- HEADLINES: Markets plunge on macro fears; EPA misses deadline; S American weather concerning.
- Global ag, financial, and other raw material markets are sharply lower at midday as the overnight’s ‘get me out’ mentality spreads and intensifies. The Dow is down 600 points, with spot WTI crude down $4.30 per barrel at $65.60. Renewed uncertainty over global consumption/travel patterns is noted, and recent heavy fund buying of raw materials has exacerbated the market’s liquidation mode. We believe the break is fundamentally overdone, but corn, Chicago wheat and soybeans have fallen below their respective 20-day moving averages, which has added a new layer to speculative selling.
- Brazilian fob soybeans for Feb delivery are quoted at $482 per ton, vs. US Gulf beans at $493. Widening Brazilian soy discounts are fairly routine in early winter, but this does validate the fact the US’s period of soybean export dominance will be closing in the next 60 days. The US wheat market’s chore of keeping exports slow, amid relatively tight stocks, has also become easier as European cash markets follow futures lower.
- Yet, we strongly advise against chasing the break with new sales. In fact, end user purchases are advised at current levels.
- The wheat market has digested ABARES’ record Aussie wheat production forecast, but whether a reduced Canadian crop offsets this will be known on Friday morning. Additionally, The EU and GFS weather models have added yet more rainfall to New South Wales and Queensland Dec 7-11. Open harvest weather there will be confined to just a few days next week. Soaking precipitation worth 2-3” is expected in the 6-10 day period, and wheat harvesting is estimated at just 25% complete this week in NSW. Cumulative moisture of 5-8” (snowfall worth 20+”) will keep rail repairs in Western Canada slowed.
- We note that it is historically rare for ag market highs to be set in December. Technical healing will be needed but lingering in the background are worrisome S American climate forecasts, while additional net soil moisture loss occurs across the US Southern and Central Plains, both due to La Niña.
- La Niña is not forecast to peak until January. The ongoing cooling of the equatorial Pacific will work to shift S American precipitation well north of major crop areas in Argentina, Paraguay and Southern Brazil. This pattern is now featured in the 10-day forecast and Dec-Feb climate guidance maintains similarly arid conditions. Heat will be absent from Argentina/S Brazil in the near-term, but the loss of soil moisture over time raises the odds that heat develops in late Dec/Jan. In the long run, weather takes priority over macro market fear/weakness.
- US exporters sold 132,000 mt of soybeans to unknown destinations this morning.
- The EPA looks to miss the statutory deadline to release its mandated volume requirements. EPA did propose an extension in this deadline, but little else is known about volumes or the timing of publication.
- The midday GFS weather forecast is drier in far Southern Brazil over the next weeks but is otherwise consistent with the morning solution. A lengthy period of dryness/mild temperatures remains probable in Argentina and across the southern half of Brazil’s primary ag belt. This is very much in line with the development of La Niña, and amid consistency in Dec-Feb climate outlooks, S American weather must be monitored more closely. S Brazil poses the most immediate risk amid reports of very unhealthy summer corn in Rio Grande do Sul. S Brazilian dryness is also more expansive than previously expected, with large swaths of soy acreage now impacted.
- It is impossible to know the potential impact of new Covid strains/mutations, but we highlight that global grain/oilseed consumption was record large in 2020.