Monthly Archives: December 2023

8 December 2023

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  • HEADLINES: USDA December report non inspiring with limited statistical change; GFS midday weather forecast like the overnight run, wetter in 11-15 day; China secures US SRW wheat and soybeans.
  • Chicago futures weakened following the USDA December crop report as WASDE raised last year’s Brazilian soybean crop by 2 million mt to a record 160 million, while cutting this year’s soybean crop by 2 million mt to 161.0 million. The net stocks result was negligible with 2023/24 World December soybean end stocks at 114.5 million mt, the same as November. WASDE held their 2023/24 Brazilian corn crop estimate at 129.0 million mt, while raising US wheat exports by 25 million bu due to recent Chinese demand for SRW wheat. The WASDE December report is neutral with large US corn stocks (2 billion bu) being an overhang on price. We doubt that corn, soybeans, or wheat can sustain a lasting bearish trend until more is known about 2024 S American crop sizes. December is a key growing month for Northern Brazil, but Southern Brazil is still seeding spring crops. Thus, look for choppiness to persist with breaks supported by commercial demand due to expanding US export interest in the grains.
  • WASDE trimmed its estimate of US 2023/24 corn stocks to 2,131 million bu, down 25 million bu due to a hike of a like amount of demand in US corn exports. WASDE forecast 2023/24 US corn exports at 2,100 million bu, up a sizeable 439 million bu from last year. Note that this expanded US corn exports assumes a 129.0 million mt Brazilian total corn crop. CONAB and private analysts all indicate 2023/24 Brazilian corn production at 118.5-123.0 million mt, well below WASDE which has the potential to raise US export demand even more. 2022/23 Brazilian corn exports were raised to a record 57.0 million mt to reflect China’s massive buying. WASDE left 2023/24 Chinese corn imports unchanged at 123.0 million mt. Amid the limited change in US 2023/24 corn end stocks, the WASDE report is neutral corn.
  • US 2023/24 soybean end stocks (and the entire 2023/24 US balance sheet) were left unchanged at 245 million bu. No adjustments to US crush or export demand were noted and WASDE left its forecast of US soyoil for biofuels unchanged also at 12,800 million pounds. We would argue that US soyoil use for biofuel will be adjusted upwards by 2 billion pounds in the months ahead due to surging renewable diesel production and a plateauing of used cooking oil imports.
  • China 2023/24 soybean imports were raised 2.0 million mt to a record large 102.0 million while there were no changes to 2024 Argentine soy crop at 48.0 million mt. The US and world soybean crop data argues for a broad trading range of $13-14.00. Soyoil will gain on meal as US cash soymeal premiums deflate in 2024.
  • USDA December wheat data lacked surprises. Global end stocks were reduced slightly as higher projected world trade (+2 million mt) more than offset larger production (+1 million mt). Canadian and Australian crop sizes were increased to account for recently published government data. Canadian and Aussie exports were increased. Brazilian wheat production was trimmed 1 million mt following excessive flooding during September/October/November.
  • US wheat exports were lifted 25 million bu, all SRW, following recent Chinese demand. US end stocks were reduced by a like amount. Work suggests USDA is still 10-20 million bu too low with its annual US export target, China secured another 4 million bu of US SRW overnight, and the US SRW balance sheet is tightening rapidly. WASDE projects SRW exports to exceed HRW for the first time on record. 2023/24 US SRW stocks are pegged at 118 million bu, with stocks/use calculated at 27%, vs. 37% in November and vs. 26% in 2022/23. If SRW acreage is lost, 2024/25 US SRW stocks drop to or below 85 million bu. Chicago wheat futures have corrected at midday as the market reconciles overbought technical conditions, but the ingredients for additional speculative short covering stays in place.
  • The USDA’s Dec WASDE, as always, lacks market-changing input. Key moving forward is whether a pattern shift in Central and Northern Brazil is finally allowed to occur beyond Dec 20. Thereafter, the Northern Brazilian crop will begin to shed yield rapidly if regular soaking rain fails to develop. US corn remains cheap in the world marketplace as feed grain, with March Brazilian corn today rising to $6.45/bu. Chicago wheat values are tied to additional Chinese demand and tightening SRW wheat stocks. Wheat values have scored a major multiyear bottom.
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6 December 2023

