- Chicago values are mixed at midday. Soy futures are holding firm while the grains ease in low volume. The market is adrift with headlines directing daily price direction. Today’s headlines relate to the US/China trade war and that US President Trump is willing to place additional tariffs on China if there is no Phase One deal. We assume that Trump will not want to wait beyond December 15 to install the new tariffs. The on-and-off again Phase One Deal is driving US ag valuations daily. Unfortunately, we do not see this changing.
- Chicago brokers estimate that funds have sold 4,600 contracts of corn, 2,900 contracts of wheat, while buying 1,900 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soyoil while selling 1,200 contracts of meal. We note that daily buying by funds is pushing their net long soyoil position close to a record at just over 98,000 contracts.
- US President Trump indicated that the US/China will continue to talk as they work to see if a deal can be achieved. The market is pessimistic on a Phase One Deal with US Hog futures sharply lower for their sixth day in a row. US pork is the cheapest by far from world suppliers, but China demand has been constrained by trade politics.
- Russian wheat seeding is record large and continues to grow based on an extended seeding season. Dryness remains a worry, but the crop needs just a few good rains before heading into dormancy. Rosstat will release their 2020 winter seeding data in late December, but initial private forecasts call for a 2-3% increase. Assuming trend yields, initial Russian wheat production estimates for 2020 should be clustered between 80-82 million mt. This compares to this year’s harvest which should come in between75-76 million mt.
- Farmers are wondering how much US corn/soybean yields could fall in the USDA January Crop Report. Cold, snow and extreme wetness is causing widespread struggles by farmers to bring in their harvest. Yet, historically the January USDA crop report has not produced large yield variance since 1973. The biggest decline in US soybean yield from November is 1 bushels/acre while corn is 2 bushels/acre. We would look for a 1 bushels/acre decline in the US corn yield to 166 bushels/acre and a modest 0.4 bushels/acre decline in soybeans. This decline will not be enough to offset US export losses meaning that 2019/20 US end stocks will not push substantially lower.
- US ethanol production was little changed from last week at 304 million gallons. US ethanol stocks declined to 862 Mil gallons vs 881 Mil last week which are down 10% on last year. Futures based US ethanol margin production profitability has bounced to 2 cents/gallon from break even 3 weeks ago.
- The midday S American GFS weather forecast is similar to the overnight run with needed rain for Argentina and Northern Brazil. Any dryness will be centred on Paraguay and the southern third of MGDS. Otherwise, the forecast is favourable with improved crop conditions the result. Any real heat is absent or confined to just a few days. For the vast majority of the S American corn/soy crops, soil moisture is favourable. The upcoming Argentine rains are needed and should aid newly seeded corn/soy crops.
- Chicago corn has pushed to new lows on fresh fund selling. A fundamental spark is needed via either adverse S American weather or a US/China trade deal to produce meaningful short covering. Otherwise, Chicago values look to slowly ease in the case of corn or chop sideways in wheat/soybean futures. This is no place to turn bearish with December option expiration on Friday.