- Firm energy prices and US$ weakness has pushed buying back into ags just after the morning opening. Soybeans’ reversal has spilled into all other world oilseed markets, with Canadian and EU rapeseed futures again perched near seasonal highs established last week. A ‘buy the break’ mentality will be the feature of Chicago unless a pattern of soaking rainfall between now and early February across Central and Northern Brazil can be confirmed. Our concern over S American weather stays elevated.
- A resolution to Argentina’s port worker strike is possible later today. Yet, exporters and producers still must contend with falling production potential and historically low river levels, which will act to keep the movement of grain and soy slowed. The 100 plus boats waiting at Argentine ports will be allowed to load/sail, but the message is that a strike resolution will not suddenly give the world marketplace access to more new supply. Also recall that Paraguay must use Argentine waterways for its own corn and soy export program, which have historically been worth 2-3 and 4-6 million mt, respectively.
- Spot Chicago ethanol has traded sharply lower at midday. The EIA’s weekly energy report on Wednesday is unlikely to show material improvement in ethanol production or gasoline consumption. However, so far in 2020/21 weekly US ethanol production has kept up with the pace needed to meet the USDA’s forecast. Ethanol production will stay weak, but the USDA’s forecast is simply too low. Our bet is that the USDA in its Jan WASDE report lowers US corn yield 0.3-1.0 bushels/acre, while boosting total consumption 100-150 million bu.
- Interior US corn basis continues to strengthen, with bids in Central IL up $0.08 for spot delivery. Elevators along the IL River are posting record basis levels for spring arrival (as of late Dec). Corn’s export demand pull will be incredible Feb onward. Any issues with Brazil’s safrinha crop in Apr-May will exacerbate this.
- FAS failed to announce new export sales today, but China is expected to return to the US soy market in January ahead of its Lunar New Year, which begins Feb 12. Additionally, China has on the books 7 plus million mt of Brazilian origin beans scheduled to ship in February. Latent crop development is a concern, and dryness across far Northern and Southern Brazil, areas closest to ports, will sustain the ongoing battle between domestic end users and exporters. This is especially true as Brazil’s soy end stocks fall just 1.5 million mt.
- FAS will release its export sales report this week on Thursday.
- The details of the GFS S American weather forecast at midday are drier in Argentina and drier in pockets of Mato Grosso do Sul and Goias in Central Brazil. However, the overall pattern is similar to prior output in that a 5-6 day period of complete dryness returns to Mato Grosso and Goias before scattered showers return next week. La Niña’s grip on Argentina persists, with little/no precipitation offered to the country’s primary corn/soy belt into Jan 10. Net soil moisture draws in both countries will work to elevate temperatures, with max highs in the next 72 hours to reach into the low/mid-90s. Argentine crops are in trouble if the pattern fails to change beyond the next two weeks.
- This bull market is rather structural in nature and record Northern Hemisphere crops are required to resolve supply issues. Thus far the rally in beans has been based on the need to ration US supply. The rally will likely accelerate in Jan without soaking S American precipitation.