Monthly Archives: December 2022

23 December 2022

Posted on December 23, 2022 by simon

• HEADLINES: Chicago extends rally on rising crude, supportive corn, wheat chart patterns; GFS weather forecast goes wet in Argentina.

• Chicago futures have extended overnight gains amid supportive macro input. Spot WTI crude is testing $80/barrel. The Dow at midday is up 130 points. The dollar index is weaker, and commodity indexes look to end higher for a second week. The Brazilian Real this week has quickly rallied to a 6-week higher. Brazilian corn futures have moved higher in spite of currency strength, with March Brazilian corn at midday quoted at $7.60/bu.

• FAS this morning announced that exporters sold 150,000 mt of corn to Mexico for old crop delivery along with 124,000 mt of soybeans to unknown destinations.

• However, most important is that the midday GFS weather forecast has trended much wetter across Central Argentina in the 8–15-day period. The S American jet stream will enter an alignment directly aloft the core of Argentina’s Ag Belt, and a pattern of moderate but continuous rainfall is forecast to produce cumulative rainfall of 2-3” in Cordoba, Santa and Fe and Entre Rios, the driest areas of Argentina currently. Market confidence in Argentine forecasts beyond 5-7 days is low amid model disagreements and poor performance since early January. But guidance in recent days has attempted to boost Argentina rain chances, which coincides with evidence to support a dying La Niña. S American weather stays central to long term fair value.

• Paris milling wheat futures have surged to gains of €6-8/mt despite strength in the €uro today. Paris corn futures have extended this week’s recovery as more attention is being paid to rising S American basis levels and possible logistics challenges in Ukraine. We believe that EU feed stocks today are more than adequate, but imports will be needed before new winter wheat crops are gathered in Jun-Jul.

• Other news is lacking. A host of global holidays will keep participation thin into mid-January. Christmas and New Year will be followed by Orthodox Christmas Jan 6-7, and soon thereafter China’s Lunar New Year begins on Jan 22. And throughout this period critical S American weather updates and NASS’s Dec 1 stocks report will sustain volatility.

• The Argentine weather forecast is wetter beyond Jan 1. The Brazilian forecast is consistent with the morning solution in calling for an expansion in Brazilian rainfall into the drier areas of the south in the 6–10-day period. Soaking rain in Argentina must materialise, but the 10-day forecast today is viewed as favourable/improved. Whether the EU solution follows the GFS’s boost in Argentine rain chances will be monitored closely.

• Supportive wheat and corn chart patterns have fuelled moderate speculative buying/short covering. It is difficult to be bullish corn above $6.70-6.80 and soy above $14.90 if Argentina’s climate does indeed begin to shift in the next two weeks. Wheat is forming a base, with upside to hinge upon the exact rate of Black Sea exports and geopolitics.

22 December 2022

Posted on December 22, 2022 by simon

• HEADLINES: Chicago steady/lower at midday; GFS weather forecast drier than EU model in Argentina.

• Chicago futures are weaker at midday as the soy complex digests rainfall currently impacting Cordoba in Argentina, which was not forecast Wednesday evening, and a weekly contraction in export sales. Paris milling wheat futures have extended their overnight decline and are down €2.25-2.50/mt. Crude oil is down $0.35/barrel. The Dow is down nearly 500 points.

• There remains confusion over the spread of Covid in China following the relaxation in Covid protocols and also reporting of new cases/deaths. Reported cases have plummeted, but there are many stories suggesting hospitals are being filled and the spread will accelerate into mid-winter. Covid in China, coupled with already sluggish economic growth, continues to act as a weight on financial and raw material markets.

• Through the week ending Dec 15, US exporters sold 25 million bu of corn, vs. 38 million the previous week, 12 million bu of wheat, vs. 17 million the previous week, and 27 million bu of soybeans, vs. 108 million the prior week and the lowest since late November. The harvest of short-season soy varieties has started in Mato Grosso this week. It is very early but yield reports are solid. Harvest there will accelerate into the middle part of January. Later planted soy crops will benefit from ongoing rainfall in Mato Grosso and Goias, and we note that meaningfully negative root-zone soil moisture anomalies in Central Brazil are now confined to Sao Paulo and Minas Gerais.

