- HEADLINES: Wheat corrects, row crops follow; S American weather favourable into early December.
- Chicago ag markets are lower at midday in a reversal from the overnight trade, with wheat pacing the break on profit taking. As previously mentioned, grain markets worldwide are heavily overbought and profit taking will occur periodically with wheat at 9-year highs. The wheat market this week has now digested excessive/unwanted rainfall in eastern Australia. Dec-Jan climate forecasts remain dry in Argentina and southern Brazil, but additional precipitation will fall across Central and Northern Argentina into the weekend. Argentine corn crop ratings will stay historically high in the near-term. The volume of trade has been surprisingly robust for a pre-holiday session.
- FAS announced that US exporters sold 330,000 mt of soybeans to unknown destinations, 100,000 mt of corn to Mexico and another 30,000 mt of soyoil to India. Weekly US soyoil export sales through the weeks ending Nov 18 and 25 will be an impressive 70-90 million lbs, which follows sales in the week ending Nov 11 of 149 million. Firm palm oil and lofty rapeseed oil prices have funnelled global vegoil demand to the US soyoil market. Cash rapeseed oil in Europe this week is quoted at $0.80/lb, vs. $0.77 last week.
- There is still no word on the EPA’s revision to biofuel blending mandates, but EIA’s weekly energy report confirmed that the US ethanol industry continues to operate at 95% of capacity. Ethanol production in the week ending Nov 19 totalled 317 million gallons, vs. 312 million the previous week. Recall weekly production must average only 296 million gallons to meet the USDA’s 2021/22 ethanol grind forecast, which is at least 150 million bu too low.
- Motor gasoline consumption last week was 9.33 million barrels/day, up slightly from the prior week and up 1% from 2019 (pre-Covid). Gasoline use will be sharply this week as holiday driving patterns have normalised. Weekly ethanol production must stay elevated to prevent further stocks contraction, with Midwest cash ethanol prices clearly sending the signal of the need for additional supply. US ethanol stocks last Friday totalled 847 million gallons, down 3% from 2020. Cash ethanol in IA is quoted at $3.30, vs. $1.30 a year ago in late November.
- The US’s release of 50 million barrels of strategic crude reserves over the next several months will temper energy market rallies during the winter months, but non-reserve stocks will still be below 2020 levels even assuming this 50 million gallons was released today in one tranche. Crude oil’s turnaround on Tuesday indicates that downside risk below $75, basis spot WTI, is limited.
- Next week’s dry weather in Australia will be welcomed, but we note that the midday GFS weather forecast has added another soaking rain event to New South Wales and Queensland Dec 4-6. Whether the EU model includes this wetter change will be monitored.
- The midday GFS forecast is wetter in Mato Grosso do Sul and Goias in Central Brazil in the 11-15 day period but is otherwise consistent with the morning solution. Moderate rains begin to fall across Argentina in the next 24 hours, with heavier amounts due over the weekend. 5-day accumulation in Cordoba and Santa Fe is pegged at 0.50-2.00”. Additional soil moisture improvement lies ahead. Needed showers will also impact Rio Grande do Sul in Southern Brazil on the weekend, while normal tropical showers persist in Central and Northern areas. South American weather into early Dec is favourable.
- A correction in wheat was needed and March Chicago can lose another 15-20 cents and still maintain a longer-term bullish trend. End users are advised to add to supply coverage only on nearby corrections. Longer term, grain/oilseed price determination will hinge upon S American weather almost exclusively beginning in mid-December, and whether dry Dec-Jan climate outlooks in Argentina/S Brazil are proven correct.