bird in the hand.

   Soybean prices have been the bullish surprise of the three crops since early 
December, climbing more than a dollar higher on the strength of cash demand for 
soybean meal in the U.S. and assisted by dry weather in South America. On Jan. 
12, USDA reduced its crop estimates for Brazil, Argentina and Paraguay by a 
combined 9.5 mmt or 349 mb. Export estimates of the three were only reduced by 
59 mb, however, not leaving much benefit for U.S. producers.

   While South America's weather problems have brought back some speculative 
excitement to the soybean market, the more solid source of demand has come from 
historically strong crush margins in the U.S. USDA's latest report from Jan. 13 
showed 1 bushel of $13.91 soybeans in Illinois could produce $10.02 worth of 
meal and $8.03 worth of bean oil, a strong incentive to keep crush plants 
buying soybeans.

   This year's dry weather in Argentina is also contributing to higher crush 
values in the U.S. and is a new source of bullishness not anticipated at the 
time of Ag Summit. I now have to say the expected range of $10 to $12 a bushel 
for cash soybean prices in 2022 has widened to $10 to $14 per bushel. The 
current lack of soybean export sales remains a bearish concern in 2021-22 with 
total sales and shipments of soybeans down 23% from a year ago.

   When I talked about KC wheat in early December, I pointed out how the lowest 
U.S. wheat production in 19 years gave us the lowest ending wheat stocks-to-use 
ratios in eight years. USDA's estimate of ending wheat stocks at the top eight 
exporters was at 1.78 bb, the lowest in 14 years.

   USDA's Jan. 12 estimates increased ending wheat stocks at the top eight 
exporters to 1.94 bb, the lowest in nine years.

   The expected price range for DTN's national index of cash hard red winter 
(HRW) wheat prices was $6.50 on the low end and was unlabeled on the high end 
because of the chronic threat of drought in the southwestern Plains. Overall, I 
expected U.S. wheat prices to remain well supported early in 2022, before 
trader attention started turning to the emergence of the new winter crops.

   Instead, all three U.S. wheat prices started trading lower after Christmas 
and broke technical support in the first week of 2022, prompting DTN's Six 
Factors Market Strategies to recommend selling the final 25% of 2021 production 
for all three U.S. wheats.

   The sudden sell-off this early in the new year was likely related to record 
harvests in Australia and Argentina and, possibly, early satisfaction from 
end-users that may have obtained the supplies they needed, at least for the 
time being. Whatever the cause, it was a good reminder of why both fundamental 
and technical market factors are included in DTN's Six Factors Strategies.

   Economists have traditionally protected their predictions with the Latin 
phrase "ceteris paribus," meaning all else staying the same. Of course, rarely 
does anything related to markets stay the same, not even for five weeks. I tend 
to think of market outlooks like the one given at Ag Summit as "good until the 
next surprise," as it almost always is a matter of when, not if. Stay tuned as 
there is plenty of time for more surprises in 2022.

   **

   Comments above are for educational purposes only and are not meant as 
specific trade recommendations. The buying and selling of grain or grain 
futures or options involve substantial risk and are not suitable for everyone.

   Todd Hultman can be reached at Todd.Hultman@dtn.com

   Follow him on Twitter @ToddHultman1




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