• For their respective crop years to date, the US has sold 813 million bu of corn, down 48% from last year, 531 million bu of wheat, down 8%, and 1,560 million bu of soybeans, up 4% year on year. The USDA will leave its 2022/23 US soy export forecast unchanged in January, but sales must stay above 25 million bu each week into late winter. We also note that the US as of mid-Dec has sold a meagre 14 million bu of sorghum (22,000 bu last week), vs. 201 million a year ago. China remains absent from the US feed market.

• The midday GFS weather forecast projects rain to linger in Cordoba and northern Argentina into Saturday, with additional totals pegged at 0.25-1.00”.  Lesser but widespread weekend rain will impact much of Argentina’s Crop Belt, with the GFS forecast still much drier than the EU’s morning solution in Santa Fe and Entre Rios.  A drier but mild pattern resumes in Argentina Dec 26-Jan 5, but since early Dec the forecasts have underestimated rainfall there. Brazilian precipitation expands to envelop all but Rio Grande do Sul in the south in the 6-15 day period. A full-blown weather market lies ahead, with odds of a pattern change in Argentina Jan onward central to corn/soy price discovery in the New Year.

• Markets will add/subtract premium based on the latest S American forecast, but without sizeable Argentine yield loss (10+% from trend), rallies will struggle in Q1 amid demand issues and the arrival of the Brazilian soy crop.

21 December 2022

Posted on December 21, 2022 by simon

• HEADLINES: Corn, wheat break through initial resistance on Black Sea headlines; soy complex struggles.

• Global ag markets are higher at midday, with corn and Chicago having broken through initial technical resistance. Paris milling wheat is up €4.50/mt (and more) as that market continues its recovery from oversold levels, and solid closes this afternoon turns charts more near-term supportive. Ukrainian President Zelenskyy’s visit to Washington today underscores the US’s commitment to aiding Ukraine, including the delivery of the US’s Patriot air defence system. Putin stated peace talks would be off the table if Zelenskyy did visit the US, and a general escalation in conflict is probable during the winter months. Black Sea grain is flowing today, but amid funds’ sizeable net short in Chicago wheat, the market will be incredibly sensitive to bullish headlines. Jan soybeans have again failed at $14.90 resistance.

• Ukraine’s Ag Minister this morning pegged 2022/23 corn production at 22-23 million mt. This compares to the USDA’s forecast of 27 million, which was lowered 4.5 million mt in early December. If true, Ukrainian exports will be capped at 18-19 million mt, vs. USDA’s 17.5, and stocks drop to a normal 1-2 million mt. Ukraine’s Ag Min also suggested planted area in 2023 would contract even further. Close attention will be paid to the pace of weekly/monthly Ukrainian corn loadings as a sizeable portion of this year’s crop will be left in the field over winter.

• Crude oil has extended its overnight rally slightly on a further tightening of US supplies. US crude stocks less strategic reserves last Friday fell to 418 million barrels, down 6 million from the previous week and down 1% year on year. The loss of supply occurred despite another 4 million barrels of reserve stocks being released into the marketplace. Reserve stocks are now the lowest since 1984. Total US crude stocks, including reserves, sit at 797 million barrels, down 22% from last year. Reserve re-stocking is planned in early 2023, but there is just no easy way to fix tight US supply and demand.

• US ethanol production in the week ending Dec 16 totalled 303 million gallons, down 9 million from the previous week. A further seasonal correction in output is anticipated into mid/late February. US ethanol stocks are more than adequate at 1,011 million gallons, which reflects just over three months of consumption.

• The midday GFS weather forecast is a bit wetter in E CO/W KS, where 2-day snow accumulation is projected at 0.50-2.00”. The coverage of snow associated with this week’s winter storm is critical. Frigid temperatures spread south and eastward Thursday million.

• The S American weather forecast is wetter in fringe producing areas of western and northern Argentina but is otherwise similar to the morning run. Brazilian precipitation expands into all but Rio Grande do Sul in the far south next week and beyond, while the core of Argentina’s Ag Belt stays arid into Dec 31. Another 48 hours of abnormal heat blankets Argentina before a cooler temperature profile is established. Net soil moisture loss will be ongoing throughout the next 10 days in Cordoba, Santa Fe and Entre Rios. Rain is needed in January.