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  • HEADLINES: Wheat rallies further on yet more Chinese demand; Plunge in crude weighs on row crops.
  • Chicago futures are mixed again, with row crops weaker and global wheat values steady/higher on additional Chinese demand for US origin. We also note that China this week has begun shipping previously purchased Russian cargoes. And bitterly cold temperatures and active snow in Southern and Central Russia will challenge logistics at ports and in the interior of Russia into mid/late December. Finally, the Aussie market has been stable despite ABARES raising its Australian production estimate on Monday. Wheat short covering continues.
  • US exporters sold another 372,000 mt of SRW to China this morning.
  • This brings Chinese purchases of US SRW this week to 37 million bu and brings total US SRW export commitments to 144.8 million bu, which matches the USDA’s annual forecast. Even assuming SRW sales between mid-Dec and late May average only 1 million bu/week, final US SRW exports are likely to reach 170 million bu. US SRW stocks, which were excessively large in summer/early autumn following record yield, will be cleared by spring. We expect the USDA to lift its all-wheat export forecast on Friday by 25-35 million bu.
  • Exporters also sold 136,000 mt of soybeans to China for old crop delivery.
  • Yet, the primary driver of corn, soy and soy product markets today is a further collapse in crude oil. Spot WTI is down $3.00/barrel at $69.30, a new 5-month low. Energy markets remain hyper-focused on Monday’s downgrade to Chinese debt and general pessimism surrounding global economic growth in 2024. Cash ethanol prices have followed crude lower, with the spot Midwest swap market dropping to $1.75/gal, vs. $2.20+ in Sep-Oct.
  • Weekly EIA data, however, is not overly bearish. US ethanol production in the week ending Dec 3 totalled 316 million gallons, up 19 million gallons on the prior week and unchanged from early Dec a year ago. Ethanol stocks totalled 901 million gallons, down 8% year on year. US commercial crude stocks last Friday were 445 million barrels, down 4.7 million from the previous week, and replenishing the US’s strategic reserve (which is still a very weak 352 million barrels) will be challenging.
  • The midday GFS weather forecast is consistent with its forecast into Dec 15-16. Better rain chances evolve across Central Brazil and Argentina in the 6–10-day period. Accumulation in the driest areas of Mato Grosso and Goias is pegged in a range of 0.75-2.00”, while multiple days of needed drier weather occur in far Southern Brazil. Soaking rainfall is forecast to blanket the core of Argentina’s Ag Belt next Thurs-Sat. However, heat/dryness persist in C/N Brazil into the weekend, and the GFS model is much drier in C/N Brazil the 11–15-day period as expansive high pressure ridging returns. Model forecasts, and the market, are struggling with forward S American outlook. Rain is needed immediately in N Brazil.
  • Wheat is nearing overbought levels technically and a pause in the recent recovery is likely, while March Chicago corn failed to break through its 50-day moving average. Chicago soy and soyoil are nearing oversold levels, and many have been unimpressed with Brazilian soy crop health to date.

5 December 2023

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  • HEADLINES: China buys more US SRW wheat; Rumours of Brazilian corn switching to the US: Midday GFS weather forecast drier N Brazil.
  • Chicago futures are mixed at midday with soybeans lower, while the grains have rallied. The volume of Chicago trade is down from yesterday with fund managers busy covering massive corn/wheat shorts while peeling back length in soybeans and soymeal. Soyoil is back testing key support at $0.50 basis January futures.
  • China purchased an additional 200,000 mt SRW wheat overnight which pushed March Chicago wheat close to $6.40 resistance. China has now purchased 1.6 million mt of US wheat and talk is that their total purchase on this round may reach 1.75 million. The Chinese demand should prod the USDA to raise their 2023/24 wheat export estimate on Friday. We maintain that China will take 2.0 million mt of US wheat in the 2023/24 crop year, but the French wheat market has not followed Chicago to the upside, and the future opportunity for China is to secure French SRW.
  • Corn has rallied on rumours that China is washing out 6-10 Brazilian corn cargoes with the hope that the corn will be switched to the US on the profitable economics. The Brazilian corn market has rallied sharply as its exportable supply is within 1-2 million mt of being sold out for the season. China has purchased 1.0 million mt of US corn in the 2023/24 crop year. The rapid sale of the record large 2023 Brazilian corn crop increases the odds for US corn sales to China (and other importers). Crop year to date world corn trade is record large, it is just that Brazil has been filling the business. US corn export sales are forecast to be noticeably stronger in the weeks ahead on its newfound competitive economic position. Brazilian corn export sale commitments have reached 51.0 million mt or just 1 million of the crop year forecast.
  • Chicago brokers estimate that managed money has bought 7,400 contracts of Chicago wheat, 8,400 contracts of corn, while selling 6,400 contracts of soybeans. In the soy products, funds have sold 5,100 contracts of soyoil while buying 2,400 contracts of soymeal.
  • China’s Caixin Services index (PMI) rose to 51.5 in November, a hint that China’s economic outlook may be brightening. China’s manufacturing index fell to 49.4 in November, which was down 0.1% from October. Copper and other industrial metal prices were rising on the hope of renewed demand. Commodity markets cannot sustain rallies without growing Chinese demand. China is forecast to import record tonnages of soybeans and feedgrains in the 2023/24 crop year on its government reserve restocking.
  • China is rumoured to have booked 3-4 cargoes of US soybeans for January/February this morning. The purchase is said to be out the PNW. China continues to use weakening Chicago prices to book forward coverage into March.
  • The midday GFS weather forecast is drier than the overnight for Northern Brazil and wetter for Southern Brazil.  Limited rain is forecast for Northern Brazil over the next 5 days with isolated accumulations of 0.25-1.50”. The forecast models call for an increase in Northern Brazilian rainfall in the week 2 forecast with totals of 1.50-4.00”.
  • Southern Brazil will endure soaking rainfall later today which continues into Saturday. 10-day rain totals are estimated in a range of 3.00-6.50” which is up 1-1.50” from the overnight forecast. New rounds of flooding are possible. The extended range forecast offers additional heavy rain for S Brazil.
  • Soybeans are extracting weather premium on the prospect of rain for Northern Brazil in the extended range. Yet, Brazilian crop estimates are in decline with the winter corn in the biggest supply risk due to falling seeded acres. Both US corn and wheat have brightening export demand outlooks, while the soy complex struggles under the weight of another big Brazilian soy crop. We note that soyoil is back to its November lows on fund selling, but as new renewable diesel plants open, a cash led soyoil rally will unfold in 2024. End users should use the soyoil break for new purchases.

