- HEADLINES: Row crops firm as Argentine forecast trends drier; Energy markets shrug off build in stocks.
- Chicago ag markets have been mixed and a bit more volatile this morning as the soy complex recovers from overnight weakness, corn moves off session lows and KC wheat stays weak amid momentum/chart-based selling. Funds continue to build a sizeable net short position in Chicago wheat and have likely liquidated net length in KC. The catalyst needed to drive short covering remains absent amid stagnation in the Black Sea cash market and a lack of bullish enthusiasm in European wheat futures despite firm cash premiums there.
- We do note that eastern Australia’s market has moved higher this week as harvest pressure eases. A seasonal low should be scored in Australian markets by late month, and the fob market in Australia remains perched at/above European origin, despite record production. Aggressive Black Sea wheat prices are noteworthy but firm S Hemisphere values and record prices in India shouldn’t be ignored.
- EIA’s weekly petroleum update leans fundamentally bearish energy markets. Motor gasoline stocks last Friday totalled 224 million barrels, up 4.5 million on the prior week and above the previous year for the first time since April. Crude stocks less strategic reserves last week were up a sizeable, and counter seasonal, 10 million barrels.
- US ethanol production in the week ending Dec 9 was 312 million gallons, vs. 317 million the previous week. Ethanol stocks totalled 1,026 million gallons, 49 million above the previous week, 17% above last year, and the largest on record for mid-December. We note that miles driven decline seasonally during the winter months. The ethanol market is well supplied.
- Yet, spot crude at midday is up $2.00/barrel following robust 2023 demand forecasts released this morning by OPEC and the International Energy Agency simultaneously. There remains very little carry in crude markets in both the US and London. Recall the US Administration aimed to buy crude for reserve stocks at $72/barrel, basis WTI. This has acted as support so far. The Dow has built upon Tuesday night’s rally and is up 200 points.
- The midday GFS weather forecast is in better alignment with the morning EU solution in leaving TX, OK and W KS without snow cover over the next 10 days. Single-digit temperatures are still forecast there Dec 23-24.
- The midday GFS weather forecast is drier in Central Argentina into Christmas, with meaningful rain moved further west and north. The GFS forecast has also trimmed rain chances in Argentina in the 11-15 day period, and the need for rain becomes immediate Jan 1 onward. Moisture deficits will also be growing in eastern Paraguay and far southern Brazil. The historic nature of Argentine drought becomes much more important if the pattern fails to change beyond late Dec, a period that is rapidly approaching. Favourable conditions will be ongoing in Central and Northern Brazil.
- Futures markets will be defined by a lack of participation and volatility within narrow ranges into peak holiday season. Short-term direction will then be determined by whether or not Argentina’s climate is allowed to shift. Supply rallies will likely be sold as demand growth stays challenged.