• Corn/wheat action today is largely political in nature as risk premium is added due to future uncertainty over Black Sea grain flows. Geopolitics rallies since last spring have lacked follow though.

20 December 2022

Posted on December 21, 2022 by simon

• HEADLINES: Chicago stays firm; Argentine forecast still too dry; Brazilian corn market finds support.

• Chicago corn, soy and wheat futures are once again testing initial chart-based resistance, with soybeans and soyoil pacing the advance on concern over dryness in Argentina and far southern Brazil. We have previously suggested that there is little room for the loss of Argentine oil output given ongoing expansion in the US renewable diesel industry. The midday GFS weather forecast keeps meaningful rainfall in Argentina into Jan 1 largely away from the core of corn and soy production, and updated USDA maps shows little/no subsoil moisture there currently. A close above $14.93, Jan soybeans, and $6.54, March corn, attracts additional market length, but this resistance has been firm since early December.

• The US dollar index at midday is down 0.6% and has retraced a majority of last week’s rally. The Brazilian Real has rallied to a two-week high, which keeps spot and March corn futures there at $7.10-7.45/bu. March corn in Brazil’s premium to Chicago has widened to $0.95/bu, and one feature this week has been a steady increase in S American cash corn prices. The question is just how much demand is funnelled to the US in winter and spring. The performance of exports sales January onward will be important.

• Other breaking news is absent. European grain contracts have struggled amid a rising €uro, but even in US dollars spot corn and wheat futures in Paris have been unable to rally from multi-month lows. European corn imports remain sizeable. Brazil is expected to ship a record 6.6 million mt of corn in December, which along with Ukrainian exports will keep the EU feed market adequately supplied nearby. Europe has been able to manage grain flows so far in 2022/23 despite crippling drought last summer.

• Spot WTI crude has reversed morning loss and is down $0.50/barrel at $74.70. The Dow at midday is up 100 points. FAS’s daily reporting system was void of new export demand.

• The Central US weather forecast is consistent with the morning run. The heaviest snow fall in the next 72 hours will favour the eastern Great Lakes Region, where totals in E WI, IN and MI will reach 6-15”. Southern KS, OK and TX stay barren. The risk of sub-zero lows in KS and far western OK remain intact.

• The midday GFS weather forecast is slightly wetter in Northern Argentina in the 8–14-day period, but soaking precipitation is not indicated into Jan 3-4. A cooler temperature pattern will be established just after Christmas, but the need for rain is immense. Closer attention will also be paid to Rio Grande do Sul in far Southern Brazil as moisture deficits there widen. Recall RGDS is projected to account for 20% of first crop corn output in Brazil.

• Conditions in Central and Northern Brazil will be nearly ideal into early Jan.

• Thinning volume, uncertain/changeable weather in Argentina and southern Brazil and NASS’s looming Dec 1 stocks release keep markets choppy nearby. There is no immediate change to our longer-term bearish corn/soy outlooks, and so weather-inspired rallies are selling opportunities. Wheat has stabilised as Russian shipments slow and amid adverse US weather.

19 December 2022

Posted on December 19, 2022 by simon

• HEADLINES: Row crops stay weak; Wheat corrects on US acreage data; GFS weather forecast adds rain to Argentina in early January.

• Chicago corn and soy futures are trading similar to the overnight session while wheat turns lower following the release of updated RMA insurance enrolment data that validates ideas of enlarged US winter wheat seeded area in 2022/23. Total winter wheat acreage enrolment as of Dec 19 sits at 12.3 million, vs. 10.7 million last year. US winter wheat planted area is likely to have expanded 1.2-1.5 million acres year on year and the years-long contraction in US wheat stocks will stabilise assuming normal spring weather. The GFS weather forecast features a boost in Argentine rain chances beyond Dec 30, with dryness to persist nearby. The Argentine forecast remains rather changeable. But corn/soy markets are reacting negatively to rainfall of 0.30-0.75” across the drier areas of northern Argentina over the weekend. The unwinding of long meal/short soyoil contracts continues.

