- HEADLINES: S American weather forecast static/drought like; Ukraine discussing limits on milling wheat exports; US cash corn movement increased with $6.00 offers.
- Chicago futures are higher at midday based on the bone dry Southern Brazilian and Argentine weather forecasts with increasing heat noted ahead of the Christmas holiday. Corn/soybean futures have pushed to new rally highs and broken out to the topside of a longer-term consolidation pattern. Wheat has followed with KC March testing key resistance at $8.50. The morning volume of trade has been active (better than expected) with funds adding to their market length. A higher close is expected with the midday GFS forecast maintaining the arid overnight forecast with just a few spits of rain for S Brazil and Argentina into January 1.
- However, the bulls see the last few days of rally as a “windfall” and accepted partial profits ahead of a pending 3-day holiday weekend. This has produced the midday correction off the highs. The chance for a S American weather forecast change is accentuated over the long holiday weekend. However, if the forecasts stay arid on the market’s restart on Sunday evening, additional weather premium will be quickly added based on the ongoing sharp fall in S American crop sizes. In the weather business, the trend is your friend.
- Chicago brokers estimate that funds have bought a net 5,500 contracts of corn, 3,900 contracts of wheat, and 7,100 contracts of soybeans. In the products, funds have bought 2,100 contracts of soyoil and 3,900 contracts of soymeal.
- There is strong cash talk that Iraq has or will soon launch a tender for 500,000 mt of HRW wheat. And like Iran, a follow up tender for a like amount of wheat is expected next week. Iraq has a wheat shortage due to a dire summer drought last summer, and the US could fill some of the wheat demand. World freight rates continue to drop which is providing the US with an improved export opportunity to North Africa and the Mideast.
- Reuters is reporting that their Ukraine sources indicate that the Government is considering placing a more restrictive export duty on milling wheat amid their 27% gain in wheat exports to date. Food inflation throughout much of the Black Sea is running 6-9% per month and Governments are becoming concerned about their fast grain export pace. A decision on the Ukraine milling wheat export duty is expected by mid-January.
- The latest weather forecasts suggest that S American drought will have longevity and worsen in the months ahead. It is worth watching closely to gauge the importance of the coming hot/dry weather. Our concern over a deepening S American drought is growing.
- US farmers were moderate sellers of cash corn on the push of spot futures above $6.00 March. This was the highest spot cash corn price since July and a new contract high for 2021.
- Parana’s Deral indicated that its soy crop has lost 12% of its yield due to the deepening drought. The Parana soybean crop was forecast at 20.6 million mt with a 12% yield loss amounting to 2.5 million mt. RGDS soybean crop was forecast at 20.9 million mt, so a like yield loss causing a 2.5 million mt of decline. Including the southern half of MGDS, S Brazil was forecast to produce 50 million mt or 35% of the expected 2022 Brazilian harvest. Current drought losses are pegged at 5.0 million mt.
- The midday GFS weather forecast is like the overnight solution with little or no rain for S Brazil/Argentina for 12 days. The GFS forecast hints a rain for S Argentina in days 12-15, but is too far out in the forecast for any confidence. Brazil stays hot/dry.
- The charts are turning up and the forecast is hot/dry for S Brazil/Argentina into Jan 1. We stay bullish with Sunday’s forecast likely to produce a sharply higher start or a modest corrective fall. Real crop damage is being assessed, and rains are needed immediately across S Brazil. A continuance of this pattern would cause sizeable, short covering heading into the January USDA Crop Report on January 12.