- HEADLINES: Soyoil pressured by fall below 200 day moving average; Wheat declines on larger Aussie wheat crop from WASDE; US corn ethanol grind solid.
- Chicago futures endured early selling pressure on speculative liquidation prior to the USDA December Report tomorrow. EPA biofuel mandate headlines produced active early selling in soyoil which caused early weakness in soybeans. In fact, March soyoil futures fell below its 200-day moving average for the first time in a year at $0.5577. The breaking of this key moving average added to the early soyoil pressure. Wheat selling is tied to the bigger Aussie crop.
- There was active end user buying in the forward cash soyoil market on the break. Sub $0.57/lb soyoil futures offers sizeable forward profit margins for renewable diesel producers. We hear that these end users were locking down future feedstock pricing. Renewable diesel producers have been in the energy business for decades and are extremely sophisticated as to margin hedging. If soyoil futures continues to decline, the rationing of tightening future supplies is going to prove to be extremely difficult as retrofitted refineries come online starting in Q1. Research sees no evidence that the bull market in vegoils is ending. Soymeal/soybeans rallied independently with strong cash basis bids underpinning valuations amid margin share liquidation.
- Corn tested but was unable to rally above $5.90 basis December or March corn futures. Charts reflect that a breach of this resistance would produce an upside price target of $6.80-7.00/bu. A breakout will have to wait until after the USDA crop report or when there is confidence that the hot/dry S Brazilian and Argentine weather pattern is adversely starting to impact yield.
- Chicago brokers estimate that funds have bought 5,500 contracts of corn and 4,600 contacts of soybeans, while selling 3,300 contracts of wheat. In soy products, funds have sold 4,900 contracts of soyoil while buying 4,600 soymeal.
- The USDA reported the sale of 1.844 million mt of corn to Mexico being broken down into 1.089 million of old crop and 754,380 mt of new crop. Mexico has purchased a record amount of US corn to date projected at 11.3 million mt (444 million bu). Mexico looks to import nearly 19 million mt of corn in the 2021/22 crop year accounting for nearly 750 million bu. Combined with Canada, the US neighbour total grows to nearly 1 billion bu. If China does import 20 million mt of US corn (as commercials argue), these 3 countries will import 1,750 million bu, or 70% of the 2021/22 WASDE forecast.
- US ethanol production rose to 320 million gallons, up 16 million gallons from last week. This weekly total was up 10% from last year and up 2% on 2019, and well above the weekly average needed to achieve the WASDE annual forecast. US ethanol stocks rose 6 million gallons to 859 million gallons. The weekly ethanol report is modestly bullish confirming that WASDE is being too conservative in its annual US corn grind forecast of 5,250 million bu.
- The midday GFS weather forecast is slightly drier than the overnight run for Argentina/S Brazil with heat noted late next week. The forecast remains concerning amid the fast decline in soil moisture levels.
- Corn/ soybeans have recovered from early selling, but long liquidation in wheat is pulling values lower on pre report risk reduction (bigger Aussie crop from WASDE). We see no reason for wheat to decline following the report and sees today’s weakness as temporary. Russia’s floating wheat export tax will rise on Friday as tax calculations exclude prior sales. Wheat fundamentals are bullish with key support below $8.00 KC March. S American weather is the focal point following the report with dryness concern building. Deral Parana crop condition ratings both declined in soy/corn again this week. Producers there report an acute need for rainfall.