- US futures based ethanol margins are resting at their best levels in years. The chart below plots these margins excluding costs. Working backwards on costs suggests that most plants are making $1.14/bu of corn or $.39/gallon. The hefty margin of ethanol producers is one reason why Chicago corn prices are rising as US farmers hold onto stored supplies and US exporters and ethanol producers fight for supply. Rising crude oil/gasoline prices are only accentuating the ethanol production gains. Ethanol margins may have to peak before corn prices head back down.
- Chicago markets have been choppy with wheat, corn and soybeans a touch lower in slow volume trade. The Fed announcement has been the main watchpoint, and they did not disappoint with a ¼ point increase with a suggestion of faster paced increases in 2017 as the Trump administration takes over with promises to boost growth through tax cuts, spending and deregulation.
- The feeling this afternoon is that fund managers are wanting to buy breaks rather than sell rallies, with a belief that funds are just not in a bearish mindset right now, despite the global supply and stock position. However, we should point out that Jan ’17 soybeans have held support levels at $10.20 (so far) although there is a looming chart gap below $10.00, which should be watched carefully. There appears to be a lack of S American and US farmer cash related selling on declines, which has allowed Chicago futures to bounce. Recall US farmers have sold as much as 66% of old crop soybeans and S American farmers are bullish on surging US$ strength.
- Weather forecasts remain favourable for S America and private forecasters are increasing their estimates slightly for Brazilian corn and soybean crops. It appears to be the rain in Argentina that could expand soybean and late corn seedings.
- Our leaning remains towards longer term bearishness although we would expect and anticipate rallies into early 2017 on growing inflationary expectation in the US.