- Ag markets are lower at midday in mediocre volume, driven by a bearish weekly US energy update and an otherwise lack of news. FAS announced that exporters have sold another 1.1 million mt of soybeans to China, bringing the total to over 2 million mt. Confirmation of demand since last week has triggered modest fund selling, and that is certainly the case today. We caution against chasing this break in corn and wheat amid ongoing rumors of Chinese interest and ahead of Friday’s meeting between exporters and government officials in Russia.
- Biofuel markets continue to act as a weight on rally efforts. Through the week ending last Friday, US ethanol production totalled 308 million gallons, unchanged on the week and down 4% from mid-December of last year. Margins remain negative, or very tight, and incentive to boost grind has disappeared. Ethanol stocks last week totalled 1,003 million gallons, an eight-week high and up a hefty 41 million gallons from the prior week. Ethanol stocks/use is large. And following the recent collapses in gasoline prices, even blend margins are testing multi-month lows at $.01/gal, vs. $.04/gal a year ago. US gasoline stocks were up 1.8 million barrels on the week and up 1% from a year. US crude stocks are flat, but the for the first time since mid-2017 are up on the prior year.
- The US$ is weaker ahead of this afternoon’s meeting at the Federal Reserve. Spot WTI crude is up $1.40/barrel on very oversold technical conditions. Spot crude’s Relative Strength this week was again testing 30.
- Confidence is also rising with respect to improved near term S American weather. The EU and GFS weather models have been consistent in offering wetter weather to Southern and Central Brazil beginning next week. Excessive rainfall has finally exited Argentina, and a lasting seven-day period of dryness and warming temperatures lies ahead there. However, fundamental wheat data remains supportive. Replacement costs in Australia have rallied to $317/mt ($8.60/bu), new seasonal highs. Importers’ transition to the Southern Hemisphere will be difficult amid a lack of Aussie supplies and the recent surge in Argentine cash prices.
- Weekly US export sales are expected to include 33-38 million bu of corn, 35-40 million bu of soybeans and 23-28 million bu of wheat. Wheat and corn sales have met or exceeded the pace needed to meet the USDA’s target in each of the last two weeks.
- The midday S American GFS weather forecast is wetter in pockets of Central Brazil but otherwise unchanged. Strong and expansive high pressure ridging exits Brazil altogether on the weekend. This will allow meaningful rainfall to move out of Argentina and into Brazil. The return of high pressure aloft is lacking through late December. Some damage has been done to parts of Brazil via recent dryness, but it is far too early to adjust yield from trend. Rain also returns to Southern Argentine growing areas next week, but stays absent from the wettest areas.
- We maintain a bullish wheat outlook on rising world markets and seasonal trends. Fresh demand news is needed to sustain rallies in corn and beans. Ethanol’s demand draw could be lowered further in January.