• HEADLINES: USDA December report as advertised; Argentine weather offers a few weekend showers, otherwise dry.

• The USDA December Crop Report held few surprises and the market’s attention quickly shifted back to S American weather and macro-economic trends. Corn, soybeans, and wheat are mixed at midday with limited reaction to USDA’s data.

• The USDA raised 2022/23 US corn end stocks by 75 million bu to 1,257 million bu due to the sluggish export pace since the start of the crop year. US corn sales are down 48% and Brazil, Argentina and Ukraine continue to undercut US Gulf fob offers. USDA dropped their 2022/23 corn export estimate to 2,075 million bu, down 396 million bu from last year. We would argue for additional cuts in US 2022/23 corn exports to 1,950 million bu which will further raise stocks. WASDE made no change in the US corn ethanol grind, but a drop of 50-75 million bu is indicated in 2023 due to slowing US gasoline consumption.

US End Stocks (million bu)

                                     Nov        Dec

                    2021/22    2022/23    2022/23

Corn            1,377        1,182        1,257

Soybeans        274        220          220

Wheat              669        571          571

• The average annual farmgate price of corn fell $0.10/Bu to $6.70. Spot Chicago futures are trading well below this price on the lack of an export demand driver. USDA will update US corn yield/production in its January assessment.

• In world corn supplies, the USDA left its Brazilian corn estimate at a record 126 million mt with Argentina at 55 million. Argentina can plant its second corn crop well into January, as farmers await needed rain. European corn imports were raised to 21.5 million mt while Chinese corn imports were left at 18.0 million mt. World corn end stocks fell slightly to 298.4 million mt, down 2.4 million from November.

• US 2022/23 soybean end stocks held steady with November at 220 million bu. USDA made no adjustments to the balance sheet with the annual average farmgate price estimated at $14.00. WASDE did cut 2022/23 US soyoil imports by 200 million pounds and cut exports by 200 million pounds to 1,100 million pounds while reducing biofuel use by 200 million pounds to 11,600 million pounds. US soyoil end stocks are projected at 1,901 million pounds, up 42 million pounds from November. The soyoil stocks increase was far less than expected and considered bullish. We would argue that the WASDE estimate on US renewable diesel production is too low. No changes were offered to the US 2022/23 soymeal balance sheet. The 2023 Brazilian soy harvest was estimated at a record 152 million mt while the Argentine harvest was unchanged at 49.50 million mt. World soybean end stocks were forecast at 102.7 million mt, up 7.1 million from 2021/22. Fundamentally soybean/meal values are bearish.

Global End Stocks (million mt)

                                     Nov        Dec

                    2021/22    2022/23    2022/23

Corn            307.7         300.8        298.4

Soybeans      94.7         102.2        102.7

Wheat          276.3        267.8         267.3

• US SRW exports were lowered 10 million bu. Combined HRS and white wheat exports were raised a like amount, and otherwise the US wheat supply and demand was left completely untouched. Stocks are estimated at 571 million bu. The season’s average cash price is $9.10, vs. $9.20 in November. Pace analysis suggests the USDA’s 2022/23 US wheat export forecast correct, and it is difficult to be overly bearish of US export demand given USDA already projects the US’s share of world trade at a record low 10%.

• Global wheat leans slightly bullish. Russian production was unchanged at 91 million mt. Australian production was lifted 2.1 million mt following ABARES report on Monday. However, this was more than offset by a combined reduction in Argentine/Canadian stocks worth 4.2 million mt. Argentine output is pegged at just 12.5 million mt, which is aligned with yields to date, and exports will be no larger than 7.5 million mt vs. 16.3 a year ago. Argentine wheat stocks/use will drop to just 6.8%, the lowest since 2017/18. Combined exporter stocks/use was lowered to 13.5% vs. 13.7% in Nov and 15.0% in 2021/22. The world wheat balance sheet is tight despite record Russian production and exports.

• USDA’s December WASDE is never exciting nor market changing. Focus returns to the duration of heat/dryness across Argentina and in the long run corn/soy price determination will be based on whether larger yields in Paraguay and Brazil offset losses in Argentina. An extension of heat/dryness in Argentina into mid/late January would be important, but rallies require significant adverse Brazilian weather.

