- The USDA December Crop Report was seen as mixed to slightly bearish with WASDE deciding to cut US wheat and soybean exports in the 2017/18 crop year, while raising ethanol demand in corn by 50 million bu. In aggregate, the December WASDE report is unlikely to alter prevailing Chicago sideways price trends, with the only real winner being US biodiesel which saw a noticeable rise in use while exports were trimmed. The WASDE report will fuel oil/meal spreading and potentially, some exodus from long soybean/short corn spreads. We look for a mixed Chicago close with all eyes focused on Argentine and S Brazilian rainfall totals next week. WASDE lowered the 2017/18 US corn end stocks by 50 million bu amid the record pace of US corn ethanol demand in recent weeks. WASDE raised the US corn ethanol demand estimate to a record large 5,525 million bu. The increase in US corn ethanol demand reduced US corn 2017/18 corn end stocks to 2,437 million bu. The US average farm-gate price range narrowed 5 cents on either end of the forecast to a net average of $3.20. This is $.16/bu lower than last year.
- World 2017/18 corn end stocks were raised slightly by 500,000 mt to 204.1 million mt. We note that based on strong Chinese demand, WASDE did raise US sorghum exports by 50 million bu to 260 million. US sorghum food/seed/ industrial use was cut by a similar amount leaving US sorghum end stocks at 21 million bu, a slight 2 million rise from November. Research maintains a trading range of $3.35-3.75 for March Chicago corn futures. US wheat end stocks were increased by 25 million bu to 960 million bu amid a like reduction in US wheat exports to 950 million bu. Russia’s wheat exports were raised by 500,000 mt to 33.50 million mt, which is still 1.5-2.0 million too low in our opinion. The US wheat export prospects going forward depend upon European wheat sales/exports and future Russian weather patterns to determine if record loadings can continue. US wheat has regained export competitiveness, but its opportunities going forward are all tied to the future Russian and European export pace. We see March Chicago wheat trading a range of $4.10-4.50. 2017/18 world wheat end stocks were forecast to rise 1 million to a record large 268.4 million mt. The 2017 Canadian wheat crop was raised 3.0 million to 30 million mt with the Australian crop holding at 21.5 million mt. We also note that European wheat production was raised 1 million to 152.5 million mt with exports holding steady at 28.50 million mt. World wheat prices look to trade in a $175-205 range into Q2 2018. US 2017/18 soybean end stocks were raised 20 million to 445 million bu.
- WASDE cut US 2017/18 soybean exports by 25 million to 2,225 million bu with a 5 million bu increase in the residual. Such US soybean end stocks argue for a trading range of $9.65-10.10 for spot Chicago soybean futures with normal S. American weather. However, soyoil should gain on soymeal with WASDE raising their estimate of US 2017/18 biodiesel use by huge 500 million lbs to 7,500 million lbs. WASDE cut US soyoil exports by 300 million lbss and domestic use by 200 million leaving end stocks at 1,616 million lbs. We argue for tightening supplies of US soyoil going forward with the marketplace making sure that US soyoil exports are tepid at best. The 50 day moving average crosses at $.3414 basis January soyoil futures. This is the next upside price target. 2017/18 world soybean end stocks were raised to a record large 98.3 million mt, up 400,000 mt largely due to the US export cuts. WASDE left their Brazilian soybean crop estimate at 108.0 million mt and the Argentine crop at 57.0 million mt. Most would argue for a 1-3 million gain in the Brazilian forecast and a like cut in Argentina, leaving the overall S American soy crop unchanged.
- The USDA December report is producing a modest recovery as the market was unable to garner any downside momentum. However, at the end of the session, traders will be left with the same oversupply with diminished US export demand. Only adverse S American weather can spur enough fear to engender a lasting recovery. Our mindset remains one of selling Chicago rallies with one eye on the upcoming rains across Argentina and S Brazil next week. These rains are very important that they actually materialise.