- HEADLINES: Row crops lead recovery; More attention being paid to S American weather.
- Chicago ag futures are steady to higher at midday as energy and equity prices find stability. Corn and soy have led the advance as short, and long-term weather outlooks in Argentina and southern Brazil turn worryingly dry. Weekly EIA energy data was somewhat dull but still longer-term supportive corn and ethanol prices. US exporters sold 150,000 mt of corn to Colombia this morning. Volatility will stay elevated for the foreseeable future, but our work maintains that breaks from current prices will be brief and shallow. Spot WTI crude is up $1.60/barrel at $67.70. The Dow is up 230 points.
- US ethanol production through the week ending Nov 26 totalled 304 million gallons, vs. 317 million the previous week and the lowest since early October. However, weekly production must average only 296 million to meet the USDA’s 2021/22 corn grind forecast. Additionally, ethanol stocks were up only slightly at 853 million gallons and are still down 4% from last year. Production must stay enlarged to prevent further stocks contraction, and weekly ethanol grind tends to stay elevated in December and rises again during the spring months. Production margins remain incredible profitable, with cash ethanol across the Midwest perched above $3.20/gallon.
- The US’s release of strategic crude reserves will occur over an unspecified time period, but US crude stocks (less reserves) last week totalled 433 million barrels, down 1 million from the previous week and down 11% from last year. Motor gasoline use last week was 8.8 million barrels/day, up 10% from the same week a year ago. Our message is that the US biofuel story remains positive for row crop markets.
- OPEC meets today and tomorrow but the group is unlikely to stray from their plan to boost output by only 400,000 barrels/day beginning in January. Energy market direction in near term will hinge upon just how widespread travel restrictions become this winter due to Covid’s Omicron variant.
- 16-30 day climate guidance in S America extends coming dryness in Argentina and Southern Brazil into the very end of December, with the two-week forecast offering very little precipitation to the region. Mid/late December forecasts must be watched very closely to gauge whether the coming draw down in soil moisture triggers a pattern of excessive heat in Argentina/S Brazil. We also note that dryness in S Brazil will been more far reaching than expected, with abnormally low soil moisture now established in RGDS, Parana, Mato Grosso do Sul and Sao Paulo, which combine for 40% of Brazilian soy production and 50% of first-crop corn production.
- Paris milling wheat is up €2/mt ($0.05/bu). EU corn is up €3/mt ($0.07/bu), and EU rapeseed is up a massive €16-17/mt.
- The midday GFS weather forecast is wetter in Goias and Minas Gerais in Central but is unchanged elsewhere. Expansive high-pressure ridging aloft Argentina next week will restrict the flow of moisture there, and while this ridge dissipates beginning Dec 10, there just isn’t much rain in the two-week forecast. Argentine soil moisture is adequate for early crop growth but recall only 30% of the corn crop has been planted. Crop-critical weather lies ahead. We also note the GFS forecast advertises a warmer temperature pattern in Argentina beyond the coming weekend, with highs to reach into the 90s and low 100’s by mid-month. Outside of Central Brazil, S American weather concerns are elevated.
- Money flow and macro market activity will have an outsized impact on ag price determination into late year. Yet, new end user purchases are advised on Covid-based weakness. The market cannot tolerate additional exporter supply dislocation.