• HEADLINES: Chicago soybeans/soymeal rise on dry Argentine weather forecast; Soymeal reaches upside price target; China buys Ukraine corn.

• Chicago values are mixed at midday with corn/wheat futures lower while the soy complex hangs in the green, despite the rain that is falling across some of the drier areas of Central Argentina. Initial profit taking was absorbed as traders well understand that Argentina will need to see a weather pattern of regular rainfall if there is any chance of trendline corn/soybean yields in 2023. Moreover, traders are bracing for crop updates from the various Argentine commodity exchanges this afternoon which are expected to reflect slow seeding progress amid the deepening drought.

• The selling in the grains is related to the expectation that WASDE will raise its US 2022/23 corn end stocks amid a reduction of 50-150 million bu in exports. S America and Ukraine remain aggressive in corn export offers, with the US Gulf non-competitive in world feedgrain trade. Brazil is offering fob corn into April, which will not aid the US corn export outlook. It is US soybeans where Chinese import interest prevails with new sales announced this morning.

• The USDA announced the sale of 718,000 mt of US soybeans to China with another 118,000 mt to an unknown destination. The 836,000 mt sale was thought to have been done in the break late last week. We note that cash market basis is unaffected by the purchase. China has now secured 23.4 million mt of US soybeans with another 4.8 million mt of soybeans that are classified as an unknown destination. If China is half of the unknown sales, then total purchases would reach 26.8 million mt including the purchase announced in recent days. We have China taking 30-31 million mt of US soybeans in 2022/23 and 92.5 million mt in the international crop year ending on September 30.

• China booked 71,400 mt of sorghum from the US last week, the first US purchase in weeks. China has now booked 2 cargoes of US new crop sorghum with sales down 157 million bu or 92% from last year. If China books additional US sorghum it could be a sign that China is returning to the world feedgrain market. We look for China to secure corn from Brazil and Ukraine on price, and not from the US. There are European rumours that China has now booked 1.5 million mt of Ukraine corn and 1.0 million mt of Brazilian corn for 2023 shipment. China is expected to release TRQs in early 2023 for corn imports by private firms.

• Chicago brokers estimate that the managed money has bought 8,400 contracts of soybeans, 2,100 contracts of soyoil and 3,200 contracts of soymeal. In the grains, funds have sold 400 contracts of wheat and 1,100 contracts of corn. The trade is positioning long soybeans and short grain for tomorrow’s USDA report.

• The midday S American GFS weather forecast offers rain through the weekend across the northern 2/3’s of Argentina. The GFS forecast has been too dry and we fear that rainfall totals could be larger than the 0.1-0.8” that are being forecast for the dry areas of Central Argentina. The rain also pushes into Paraguay/RGDS in Southern Brazil. Thereafter, the forecast returns to an arid upper air flow with heat returning by the middle of next week (highs rising the mid 90’s to lower 100’s across Argentina). Near to above normal rain falls across N and C Brazil with near normal totals for S Brazil with no extreme heat. Brazil is in the early throes of producing a record soy crop more than 154 million mt which will offset some of the Argentine yield losses.

• Argentine weather remains the big bullish factor with but the sheer size of the Brazilian soybean crop caps Chicago rallies above $15.00. A major low in soyoil looms as renewable diesel demand steps in with 2-3 new plants starting operations in early 2023. Soymeal has reached our upside price target while soyoil is close to a bottom. US wheat values have also forged a contra seasonal low on Australian hedge pressure. This is no place to be selling wheat in our opinion.

• HEADLINES: Oil share spread unwinding continues; China relaxes Covid rules; South American weather better rains for RGDS.

• Corn, soy and wheat values are higher at midday with wheat the upside leader as hedge pressure related to the record large Australian crop has been filled. Corn and soybean futures are gaining on short covering heading into Friday’s USDA December WASDE report. Argentine dryness and their potential for soy and corn yield reductions due to drought remain supportive. Soymeal is a momentum trade with funds chasing the market to new highs, but the US cash market is weakening with Central IL soymeal basis now trading below spot futures. World importers/domestic feeders will not chase the soymeal rally. The gains in Brazilian and Paraguayan crops more than offsets the Argentine losses leading to 30 million mt plus production gains vs last year for the 2023 S American soybean crop. We doubt that spot Chicago futures can rise above $15.00.

