- HEADLINES: Wheat leads as Australian forecast trends wetter.
- Chicago futures are mixed at midday with KC wheat higher, soybeans weaker and corn caught in between. It is a typical pre-holiday session in terms of volume and enthusiasm. Firm closes are anticipated. Global crude oil futures have reversed earlier weakness and are trading sharply higher, which has acted to support Chicago soyoil.
- There is not much fresh news available, including US export demand. FAS failed to announce any new US exports sales for a fourth consecutive day. Yet, market focus remains on weather issues in Australia, concern over future weather in Argentina and Southern Brazil, and rather strong interior US soybean meal and oil basis levels. Recall this particular week typically features new buying, while positive seasonal corn, wheat and soy price trends linger in the background.
- The midday GFS weather forecast has added yet another frontal system to Eastern Australia Nov 30-Dec 2, with 10-day precipitation accumulation in New South Wales and Queensland now pegged in a range of 4-5”, with locally heavier amounts possible. Harvest progress will be halted entirely until after the first week of December.
- This wetter near-term forecast also helps validate long range climate models, which feature a pattern of above normal rainfall in southern and eastern Australia into the end of next month. It is nearly impossible to quantify quality loss, and most in the trade expect the Australian wheat crop size to be 2-3 million mt above USDA’s 31.5. But the Aussie cash and futures market will be the best measure of changes to supply and demand, and both of have found renewed bullish vigour this week. A lengthy period of dryness is desired.
- Paris milling wheat futures look to settle €2.50/mt higher at a new all-time record (in €uro) €311-312/mt ($9.55/bu). Grain market excitement in Europe has been cantered on wheat, but the corn market there has also found new seasonal highs amid the growing need for imports. We note that spot Paris corn holds a premium to Ukrainian fob prices of just $4/mt. Much higher prices are needed to prevent regional shortages of corn in Europe beyond winter. Our message is that international grain markets will continue to act as a buoy for US futures until much more is known about 2022 production potential.
- The EIA’s weekly energy report on Wednesday is expected to show an ethanol grind last week of 312-317 million gallons. Recall just 296 million gallons per week is needed to meet the USDA’s 2021/22 corn grind forecast. US ethanol and gasoline stocks are unlikely to build until early 2021 as holiday driving patterns return to pre-Covid levels. Cash ethanol across the Midwest is now quoted firmly above $3.00/gallon, vs. $1.20-1.30 a year ago.
- The midday GFS weather forecast is wetter in Cordoba and Northern Argentina into the weekend but is otherwise consistent with prior output. The outlook in Argentina and far Southern Brazil remains one of highly favourable conditions into early December but a growing risk that dryness becomes stagnant thereafter into mid-winter. More attention will be given to daily changes in Argentina’s forecast beginning next week. Daily showers will continue in Central and Northern Brazil indefinitely. A better mix of rain and sun would be welcomed in Mato Grosso and Goias, but soil moisture there has been fully replenished following last spring’s drought.
- Downside risk in late year is limited. Positive grain market fundamentals will increasingly collide with the speculative community’s desire to own raw materials. Wheat will stay the bullish leader into late winter.