- Extremely cold ocean water continues to pool across the Eastern Pacific with each week being cooler than the last. This unusual broad build-up of cold Pacific ocean water to the west of S America looks to maintain a dry flow across Argentina and S Brazil for weeks to come. Exceptionally wet weather conditions will likely occur across N Brazil. The continued combination could pose elevated risks for summer row crops into early 2018. Our concern for S American weather is increasing amid the deepening cold across the equatorial Pacific.
- Choppy, but generally lower trade unfold across the Chicago soy markets as the trade responded to the EPA’s announcement for upcoming biofuel targets. Soyoil tried to rally on the news, but faded as the EPA data did not offer any surprises. January soybeans turned down and slipped under it’s 50 day moving average, while the January crush spread rallied to a new high and traded over $1.05/bu. Funds were estimated sellers of; 6,500 soybean and 3,000 soyoil contracts, and buyers of 3,500 contracts in the soymeal market. Funds continue to pile into meal/oil spreads. The November WASDE estimated 2017/18 soyoil usage for biodiesel at 7,000 million lbs, or 13% more than in 2016/17. The history of the December WASDE estimate against actual soyoil demand, shows that over the last 5 years the December forecast has on average been within 4% of actual biofuel demand. With today’s announcement being only 50-150 million lbs better from the July proposal, we do not anticipate any significant changes from WASDE in December. Census will be out with their Crush report on Friday, which could show a deeper decline on stock based upon marginal imports. We are becoming more concerned on S America weather with heat to arrive in December for dry Argentina and S Brazil. Consequently, we see price breaks as buying opportunities.
- Corn futures rallied 2 cents amid a focus on an intensifying La Niña and rising cash prices in S America. First notice day has come and gone, interior basis levels are steady to firmer, and it is likely that a secondary low has been scored, at least until/unless a more normal pattern of rainfall develops in Argentina. Recall December is a key month for first planted corn there. US export sales through the week ending Nov 23 totalled 24 million bu, down 19 million from the previous week, but roughly in line with the pace needed to reach USDA’s annual target. Argentine and US Gulf cash basis levels are pretty even, and the next round of meaningful weakness in S American cash markets will likely not occur until late winter, when the earliest planted fields are harvested. The USDA’s 1,925 million bu forecast looks a bit more accurate. Spotty showers in Argentina through the weekend will satisfy current moisture demands, but longer term there is still an elevated risk of heat and dryness, which climate outlooks are beginning to show, and the question thereafter is just how long La Niña lasts. Funds are huge shorts, which in itself presents an elevated risk potential.
- US wheat futures were unwilling to follow corn higher amid slow US export demand and huge Chicago deliveries. Following several weeks of decent export business, a second consecutive week has passed with sales below what’s needed to hit the USDA’s target. Gulf HRW is somewhat more competitive now, but lasting rallies will again harm Jan-Mar potential without a similar rally in Black Sea cash prices. US export sales through the week ending last Thursday totalled a meagre 7 million bu, half of the required pace, and amid ongoing warmth in Ukraine and Russia we doubt much improvement lies ahead in the next couple weeks. There is increasing evidence to suggest high quality exportable surpluses in N Europe are dwindling fast, but this has so far failed to spark much interest in US HRW wheat. We maintains that a secondary bottom was scored early this week, and an expanding Plains drought needs watching, and should expand amid a strengthening La Niña. However, rallies will continue to be modest short covering affairs unless adverse S American weather bulls corn prices.