• Chicago open interest showed a 4,582 contract increase in soymeal and a 6,497 contract increase in wheat, but a drop of 11,847 contracts in soybeans, 7,478 contracts in soyoil and 7,210 contracts in corn. Funds are sitting on their largest net short wheat position in several years which adds to the potential for a short covering rally should something adverse occur to Black Sea Grain exports due to the war/geopolitics.

• Chicago brokers estimate that the managed money has bought 4,600 contracts of soybeans, 3,900 contracts of soyoil and 2,300 contracts of soymeal. In the grains, funds have bought 4,100 contracts of wheat and 6,400 contracts of corn. Funds have been active buyers across Chicago.

• China continues to relax its strict Covid rules which is being cheered by the Chinese population. China is allowing infected people with mild symptoms to quarantine at home and dropping testing for people traveling domestically. This will allow the Chinese population to enjoy the Lunar New Year holiday in mid-January and travel to celebrate with relatives. The value of the Yuan has rallied, but it is still having its worst year since trade was allowed in 1994. However, infection rates are expected to soar ahead of and after the holiday with many Chinese not yet having immunity. This has set off a rush for over the counter medicines, just in case. However, Asian stocks fell on the news with the Hang Seng Index down 3.2%. Aside from China’s relaxed Covid rules, its economic outlook shows slowing consumer demand tied to falling real estate prices.

• The midday S American GFS weather forecast is slightly wetter across Southern Brazil and Northern Argentina as a seasonal high-pressure ridge builds which shoves tropical upper air humidity further south. The rains will help Southern Brazil and spotty showers of 0.25-1.50” are also forecast for the northern half of Argentina as soon as this weekend. The southern half of Argentina stays dry with warm to hot temperatures periodically.  La Niña is in retreat, which should produce improved Argentine and S Brazilian rainfall with time. Northern and Central Brazilian rainfall is much improved which will aid the outlook for yield with the crop in the reproductive phase. Record large yields are possible in Mato Grosso.

• Argentine weather remains a concern, but the sheer size of the Brazilian soybean crop caps Chicago rallies. Oil/meal share spreads are  being unwound which is rallying meal values. Key support for March soyoil rests below $0.58 cents. A major low in the soyoil looms as renewable diesel demand steps up. We remain bearish of corn/soybeans, while watching for signs of a top in soymeal. Wheat values are bottoming with world export demand increasing.

• HEADLINES: Chicago soybeans/soymeal soar on Argentine weather, massive oil/meal spread unwind; Grain markets sag on lacklustre US export demand.

• Chicago values are again mixed at midday, with soybeans/meal extending Monday’s rally on massive spec buying, wheat continuing to sag on a lack of pushback in the global market and corn caught in between. January soybeans traded through its 100-day moving average on the soymeal strength with next resistance perched at $14.78. FAS announced US exporters this morning sold 240,000 mt of beans to unknown destination and 264,000 to China. Pace analysis suggests USDA will leave its 2022/23 US soy export forecast unchanged at 2,045 million bu. The midday GFS weather forecast leaves in place a pattern of unwanted warm/hot ttemperatures and dryness in Argentina into Dec 20.

• Weight continues in US/global grain markets amid sluggish export trade. US census corn exports in October totalled 82 million bu, vs. 104 million in Sep, slightly below expectations as last year’s discrepancy between Census and USDA/FGIS data narrows considerably. US corn is non-competitive in the world market. Official US Oct corn exports of 82 million bu are up just 6 million from FGIS’s reported total, which underscores the absence of Canadian demand. Recall a year ago official US corn exports in Oct were nearly 30 million bu (20%) above FGIS’s total. US corn is struggling to find market share amid strong Gulf premiums and S American shipments to date.

• Chicago brokers estimate that the managed money has bought 12,000 contracts of soybeans and soymeal (each), 3,000 contracts of soyoil, and 4,500 contracts of corn. Funds have sold 2,300 contracts of wheat as they continue to press the short side of the marketplace.

