- According to the Kansas City Federal Reserve Bank, there is one thing that we can count on in the year ahead; higher fixed and variable lending rates. Whether it is an operating, machinery, or farm land loan, the cost of capital is rising as the US Central Bank raises interest rates and banks foresee greater risk in farm loans after several tough years. Whether this will start to cut into US ag productivity is uncertain, but something to monitor closely in the year ahead.
- Thin demand ahead of the holidays/end of year, and scattered storms across Argentina left Chicago soybean prices drifting lower into midweek. Preliminary volume data showed just over 233,000 contracts traded on Wednesday, which is the thinnest day of trade for the month. Commodity funds were estimated sellers of 5,000 soybean and 4,500 soyoil contracts, and bought 500 in soymeal. In the December WASDE, as the USDA raised their estimate for biodiesel use, they took from export and domestic use, to leave the year end soyoil stocks forecast unchanged. The change in biofuel demand was a nod towards changes in EPA mandates and the Commerce Department’s barricade to Argentine biodiesel imports. Lower domestic food consumption is a trend that has been in place since the late 1990’s. Per capita soyoil food consumption peaked in 1999, and has declined by an average of 2% per year. The USDA’s December forecast implies 2017/18 per capita consumption will decline by the average rate of 2%, and would be the lowest since 1983. S American weather is mixed, but should the EU model be correct, one has to be careful being bearish into yearend.
- March corn rallied another 2 cents, driven by another week of enlarged US ethanol production, competitive offers at the Gulf and an otherwise lack of fresh news. The weather models are coming into agreement on Argentina’s weather pattern, and while regional showers of .25-.75” are probable in Cordoba, the remainder of the country looks to face another 10-day period of dryness and warming temperatures. March’s futures 20-day moving average rests at $3.51, a level to be closely watched ahead of the holidays. US ethanol production through the week ending Dec 15th totalled 317 million gallons, down from the previous two weeks, but still some 4% above the same week in 2016. Ethanol stocks are at a lofty 937 million gallons, but ongoing export demand is noted, and has accelerated a bit since late November. Production margins have collapsed amid weakness in ethanol prices, but ethanol’s discount to gasoline is perched at the levels triggered by Texas Hurricane Harvey. Overall, US corn appears to be finding new incremental domestic use, and we expect export sales to be solid in the weeks ahead as Brazilian offers cease and Argentina fob offers are rising. We remain neutral, but need to keep an eye on threatening Argentine weather.
- US wheat continues its slow but steady rally on the backdrop of US weather concern and a weaker US$. It is impossible to quantify winterkill and frost/freeze losses, but conditions in the next 10 days will be ripe for talk of damage. Low temperatures this morning fell into the upper 20s across the Plains, and the forecast has trended cooler in all US wheat production areas in the 8-15 day period, and snow cover will be particularly lacking across the S Midwest and S Plains. The EU and GFS weather models are in general agreement that lows in MO, IL and KY will reach the teens and lower beyond December 28. Otherwise, take note that US Gulf SRW has fallen to parity with Argentine wheat, previously the world’s cheapest origin, and there is becoming a noticeable difference between lo-pro and hi-pro world cash offers as supplies in N Europe dwindle. US export sales on Thursday are estimated between 425-550,000 mt. Fund short covering is likely to be a theme heading into year end, and longer term trend/above trend N Hemisphere yields are needed to sustain world end stocks above 260 million mt vs. 268 in 2017/18.