- Last night saw US winter wheat condition reported at 55% good/excellent compared with 53% a week ago and 58% a year ago.
- Australia’s ABARES have forecast 2015/16 wheat production at 23.98 million mt, which is below September’s estimated 25.28 million mt. Canola (rapeseed) output was forecast at 2.99 million mt (September 3.15 million mt). Reductions are blamed on El Niño influences have adversely impacted growing conditions.
- Yesterday also saw the US Federal Government/EPA raise the Renewable Fuel Standard (RFS) for biofuels, albeit only slightly. The chart below illustrates the increase was less than the original 2007 Energy Bill called for, however ag markets will take the news as supportive creating upside potential for the biofuel crops of corn and soybean oil. Quite how much corn or vegetable oil will be used in the coming years is next to impossible to calculate, and with funds heavily short this could be a “trigger” for some upside. We do not believe this is a long-term price direction changer at this time.
- As we approach the close in Chicago corn and soybeans are in positive territory (just) whilst wheat is trading a touch lower.
- Brazil’s export data for the month of November included corn shipments of 4.8 million mt, down 14% from October’s record but up 60% from November of 2014. Year to date Brazilian corn exports total 18.2 million mt, vs. 13.2 million mt a year ago, and large shipments will continue into January – though new sales will be in decline. Brazilian soybean exports in November totalled a surprisingly large 1.4 million mt, vs. just 180,000 mt a year ago, though it should be noted that Brazil’s soybean shipping season is coming to an end.
- A few sporadic corn offers still exist in S America for nearby shipment, but US Gulf corn retains the title as the world’s low cost seller into February – a change from the position of only a few weeks ago.
- Russian wheat prices, however, overnight fell to $194-195/mt for Dec/Jan arrival, vs. $197-199/mt a week ago, and US wheat futures have been unable to benefit from rising corn and soybean markets due to the sheer size of available exportable supplies in Europe and across the Black Sea Region. There is still widespread talk and/or concern about poor winter wheat conditions in Ukraine, which should not be dismissed at this time, but old crop cash values still indicate relative abundance. We note that Argentine offers beyond January are in decline amid solid growing conditions and the coming end to grain export taxes.
- It appears that spec traders are heavily short, and short covering rallies will happen periodically into the end of the year. Following the EPA’s ruling, our best guess is that the USDA will hike its corn and soyoil consumption forecasts slightly, which in the case of corn is based mostly on the pace of ethanol production to date. We do not view the ruling as having a meaningful impact on balance sheets, however. Any test of $9.15-9.20, basis Nov ’16 soybeans looks like providing another selling opportunity.
- Summary:
- Soybeans – We are in a position to see further short-covering bounces; oil firm
- Corn – We are in a position to see short-covering with trend funds short 150,000 contracts.
- Wheat – Extreme oversold position with record short KC and trend funds short 84,000 contracts.