• Spot WTI crude is up $1.20/barrel at $75.50 at midday. The Dow is down 70 points. Paris milling wheat futures unchanged, and outside/international market guidance is lacking. However, we do note that crude below $80 acts as a weight on ethanol production, and it has been the relative trimming of domestic corn usage ideas in recent weeks that has allowed chart-based resistance to stay intact.

• US export inspections through the week ending Dec 15 included 29 million bu of corn, vs. 20 million the previous week, 11 million bu of wheat, vs. 8 million the previous week, and 60 million bu of soybeans, vs. 69 million the previous week. Physical corn exports will rise seasonally into spring; soy shipments begin their seasonal downturn. It is important that weekly soy export disappearance stays above 50 million bu/week into late winter to validate USDA’s current annual forecast. Certainly, new demand is increasingly shifting to Brazil as fob premiums for March onward are quoted $0.80/Bu below the US Gulf.

• For their respective marketing years to date, the US has shipped 311 million bu of corn, down 30% from last year, 420 million bu of wheat, down 2%, and 920 million bu of soybeans, down 9%.

• Frigid Central US temperatures are assured Dec 23-26, with sub-zero lows projected as far south as W OK/KS/MO. It remains that no meaningful snow cover is offered to the Southern Plains. Winterkill risks stay elevated.

• Logistics will be challenged at across the Upper Midwest, where in IA, MN, WI, IL and MI snowfall of 8-15” is forecast Thurs-Sat.

• The midday GFS weather forecast is wetter in Argentina and Southern Brazil beyond Dec 30 but is otherwise similar to the morning run. Below normal precipitation will continue across the core of Argentina’s Ag Belt over the next 10 days, but fortunately for producers there, temperatures will moderate beyond the next 72 hours. Max Argentine temperatures this week will reach the mid/upper 90s. Temperatures in the 6–15-day period will exist in the 80s and low 90s. Model guidance has struggled in recent days, but it is clear they are trying to increase rain changes in Argentina. Close attention must be paid to late Dec/early Jan outlooks.

• Corn, soy, and wheat have struggled at chart resistance, and only Mother Nature and Dec 1 US stocks stand in the way of a neutral/bearish pattern into mid-2023.

16 December 2022

Posted on December 16, 2022 by simon

• HEADLINES: Russian December 1s grain stocks data released; Soybeans/meal rally on chart buying/midday GFS slightly wetter S Brazil.

• Chicago ag markets are mixed at midday with meal/oil spreading causing a sharp swing in soy product values. Oil share wind and unwind has been one of the big features of the week with meal gaining today on chart-based buying. We argue that renewable diesel demand will not allow the US to export much additional soyoil, so any fall in the Argentine soybean crop is more bullish to oil than meal, but since the EPA RVO announcement of 2 weeks ago, the oil share trade has been exceptionally volatile. There is a bull demand story in soyoil that is lacking in soymeal. We believe that energy and soyoil will find new investor demand in 2023 with value in March soyoil noted below $0.61.

• Grain prices have traded either side of unchanged with the Russian assault on Ukraine infrastructure ongoing. Like last weekend, it takes just a strike on one of the 3 operating Ukraine grain export ports for worry to quickly develop regarding Ukraine’s shipping ability. Putin makes it difficult to be overly bearish of wheat with funds holding such a large net short Chicago position.

• Chicago brokers estimate that funds have bought 5,500 contracts of soymeal and 2,000 contracts of soybeans, while selling 3,200 contracts of soyoil, 2,000 contracts of corn and 1,000 contracts of wheat. It does not take much volume in pre-holiday trade to move these markets.

• Russia’s Rosstat (Russian Federal Statistical Service) indicated that Russian grain stocks as of December 1 were 39.4 million mt, up 10 million or 34% from last year. Russian December 1 wheat stocks were pegged at 25.6 million mt, up 8.8 million from 2021. Corn stocks at 3.3 million mt were down 1.3 million while sunflower seed stocks were down 250,000 mt or 8%. Rosstats surveys large agricultural enterprises for their monthly stocks data. The data hints that USDA’s 91.0 million mt wheat crop estimate is closer to right, though many in the private analytical field peg last year’s harvest between 95-101 million mt. The Rosstats December 1 data will not cause WASDE to make a change in their 2022 Russian wheat crop estimate in January.