• Soymeal/soyoil open interest in Chicago continues to rise suggesting that fund managers have not liquidated meal/oil spreads as indicated in prior days. These funds are caught the wrong way on the spread and are placing GMO (Get Me Out) orders. This liquidation along with new chart-based buying has sparked the big rally in soymeal/soybean rally this morning. Note that Chicago soyoil is not following meal/soybean rally which indicates Argentine dryness is not the big focal point of the market just yet. Argentine farmers are still planting soybeans, but the arid forecasts mean that farmers could switch soybean acres to second crop corn if rain does not fall soon in abundance. This is a reason why the corn market appears to be unable to sustain much of a rally.

• WTI crude oil futures have fallen sharply with losses of nearly $3.00/barrel to $74.00. Crude is at the lower end of $74-76.00 support. The crude market is reacting to weaker prices for Russian offers due to the weekend cap placed by NATO members.

• The midday S American GFS weather forecast is like the overnight run with limited rain for Argentina into December 15. A few spotty showers of less than 0.50” could fall across Northern Argentina, but southern crop areas will be missed. The extended range 11–15-day period does offer increased rainfall, but the confidence this far out is low.

• The Brazilian weather forecast is drier for RGDS with adequate rains for Central and Northern Brazilian crop areas. Brazil is on track to produce a record soy crop of 150 million mt plus, but better rains across S Brazil is welcomed. La Niña is in fast demise, which should produce improved Argentine and Southern Brazilian rainfall, it is all a question of timing.

• Grain prices are holding in downtrends, while soybeans/meal are catching bids on Argentine heat/dryness. A Chicago top forms when Argentine rains return as La Niña dies.  We see US wheat futures as undervalued relative to fundamentals, but the market has not found a chart bottom yet. March Chicago wheat may have to fall to $7.20 for a secondary seasonal low. Traders will monitor the EU weather model going home for hints of Argentine rain in the week two forecast.

• Global wheat price becomes regional; US market rationing export demand: The world wheat market stays complex. US cash prices have rightly shed historically large premium to other origins, but otherwise, market in Russia, Europe and the Southern Hemisphere have independently found equilibrium. Other than the US, global cash wheat markets have been unchanged since October.

• Russian wheat is the world’s cheapest. Importers continue to source Russian origin in the spot market, a strategy that has been rewarded. Yet, we note that Argentine fob prices sit at $370-380/mt, and unlike recent years Argentine wheat is not probing for demand. Aussie fob values are also quoted at $365/mt, well above EU/Black Sea prices. Gulf HRW is working to keep domestic stocks adequate and export demand confined to captive markets.

• Gulf HRW does compete with Argentina below $8.50/bu, which reflects fundamental support. We also expect current world price relationships to be unchanged into spring. Non-Black Sea markets can’t add to demand amid tight stocks. Russian exporters must maximise shipments amid this year’s record surplus with exports of 44-46 million mt.

• Soybeans/soymeal rally on spreading and end user pricing in soyoil futures: Soy futures ended the week mixed with soybeans/soymeal values recovering from Thursday’s lashing while speculative liquidation continued to pressure soyoil.

• EPA confirmed that canola/rapeseed oils are confirmed to be US biofuel acceptable and are eligible for US for D4 or D5 RINs. This new competition for US soyoil adds to the importance of cash feedstock price spreads. And the EPA’s announcement of using eRINS for EV’s will cut estimated US domestic soyoil demand by 400-500 million pounds.

• This has pummelled US soy crush margins. The pressure on margins could trim US soybean crush rates by 15-30 million bu thereby adding to 2022/23 US soybean end stocks. We fear that additional liquidation will befall US soyoil futures in the week ahead.

• CFTC indicated that funds are holding a net long soybean position of 102,100 contracts, up 20,000 contracts in the past week. We see the changed fundamental outlook for soyoil as creating bearish headwinds for soybeans with normal Brazilian weather. We see March soybean futures above $14.50 as overvalued.

• Chicago corn collapses as chart support fails; Argentine weather needs monitoring: Speculative liquidation sent Chicago corn futures to losses of 10-15 cents. The widening of spreads is indicative of current weak demand. Crude’s correction lent additional weight. Managed funds on Tuesday were long a net 192,000 contracts, up 21,000 from the previous week. Additional selling is possible early next week on the weekly close below the November low.

