- It’s tough to be a Brazilian corn farmer right now. Recent information indicates that the winter corn crop is being sold at cash corn prices not seen in years. Notice from the chart below that interior Mato Grosso prices are $1.66/bu which is producing substantial losses. The negative margins will very likely restrict Brazilian corn planting in 2017/18 as farmers will be unlikely to plant a crop that does not offer a profit. Tough times due to the rising Brazilian Real and sliding Chicago futures prices.
- It was a mixed trade across the soy complex today, with soybeans trading on both sides of unchanged before ending firm. In the product markets, soybean oil was sharply higher, leaving a gap on the daily chart, while soybean meal slumped to new lows on spreads against bean oil. Last week’s Commitment of Traders report showed that funds had been big sellers in the soybean oil market, liquidating 29% of their position in just one week. However, fund buying in soybean oil has been unrelenting in the last week on anticipation of the biodiesel announcement. Funds have been estimated buyers in the last six consecutive days of 24,000 contracts. If correct, our guess is that funds are now holding a long position of 70,000 soybean oil contracts, or the largest since late January. The question now is whether hedgers use the rally to add to sales, or will they hold onto supply in anticipation of much stronger cash demand. Markets in the last half of the week will be focused on the crop tour yield results, which will offer insight into potential figures from NASS in September. The big debate remains on yield, but pod counts from the PF Tour are currently disappointing.
- The results of the Farm Tour are far from clear, but NE’s yield (165, vs. a 5-year average of 163) was better than anticipated, and so far the newswires are void of any big disasters. We maintain that the market is probing for a bottom, and ethanol use remains something of a bright spot for the market. S American basis is stronger again today. Weekly US ethanol production last week totalled 309 million gallons, down 2 million from the previous week but well above the same week a year ago. Plants have responded to the surge in production margins, and ethanol stocks are down slightly amid improved export demand. US crude stocks fell for an 11th consecutive week and are now 6% below last year. There is talk of more US ethanol production capacity being invested in to come on line in 2018.
- US futures ended near unchanged, while EU futures ended modestly higher. Along with strength in the €uro today, EU cash markets rallied $1-2/mt, further boosting their premiums to Black Sea and US origin. Algeria closes a tender for optional origin wheat on Thursday, and it is probable that US HRW will be included. Note that Algerian purchases of US wheat are extremely rare. Certainly, Gulf wheat is priced to boost US exports by 75-125 million bu. Black Sea cash prices are slightly weaker yet again, but on the margin the decline has slowed this week. HRW is offered at parity with similar quality Black Sea origin, while US 10.5-protein HRW is the world’s cheapest. Global wheat stocks excluding China are below last year. Research suggests that the US’s share of world wheat trade will rise as the EU, Australia and Canadian wheat exports suffer. While the post-WASDE break has exceeded all our expectations (and by some way), seasonal weakness will have run its course by September, and we continue to advise patience. More of the trade is beginning to acknowledge Russia’s infrastructure issues and inability to export more than 30-32 MMTs of wheat.