- Chicago futures are slightly weaker at midday as US and world crude markets ease and fresh bullish ag specific news is lacking. Next week’s signing of the US and China’s Phase One agreement will offer support to soybeans and meats on breaks. But the USDA’s looming January crop/WASDE report is unlikely to feature a meaningful tightening of major crop balance sheets. S American weather forecasts remain broadly favourable as rainfall moves southward in Brazil. And the elimination of large net short positions in soybeans and KC wheat last week is noteworthy.
- The US$ is up sharply and has recovered well from late December’s 5-month low.
- Spot WTI crude is down $0.60/barrel at midday as world energy markets debate futures production, trade and logistics.
- All eyes will be on the Strait of Hormuz, which is cared for by Iran and which accommodates roughly one-fifth of global oil movement. Yet, the trade is also aware of the US’s newfound position as a major crude exporter, with the US becoming a net exporter of petroleum products in late 2019. Just last week, the US exported a record 31 million barrels of raw crude. Net US crude imports in late Dec fall to just 13 million barrels, which compares to 40-50 million in 2018. Any lasting rally in WTI will be met by greater US production.
- US ethanol futures are flirting with 3-month lows. Futures-based ethanol margins have fallen to $0.07/gallon, vs. $0.35 in early Dec. Midwest cash ethanol margins have followed, with spot revenue in the W Midwest just barely above variable costs.
- Needed soaking rain will fall across New South Wales and Queensland in eastern Australia Jan 16-22. This is too far out to place much confidence in forecast details, but the EU and GFS models have been consistent in projecting precipitation of 1-2″ to Australia’s Eastern Ag Belt. Coming rain won’t alter Australia’s 2020 grain supply and demand, but will aid in firefighting as well as begin to replenish soil moisture. A series of additional rain events are desired between now and wheat planting, which occurs in late March/early April.
- The midday GFS weather forecast is wetter in South-Central Brazil and drier in RGDS in the far south of the country. Cumulative 10-day totals across Mato Grosso do Sul, Goias and Sao Paulo have been raised to 4-7″, or some 150-200% of normal. Daily showers continue in Mato Grosso. However, far Southern Brazil will be left arid and vegetation health in RGDS already indicates noticeable yield declines there. Whether the EU model follows this drier trend in Southern Brazil will be monitored. But Brazil’s overall climate pattern will be conducive to above-trend national soy yield. Moderate rain returns to Central Argentina Jan 13-14.
- Managing risk over the next several months amid heightened geopolitical and trade uncertainty will be key. Our thoughts remains to sell strong rallies as a meaningful cut to current and future global crop stocks is needed to turn outright bullish.