• Upside price risk is present amid threatening Argentina weather, which has trended warmer and drier in the last 24 hours. We also note that Brazilian futures and cash prices are not following Chicago lower. Brazil’s spot and March contracts have widened their premiums to the US rather quickly. A window for improved exports opens between Jan and April.

• Strong fundamental/chart resistance lies at $6.75-6.80 basis March futures. The long-term outlook turns bearish if the end of La Niña boosts precipitation in Argentina in January and February.

• World wheat markets extend correction; funds expand short position: Wheat futures ended lower again amid a lack of bullish input, coming rapid harvest progress in Australia and weakness in the US corn market. Updated Russian interior prices are unchanged week on week, and much of this winter’s business from North Africa and the Mideast will be given to Russian exporters. The catalyst needed to trigger short covering remains absent.

• But funds’ short position in Chicago on Tuesday was a sizeable 58,000 contracts. Another 5-7,000 contracts have been added since. At current prices, there is no room for adverse winter weather to negatively impact Black Sea logistics, and importers are still only covered through mid/late winter. The recent collapse is in increasing demand. A weakening US dollar is also noted. This is no place to turn bearish

• HEADLINES: Soyoil paces Chicago decline as market reacts to EPA release; Midday GFS weather forecast wetter in Argentina.

• Chicago values at midday are trading lower, with soybeans and soyoil collapsing following the EPA’s updated blending mandates released late Wednesday. The market is clearly disappointed with the 1% hike in renewable fuel volume obligations in calendar year 2023, and while renewable diesel output expansion will continue in the near term. The value of RINS looks to fall sharply as there will be no issues at all in meeting the US’s 2023 targets. The coming erosion of RIN values will, on balance, reduce total plant revenue. Jan Chicago soy fell below its 200-day moving average with ease this morning.

• The EPA’s announcement has collided with wetter extended range forecasts in Argentina and ongoing pitiful (negative) US soyoil export demand. The midday GFS forecast is in line with ensemble model solutions released overnight which feature a modest but needed uptick in rain chances across Central Argentina beginning Dec 8-9.

• US exporters in the week ending Nov 24 recorded net soyoil sales cancellations worth 5 million lbs. This follows cancellations of 200,000 lbs the previous week. It feels that the USDA’s soyoil export forecast is much too high, and still US soyoil is expensive in the global oil market. EU rapeseed oil this morning is quoted at $0.58/lb, vs. $0.80 a year ago in early December. Maximum biofuel production/consumption is needed to prevent a rise in monthly soyoil stocks.

• US corn export sales in the week ending Nov 24 totalled 24 million bu, vs. 73 million the previous week as Mexican demand slows. Soybean sales were 25 million bu, unchanged from the previous week and right at the level needed to meet the USDA’s target. Wheat sales totalled just 6 million bu, vs. 19 million the previous week.

• For their respective marketing years to date, exporters have sold 723 million bu of corn, down 48% from last year, 1,370 million bu of soybeans, unchanged from last year, and 494 million bu of wheat, down 6%. Key is whether corn sales can see semi-lasting improvement as S American surpluses tighten by mid-winter. Today, US corn is expensive relative to competing markets for Dec/early Jan.

• The midday GFS S American weather forecast is wetter in important regions of Central Argentina in the 6–10-day period. Blocking high pressure ridging is forecast to move slightly northward beyond Dec 8, which allows for an improved flow of moisture and a moderation of temperatures thereafter into Dec 15-16. Confidence in details so far out is lacking but calls for additional ‘band-aid’ rainfall in Argentina have been consistent in the last 24 hours. Extreme heat and complete dryness into Dec 8-9 will accelerate moisture loss nearby.

• The Brazilian outlook lacks issues, with normal/above normal rainfall of 2-5” offered to the entirety of Brazil’s Soy Belt in the next 10 days. Brazil avoids heat.

• Renewable diesel production remains a key driver of soy demand longer term, but disappointing mandated 2023 growth, along with soyoil fund length of 100-105,0000 contracts on Wednesday warrant a correction. Choppiness continues until S American yield potential is better known.