• An estimated third of the 2022 Ukraine corn crop is still in the field due to a lack of harvest equipment, diesel, bad weather and now power outages. There are also reports of corn that is heating in bins as electricity for bin aeration is unavailable. The standing corn is likely to see its yield decline once harvest restarts in mid to late winter. Ukraine is offering corn for export in January at 35 over March futures, which compares to US Gulf January corn at $1.35 over. US Gulf corn is holding at a $1.00/bu premium to Ukraine corn.  Few offers are provided for Ukraine corn for February/March.

• The midday GFS weather forecast is slightly wetter for S Brazil with shower chances noted for late Monday/Tuesday with a thunder storm complex which looks to produce 0.25-1.50” of rain. The remainder of the forecast is similar to the overnight run with a pattern of rain impacting Western Argentina in the 6–10-day period. Heat will continue to December 22 before breaking with a cold frontal pass on the 23. The cooler temperatures and increasing rain chances will help advance crop seeding. Close attention will be paid to long range guidance as equatorial Pacific Ocean temperatures warm, and La Niña quickly fades. There is hope for an improved flow of moisture in Arg/S Brazil during January.

• Research favours long oil/short meal spreads and outright short soybeans/corn when Argentine weather normalises. The recent rain across N and C Brazil is producing favourable conditions with farmers discussing record soy yield potential. The US Congress has approved additional military aid for Ukraine which will produce new anxiety for Russia with fresh rocket/drone attacks this weekend. We see wheat in a broad trading range of $7.20-8.00 while soybeans struggle to surpass $15.00 and March corn $6.60.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 16 December 2022

15 December 2022

Posted on December 15, 2022 by simon

• HEADLINES: Grains firm on improved export sales; Soybeans shed premium amid disappointing NOPA crush.

• Chicago ag markets are mixed at midday, with grains steady to higher and soybeans down 8-10 cents as January again failed to breach chart-based resistance at $14.85-14.90. Technically, a close above this level is needed to accelerate buying while it is critical for the contract to maintain support at $14.65 to prevent speculative liquidation. Talk of rising Covid cases in Beijing and better rain chances in western and northern Argentina have provided weight, while long-term climate outlooks are beginning to account for La Niña’s demise and feature better odds that normal rainfall is established across all of S America in the Jan-Mar period. Beginning late Dec/early Jan, actual conditions will matter most. The core of Argentina’s ag belt faces an ongoing pattern of below normal precipitation in Dec. But the extraction of premium will be swift if regular rains are allowed to evolve in Argentina and S Brazil in January.

• Spot Paris milling wheat is down €3.50/mt and is trading below €300/mt for first time since Russia invaded Ukraine. Weakness in the European wheat futures market continues despite EU insurance/re-insurance aiming to exit the Black Sea market in January and despite firm interior premiums. Algeria managed to buy wheat for January arrival at an estimated $305-308/mt basis fob, which can only be filled with Black Sea supplies. Russian fob offers will likely stay weak to offset coming elevated logistics/insurance costs. Downtrends in EU/US wheat futures remain intact.

• US export sales through the week ending Dec 8 were better than expected across the board. Corn sales totalled 38 million bu, vs. 27 million the previous week and vs. an average needed to meet USDA’s forecast of 34 million. Soybean sales totalled 108 million bu, vs. 63 million the previous week and the largest since mid-November. China on a known basis secured a sizeable 46 million bu of US soy. Wheat sales were a three-week high 17 million bu, vs. 7 million the previous week.

• Soybean pace analysis continues to validate USDA’s forecast, for now, but total US corn commitments are still down 48% year on year. Weekly demand worth 35-40 million bu is needed each week between now and summer. It is troubling that China has yet to buy US sorghum in bulk.

• NOPA member soy crush in November was a disappointing 179.2 million bu, vs. 184.5 million in Oct and 179.5 million a year ago. Sep-Nov NOPA crush sits at 522 million bu, up just 1% year on year, and enlarged crush is mandated moving forward to meet the USDA’s projected annual total.

• NOPA soyoil stocks totalled 1.63 billion lbs, 10 million above expectations but down 202 million from Nov 2022. Implied Nov 1-30 soyoil disappearance was 1.98 billion lbs, down 130 million from the prior year.

