- Chicago ag markets are near unchanged at midday. No new export sales were announced this morning. Brazilian weather, on the one hand, will be improving, but cumulative rainfall this season remains well below prior years and average across key producing regions of S America. A more two-sided marketplace lies ahead as changes in S American weather forecasts do imply changes in yield potential into early January. Row crop markets’ response to S American weather adversity and yield loss have historically been evolving affairs, with ultimate peaks not posted until late winter.
- US and world wheat futures this week have been hit by a flood of bearish input. ABARES hike in Aussie supplies along with Russia’s simultaneous proposal to expands its post-January grain export tariff suggest that competition will dominate wheat cash markets. We also note that Stats Can will release its final Canadian wheat crop number on Thursday. A major change is not anticipated but that data is likely to confirm large North American wheat stocks. Interior US wheat basis remains weak.
- Yet, Egypt’s GASC this morning secured 170,000 mt of Russian and Ukrainian wheat for late Jan/early Feb arrival at an average fob price of $262/mt. This is unchanged from GASC’s average purchase price last week and remains near the high of the season thus far. We expect Egypt, and others, to stay active in securing supply on market corrections. The European cash wheat market continues to work to price itself out of future exports, albeit slowly and steadily. Russia’s fob wheat market has not declined this week.
- Many in the trade are beginning to reduce their estimate of first-crop corn production in Brazil by 3-5 million mt. Coming rainfall across RGDS and Parana will no doubt be welcomed, but massive soil moisture deficits up till now are cited. The loss of Brazil’s first crop will require the market to keep domestic use slowed well into late February. Brazil’s total exportable corn surplus will be lowered without perfect weather in April, May and even early June. An abnormal extension of Brazil’s rainy season will be needed for production to meet the USDA’s currently projected 110 million mt.
- Macro market activity is mixed. Spot WTI crude is down $0.65/barrel and was unable to sustain itself above $45. Futures-based ethanol production and blend margins remain negative. Reduced miles driven will keep ethanol production weak through winter, but the arrival and implementation of Covid vaccines thereafter suggests exceeding the USDA’s industrial corn consumption forecast by 50-100 million bu is possible. The Dow is up 255 points and has faded from early morning highs.
- The GFS weather forecast at midday is drier in Mato Grosso and Central Argentina but is much wetter across Paraguay and Southern Brazil. High pressure ridging aloft Central Brazil begins to fade on the weekend, allowing for a more normal pattern of rainfall to expand across Central Brazil. However, the GFS forecast keeps heavy showers confined to S Brazil this week and then moves them to Centre/East Brazil next week. Brazilian crop health will be stabilised in the near-term but the narrow focus of heavy showers into mid-Dec is a concern. Little/no rainfall is offered to Cordoba and Buenos Aires in Argentina.
- S American weather must be given a chance to perform over the next 30-45 days. However, with peak La Niña still two weeks away, a shift to needed rainfall in Argentina is unlikely. Unusual drought in Mato Grosso and the return of dryness across NE Brazil are a concern. Brazil no longer has corn and soy stocks to draw from, which will heighten the market’s sensitivity to growing conditions there.