- The lack of any truly fundamentally-supportive developments in the USDA numbers allowed the grain/oilseed markets to slip lower yet again. While the USDA failed to lower their U.S. corn export projection, the expected increase in ethanol demand was not nearly enough to excite the market, while the lowering of the U.S. soybean and wheat export projections simply brought further highlight to the weak export picture. Without a dramatic change to S American weather prospects, the latest reports may set the stage for continued defensive price action into the USDA’s January 12 all-important set of reports.
- On the sharp break in Kansas and Chicago wheat futures, cash basis levels have soared amid tightening supplies of quality wheat. We do notice that Kansas cash wheat basis is now at its best levels in three years amid the recent $.50/bu basis advance. The basis rally has caused Kansas wheat to trade at a premium to Chicago wheat for the first time in a month. Funds appear to be willing to build on their net short in Chicago more than in Kansas. The cash basis rally is the first sign that one needs to be careful about being too bearish wheat with key support noted in Kansas futures basis March around $4.00.
- It has been a low volume and slightly higher trade in Chicago corn, soybeans and wheat this morning. Surprising soymeal vs. soyoil spread trade is occurring as soyoil futures retreat back to last week’s low. Wheat has been the morning upside leader on short covering and reduced precipitation chances for the parched Plains next week. Chicago volume has been modest and a mixed to slightly higher close is expected. December Chicago futures contracts go off the board today with either January or March taking their place on the spot continuation charts.
- The US Central Bank will likely announce an interest rate hike this afternoon, just before the Chicago close at 1:15 PM CST. Chicago brokers estimate that funds have bought 2,600 contracts of corn and 1,900 contracts of wheat, while selling 1,200 contracts of soybeans. In soy products, funds have sold 3,500 contracts of soyoil and bought 1,100 meal.
- Brazil will allow Russian wheat imports via decree, which Brazil hopes will help normalise meat trade with Moscow. The US is the loser of the decision with US HRW wheat unlikely to be sold to Brazil in future crop years when there is a shortage of Argentine HRW wheat. The move further helps Russia solidify its position as being the world’s wheat exporter.
- Goldman Sachs Inc is reaffirming its bullish call on commodities and raw material prices for 2018. Goldman is forecasting returns on commodities at 10% and expects a bullish landscape based on the GDP expansion of emerging nations. In particular, Goldman is forecasting that energy prices will rise 15%, which should be favourable to the US biofuel industry. We feel that hedge funds will position long in key commodity markets in late 2017 and early 2018.
- Argentina will place an 8% tax on biodiesel exports starting in 2018. Over the years, the Argentine Government has moved back and forth with taxes that range from 0-12%. The latest hike should not be a surprise; in fact, we do not expect the tax to have any impact on US duties on Argentine biodiesel that will be officially ratified into US law for the next five years in February.
- There is something of a demand bull story developing for soyoil amid limited biodiesel imports (duties) and a US mandate of 2.1 billion gallons. Cash US soyoil stocks are tightening amid the enlarged domestic demand. Chicago corn and wheat futures are higher as open interest surged on Tuesday and funds are holding a large net short position. US corn exports are showing new life amid higher S American fob offers. Next week’s Argentine rains will be important in terms of amounts and locations.