• The midday GFS weather forecast is similar to the morning run in offering a pattern of soaking precipitation to Central and Northern Brazil, better rain chances across Western Argentina next week and lingering dryness across the remainder of Argentina, S Brazil and Paraguay. Cooler air will be allowed to slide northward into Central Argentine beyond Dec 23, but needed soaking rain remains absent nearby. Closer attention will be paid to long range guidance as equatorial Pacific Ocean temperatures warm. There is hope for an improved flow of moisture in Arg/S Brazil.

• It appears US wheat values have carved out intermediate lows, but sustained market strength hinges almost exclusively upon adverse S American weather. Rallies will be sold. Global raw material demand growth struggle without the return of solid Chinese economic performance.

14 December 2022

Posted on December 14, 2022 by simon

• 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.

13 December 2022

Posted on December 13, 2022 by simon

• HEADLINES: US inflation retreats in November; Arctic cold for the central US/dryness for Argentina; March soybeans near $15.00.

• Chicago futures are higher at midday with US financial markets rallying strongly following a less threatening November inflation reading, while Argentine dryness causes the addition of weather premium. Weekend Argentine showers were welcomed, but the forecast is arid for the next 10 days. With the end of the spring planting season approaching in mid-January, the market is getting concerned about how many acres Argentine farmers will seed. We argue that there remains time, but that Argentine weather forecasts must be monitored closely. If farmers are to extend their planting season, they will plant more corn. It is corn acres that benefit should the Argentine dryness persist.

• Chicago brokers estimate that fund managers have bought 4,500 contracts of wheat, 6,300 contracts of corn, and 5,100 contracts of soybeans. In the products, funds have bought 3,600 contracts of soymeal and 3,200 contracts of soyoil.

• The November inflation reading was up 7.1% year on year, but up just 0.3% in November due to rising food costs. The core inflation rate rose just 0.2%, which on an annualised basis would equate to 2.4%. We doubt that this is the new natural rate of inflation with energy/food and housing costs to stay volatile at historically high levels. And wage pressures are likely to accelerate in 2023 on tightening labour markets. The 2023 recession will be different from any that has been experienced with the unemployment rate to stay low while the US’s GDP rate slows to 1% or less. Stagflation is one reason why we expect that the US Central Bank will hold rates higher for longer. The rising and lofty rates are a drag on future GDP growth rates.

• EU wheat exports in 2022/23 are up 6% at 15.38 million mt. Demand for EU wheat is up due to its stable political position in relation to the Ukraine war. Algeria has taken 2.05 million mt of EU wheat, which is up 17.1%, followed by Egypt at 1.59 million mt which is up 9%, and Nigeria at 1.15 million mt, up 7%. EU wheat exports have slowed recently due to the aggressive offers of the Black Sea. US wheat export demand is at a standstill will fob offers well above other key exporters.

• Questions abound as to whether the Argentine drought is more bullish to which soy product. Our view is that Argentine crop losses have a more bullish impact on soyoil due to the US being out of the export area. The US cannot afford to allow its soyoil be exported due to the coming renewable diesel demand. WASDE is waiting for new plants to come online before accounting them in their biofuel demand category. The US must continue to export soymeal.

• 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 return in the next few days with highs returning to the upper 90’s to lower 100’s across Argentina/RGDS. The heat/dryness will cause farmers to be slow to seed any additional crop. Outside of RGDS, Brazilian weather looks to be favourable with crop yield potential likely to rise. Near to above normal rainfall and seasonal 80’s to lower 90’s will be ideal for Brazilian soy/corn crops. A pattern change is needed in Argentina and Southern Brazil for the return of regular rains. Subsoil moisture levels are depleted following 5 months of acute drought.

• Additional Argentine weather fear must be placed in the market for end users to chase rallies. For now, the market is adding Argentine weather premium at measured pace, but we note that the price premium in corn/soybean futures is already sizeable for mid-December. We would look for March corn to rally to $6.60-6.80, while March soybeans seem to struggle to hold rallies above $15.00. Soyoil should gain on meal as US domestic demand for renewable diesel prevents export.

12 December 2022

Posted on December 12, 2022 by simon

• 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.