• Russia set its wheat export tax at a record high $91/mt for any new fob sales in the December 8-14 period. The barley tax was set at $78.70/mt with corn at $54.40/mt. The wheat tax was up $6.10/mt from the opening week of December. The Russian tax gain occurred even as world wheat prices fell as the Moscow Exchange changed the way it calculates the weekly tax, dropping prior fob sales from its calculation. We maintain that the USDA is too high with Russian wheat exports at 36.0 million mt due to Moscow restricting trade to lower domestic flour/food costs. We forecast that Russia will export 31-32 million mt of wheat in 2021/22, not the 36 million projected by USDA.

• Russian interior wheat and flour prices are not retreating. Russia’s domestic wheat market this week is unchanged in Rubles and slightly higher in US$. Wheat replacement in southern Russia’s export corridor is calculated at $217/mt, which along with a continued rise in the export tax there will keep Black Sea fob offers supported at $340-345/mt. This in turn makes US Gulf wheat competitive on a fob basis below $7.85/bu basis Mh. Strong fundamental support lies just below the US wheat market.

• The world wheat market has experienced its first meaningful correction of the bull market as price digests record large Australian production, and slightly higher than expected crop sizes in Russia, Europe, and Canada.

• The extra supply is nothing more than a nuance. We maintain a bullish wheat outlook that is cantered on rising global trade and Russian government policy.

• The pace of actual exporter wheat shipments to date is up 5.8%. The USDA in its Dec report projected wheat trade to rise 4.5% year on year. Import demand will be boosted another 4-5 million mt in coming reports, which more than offsets Thursday’s increase in exportable supply.

• Wheat prices have a demand rationing role on tightening EU stocks. 2021/22 world wheat trade is record large and will grow even more into March as world importers are close bought. A first quarter world wheat top is forecast between $9-9.40 basis Chicago March.

• The USDA has gaps to fill in its world trade matrix. The pace of Russian shipments has not improved as exporters are unable to manage tax burdens.

• China is believed to have booked a considerable amount of feed wheat from Eastern Australia with some pegging the tonnages involved at 1.25-1.75 million mt. We doubt that the wheat involved is milling. The reason for the US corn market decline today could be the recognition that Aussie feed wheat works into SE Asia, and that China is taking feed wheat as a feed alternative to corn. We also expect Egypt’s GASC to tender for late winter/early spring supplies in the coming days following wheat’s recent correction.

• January soybeans closed at $12.68, up 3 cents. Concerns are growing over crop prospects in Southern Brazil and Argentina. January soyoil closed at 53.54 cents, down 1.20 cents for the day. Palmoil futures were higher on lower stocks data and steady exports. January soymeal jumped over $7 to close at $367 as the 200-day moving average was breached somewhat easily which sparked additional chart and fund related buying.

• The line-up of ships waiting or scheduled to load US soybeans is 2.77 million mt (102 million bu). That is up 10% from the previous week.  This week’s soybean export inspections could be 1.925 million mt (71 million bu). That would be down 14% from this previous week. There were 42 vessels to-be-nominated. That is up from last week. US soybean export commitments to China are 20.98 million mt. That is up 593,000 mt from the previous week but below last year’s record 30.35 million. This year’s commitments to China does not include any of the 5.525 million mt of sales to “unknown” destinations. US soy demand is robust.

• Soybeans are rangebound between $12-13.00. A rally on cash related demand would push March to $13-13.25. It is far too early to be concerned by dry Southern Brazilian dryness.

• Chicago corn futures ended unchanged in thin volume. Trade participation is winding down for the holiday season and fundamentally it will remain difficult for breaks and rallies to be sustained. Dry Argentine/S Brazilian weather, along with strong end user demand offers support. Yet, it is weather late December and beyond that determines yield more directly. March corn will struggle against $6.00.

• Brazil’s cash corn market has become proactive in adding premium amid eroding crop health in Rio Grande do Sul, Santa Caterina and Parana. Yield loss in these states will be pronounced (20%+ relative to trend) if soaking rain fails to materialise by late month.

• Most important is that corn in Brazil is quoted at $7.00-7.20 for spot and March delivery. Spot Paris corn settled this week at $7.10. Dalian futures in China have found support at $10.50. Amid firm Black Sea feed wheat prices and delayed seeding in Argentina, importers will be funnelled to the US market if Argentine yield losses are confirmed. Corn futures could wallow for a while with the market having one eye on S American weather into late December. Support will be offered below $5.75 March.

• US wheat futures ended 1-10 cents higher, led by Chicago, with Paris milling futures similarly firm. The recent correction based on larger export production has been dramatic, but the market certainly can’t afford to encourage additional demand. Egypt is expected to return to the world marketplace for late winter supply next week. Will Saudi Arabia return for old crop supplies following its new crop purchase last weekend. Downside risk from current values is limited.

• There is still no evidence that Russian producer selling has been elevated by a rising export tax and a looming quota on shipments beginning in Feb. Cash prices in Russia in US$ are slightly higher this week, and the cost of trade execution there will be rising as the export tariff reaches upward of $100/mt in January.

• We would note that a more volatile market should be expected into spring. Our bullish belief continues to centre on the need for Europe to slow export demand substantially in early 2022, while upside risk in corn is sizeable if drought expansion occurs in Argentina in January. The cash market must lead rallies in futures moving forward. Funds in Chicago on this evening are estimated to be short a net 12,000 contracts.

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