- HEADLINES: Soyoil soars/soymeal sags, oil share trade favoured (again); Midday GFS dry for Argentina; November CPI reading due Tuesday.
- Chicago futures are sharply mixed at midday with grain/soy futures trading in differing directions. Wheat/corn futures are sharply higher on the increasing military tensions in the Black Sea with Russia targeting Ukraine infrastructure, especially electrical power generation. This means that vessel loadings have halted with no ships entering or leaving Ukraine ports today and farmers in the interior are increasingly frustrated amid the lack of power to run augers/equipment. Also, there is a desire of fund managers to trim their hefty net short wheat position before the new trading year.
- Soybean/soymeal futures are down on the ending of liquidation of oil spread liquidation and end users seeing the Chicago soyoil break as a feedstock ownership opportunity. US crushers report their availability of free soyoil supply is limited by purchase contracts to renewable diesel producers. The break in soyoil has caused end users/biofuel producers to take coverage.
- The last time that spot Chicago soyoil has been this cheap was back in July when hawkish US Central Bank talk caused sharp falls in a host of commodities. We note that with US soyoil export demand shut down by the US’s Gulf premium to Brazil/Argentina, that any loss of Argentine soyoil supply is more bullish to soyoil than soymeal. The US cannot afford to increase its soyoil exports amid record large domestic demand. And world soyoil buyers/importers cannot fully rely on Brazil. An Argentine loss of soybeans due to drought should cause US soyoil prices to soar on tightening global supplies/stocks. We would argue that Chicago soyoil values should be able to fully recover the recent break heading early in Q1 2023. Renewable diesel demand is that strong.
- US weekly export inspections for the week ending December 8 were 19.9 million bu of corn, 67.5 million bu of soybeans, and 8.0 million bu of wheat. All three were disappointing vs trade expectations. For their crop years to date, US corn exports are down 126 million bu or 31%, US wheat exports are down 10 million bu or 2%, while US soybean exports are down 80 million bu or 19%. The US export outlook appears to be poor with S American and Ukraine corn offered well below the US Gulf while Brazilian soybeans will gain world demand into April.
- The US Central Bank will raise its lending rate by 0.5-0.75% on Wednesday with US inflation data out tomorrow. We look for waning US inflationary pressures due to a decline in rent and car ownership costs. This thought is sparking a strong rally in the DOW which will likely pressure the US dollar. And it will add a peg of support to Chicago grains heading into the next 2 holiday weeks.
- The midday GFS weather forecast is like the overnight run with dry weather forecast for the entirety of Argentina and RGDS in Southern Brazil. Extreme heat will redevelop later this week with highs returning to the upper 90’s to lower 100’s across Argentina. The heat/dryness will cause farmers to be slow to seed any additional crop.
- Outside of RGDS, Brazilian weather looks to be extremely favourable with crop yield potential likely to rise in the weeks ahead. Near to above normal rainfall and seasonal 80’s to lower 90’s will be ideal for Brazilian soy and first corn crops. Any issues are focused on RGDS in Southern Brazil where regular rains are needed to achieve trendline yields.
- The oil share spread has returned with vigour with soyoil following the sharp gains of WTI crude oil. Soymeal futures have given back half of last week’s gain with support to be uncovered from arid Argentine weather forecasts. The sheer size of the Brazilian soybean crop will likely cap rallies at $15.00 March soybean futures. The risk longer term is the return of normal Argentine rain and a sustained downtrend.