- HEADLINES: Markets slide on Aussie production estimates; Midday GFS maintains dryness in Argentine/S Brazil.
- Chicago ag markets are weaker again at midday as liquidation persists amid a sharply rally in the US$. Crude and gasoline futures remain firm but are well off session highs, and otherwise liquidation has been spread across the global commodity sector. Renewed concerns over Covid and consumer spending patterns during the winter months are noted, but we view today’s break as simply a function of money flow. FAS’s daily reporting system failed to include new US export demand and grain markets are digesting better than expected rainfall across Central Argentina over the weekend. ABARES in Australia boosted its Aussie wheat production forecast to a record 34.4 million mt, vs. USDA’s 31.5 million.
- We do note that international cash markets have not fully participated in the recent break. Russian interior wheat and flour prices continue to score new seasonal highs on a weekly basis. Brazil’s interior cash corn market has stabilised at $6.40/bu. In the US, interior basis levels are steady with corn and soy basis in Central IL perched at $0.15-0.20/bu over Chicago futures for spot delivery.
- ABARES projects Australian barley production in 2021/22 to be 13.3 million mt, the second largest on a record and 1.3 million above USDA’s current forecast. Australian canola production is pegged at 5.7 million mt, a record and 900,000 tonnes from USDA’s forecast. ABARES’ crop estimates lean slightly bearish wheat and canola/rapeseed markets, but quality and logistics issues persist. We doubt Australia can export more than 25 million mt of wheat in 2021/22, and so much of this boost in production will raise end stocks but will not find the world marketplace. Additionally, eastern Australia’s spot wheat future has rallied to $310/mt, vs. $260/mt in early November. This reflects a modest premium to spot Chicago.
- The intensity of rainfall in eastern Australia has been downgraded, but another 2-4” will fall across crop-heavy areas of New Sales Wales and Queensland in the next 10 days.
- US export inspections through the week ending November 25 included 30 million bu of corn as well as an 8 million bu upward revision to the previous weeks’ shipments to 33 million. Soybean inspections were 79 million bu and the previous week’s shipments were raised a sizable 27 million bu (44%!) to 89 million. Chinese demand for all-origin beans is robust, with Chinese imports in December likely to reach/top 11 million mt. Wheat export inspections totalled 9 million bu, vs. 7 million the previous week. It is clear Gulf fobbing capacity will favour soybeans in the near term. Improved wheat/corn shipments are due Feb onward.
- NASS’s will publish its final winter wheat crop rating this afternoon. We look for the crop nationally to be pegged at 43-44% good/excellent, vs. 46% last year in late November. Warmth and dryness remain most probable across the Southern Plains throughout winter. Slow/steady drought expansion there is anticipated.
- The midday GFS weather forecast is consistent with morning output in projecting a lengthy period of dryness in Argentina and across the southern third of Brazil. Normal/above normal rain will be ongoing in central and Northern Brazil. Closer attention must be paid to Argentine weather in early December as the GFS forecast hints at structural high pressure ridging there beginning Dec 15. This is too far out to place much confidence in, but the coming pattern reflects a classic La Niña signature.
- The recent slide in crude cannot be ignored but we caution against adding to sales on breaks. Chart-based support lies at $5.80, March Chicago corn. KC/CBT wheat can lose another 10-15 cents and remain in a clear bull trend. It is Dec-Jan S American weather that determines fair value longer term, and concern over La Niña-based drought in Argentina/S Brazil remains elevated.