4 December 2023

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  • HEADLINES: Soybeans shed risk premium on projected Brazilian rainfall in mid-Dec; Wheat rallies on confirmation of Chinese demand.
  • Chicago ag markets are mixed at midday with Jan beans lower and falling below its 200-day moving average while wheat surges on confirmation of sizeable demand from China for US SRW. Corn is stuck in between but is adding modest premium following the spot market in Brazil reaching $6.00/bu. Long soy-short grain spreads are being unwound as physical corn exports begin their seasonal increase and as extended range forecasts in Brazil offer some measure of climate normality. Whether extended range forecasts pull elevated rainfall totals into 5 and 7-day forecasts is important.
  • FAS announced that US exporters this morning sold 267,044 mt of corn to Mexico and 440,000 mt of SRW to China. Mexico’s demand for US corn remains record large, and this morning’s SRW sale to China puts total 2023/24 US SRW export commitments at 124 million bu. This accounts for 85% of the USDA’s forecast with nearly half the crop year remaining. Conservatively, final US SRW exports are likely to exceed USDA’s forecast by 10-15 million bu, which trims end stocks a similar amount.
  • The US SRW balance sheet tightens meaningfully again in 2023/24 if acreage is reduced and yield drops from last year’s all-time record 77.6 bushels/acre.
  • US export inspections in the week ending Nov 30 included 46 million bu of corn, vs. 16 million the previous week, 41 million bu of soybeans, vs. 58 million the prior week and 11 million bu of wheat, vs. 10 million the previous week. Corn shipments were above all trade expectations and featured 11 million bu to China, the largest in six months. Cumulative corn inspections at 332 million bu are up 27% year on year.
  • The pace of physical soy shipments has slowed seasonally, and a bit earlier than normal. Outstanding sales are large (511 million bu), but that Brazilian bean exports have been extended into late autumn is noteworthy. We view Brazilian crop risks today as more centred on harvest dates, which have been pushed into second half of Feb/early March, but there is little doubt Brazilian exporters will be active in the global market come spring.
  • French wheat seeding is just 82% complete, 74% a week ago and vs. 95% on average. Snow blankets much of central Europe, and additional unwanted rain is forecast across northern France over the next 10 days. The planting season has all but ended, and regional winter wheat acreage loss will be 10-20% year on year in parts of France and Germany. Weather adversity remains a theme in the world of agriculture.
  • ABARES overnight pegged Australian wheat production at 25.5 million mt, vs. USDA’s 24.5. Australian barley production is forecast at 10.8 million mt, vs. USDA’s 9.7. Stats Can raised its Canadian wheat production forecast to 32 million mt, vs. USDA’s 31 and lifted canola production to 18.3 million mt, vs. USDA’s 17.8. Wheat and rapeseed/canola markets have shrugged off relatively dull government forecasts, but USDA in Friday’s December WASDE will likely loosen its world wheat, barley and canola balance sheets.
  • The midday GFS weather forecast is similar to the morning run in projected widespread heavy rainfall across Central Brazil Dec 11-18, but keeps net boosts in soil moisture regional/scattered this week. It is clear near-term Brazilian forecasts have trended drier, while longer term outlooks have trended wetter. Near-normal rain is projected in Argentina.
  • Soybeans are extracting risk premium following mediocre export shipment data and favourable 8–15-day outlooks in Brazil. Grains are adding premium amid logistics issues in the Black Sea, Chinese demand for wheat and as, unlike beans, S Hemisphere corn supplies won’t be replenished until summer. It is critical that above-normal rainfall occurs in Central and Northern Brazil in Dec and Jan.