- Stats Can’s numbers this morning were indeed bearish, pretty much as anticipated. Final wheat production is pegged at 30 million mt, up 3 million from the USDA’s last estimate in November. Much of this will be added to Canada’s exportable surplus, and higher protein wheat futures contracts in the US were down 6-8 cents at midday. Stats Can also raised canola (rapeseed) production to 21.3 million mt, vs. 19.9 million previously, which will ease concerns over an ever tightening Canadian canola balance sheet. Large Canadian canola and soy exports are expected through the balance of the crop year.
- Energy futures ended sharply lower today as US motor gasoline stocks built and a seasonal lull in consumption lies ahead. US crude stocks remain well below the levels of recent years, and the difference is widening, and of course weaker prices do little to boost production.
- Following higher overnight trade, soy futures turned down after the morning open on profit taking, and in sympathy with weakness in the wheat market. Fundamental news for the day was limited to S American weather updates, which remain warm and dry for the next 10 days. January and March soybeans were able to build late day support after both contracts closed out open chart gaps that were left from Monday’s trade. Commodity fund traders were estimated sellers of 9,000 soybean, 5,000 soymeal, and 4,000 soyoil contracts. Soymeal has lead the soy trade this week, lifting Chicago soy crush margins. The spot spread today traded as high as $1.20/bu and closed at $1.15, verus $.74 a year ago. Forward margins are also similarly strong, giving processors the opportunity to lock down an average margin of $1.09/bu to the end of the year versus $.83 a year ago. Next week’s WASDE report is expected to show a slower US export forecast and larger end stocks, though the market this week is following S American weather.
- Chicago corn futures ended slightly lower, but mostly shrugged off weakness in neighboring wheat and soy markets. We view strength in corn today as a function of another week of record ethanol production, and the fact that a meaningful pattern shift is still unlikely in Argentina and S Brazil by late December. Through the week ending last Friday, US ethanol plants produced a record 326 million gallons, a full 10 million above the prior record set two weeks ago, and which further argues the USDA’s projected ethanol demand draw is 25-50 million bu too low. Ethanol production margins have eroded rather quickly (calculated today at $.25/gallon, vs. $.60 in early November), but ethanol’s discount to gasoline remains substantial, and non-domestic blend disappearance continues at a record pace. The point is that, fundamentally, we doubt much downside risk in corn exists below $3.45, basis March, and the overall S American weather pattern remains concerning. Funds may be more willing to part with sizeable short positions by late month if weather doesn’t improve.
- Spring wheat futures led the way down today, as Stats Can added 3 million mt to Canada’s all-wheat production total. This goes a long way in easing concerns over the availability of high protein wheat in North America, and also suggests the US can boost cross-border trade if any real shortages develop. We would point out that Stats Can production figures are now largely satelite based, but any correction to production awaits Stats Can’s next stocks reprot, which isn’t due until early February. Funds sold and estimated 4,500 contracts in Chicago. World markets also ended lower following Stats Can’s report, with EU origin wheat down a full $3-4/mt this evening, but the news should be fully digested by early Thursday. Otherwise, US export sales are likely to rise slowly as, on paper, the Gulf HRW market is more competitive. Managed funds’ net short today is calculated at 125,000 contracts, which is sizeable. We would look for a modest rebound from contract lows, but suggest that rallies require the loss of corn yield in S America.