- HEADLINES: NOPA report surprises on large November soyoil demand; Midday S Brazil/Argentine forecast hot/dry into January; Wheat falls on chart selling.
- Chicago futures are lower at midday with the sinking of US wheat futures helping to pull corn off a 5-month high. Hot/dry Southern Brazilian/Argentine weather underpinned corn/soybean futures in early day trade, but energy/stock values declined ahead of an expected policy announcement of a more hawkish US Central Bank. The US Fed is expected to taper more quickly and lay a roadmap for interest rate hikes for 2022-2023. The less accommodative Fed is causing investor anxiety. The US Fed appears to be in a quandary of whether it should fight inflation or provide ongoing stimulus due to the Covid pandemic.
- Corn initially charged higher, but wheat capped the rally and dragged Chicago downward. We note that pre hedging of the index fund rebalance has been ongoing for the past 3 days which includes the selling of wheat/soyoil and the purchase of soymeal. It is the rebalance pre hedging that has sparked the big rally in soymeal with traders estimating that index funds need to secure 42-45,000 soymeal futures based late November values. This is the last full week of trading in 2021 which will complete the pre hedge of the index fund rebalance with cash grain fundamentals returning to popularity early next week.
- Chicago brokers report that funds sold a net 3,300 contracts of corn, 1,200 contacts of soybeans, and 11,100 contracts of wheat. Fund managers sold 3,600 contracts of soyoil and bought 1,600 contracts of soymeal. The wheat break should entice Egypt’s GASC back for a tender either on the weekend or this afternoon.
- US weekly EIA ethanol production consumed 320 million bu of corn, down 500,000 bu from the previous week, but up 14% on last year and up 2% on 2019. The weekly US ethanol grind has been well above the pace that is needed to reach the WASDE annual grind forecast of 5,250 million bu. Research argues that WASDE should raise their ethanol grind forecast by 150 million bu to 5,400 million bu as the US is consuming 9.5 million more per week than forecast. The additional corn consumed would lower 2021/22 US corn end stocks to 1,350 million bu. This would make the NASS US January corn yield and export program highly important to the marketplace.
- The NOPA Nov soybean crush rate was 2-3 million bu below expectations at 179.4 million bu with soyoil stocks falling to 1,832 million pounds, an unexpected decline from October. The Nov soyoil yield fell to 11.76lb/bu which argues that WASDE was right with their Dec yield forecast at 11.75lb. Last year the US soyoil yield was 11.69lb/bu. Research maintains that soyoil values are too cheap relative to coming demand.
- The midday GFS weather forecast offers limited rain for the crop areas of S Brazil and Argentina over the next 14 days. A ridge of high pressure produces heat/dryness with high temperatures ranging from the mid 80’s to the lower 100’s. And heavy rains of 3.50-8.00” will fall across the northern half of Brazil. The current La Niña weather pattern is stable heading into yearend. Unfortunately, S American crop risks are rising with excessive rains in N Brazil and a deepening drought for S Brazil/N Argentina. Our concern over S American weather is rising daily.
- Market volatility is elevated with corn/soybean futures sliding from early day gains on macroeconomic selling. The index fund pre hedge of the rebalance is having a bearish impact on soyoil/wheat futures and a bullish impact on soymeal. Parana’s Derail indicated that its corn/soy crop conditions are the worst on record for mid-December and another 2 weeks of hot/dry weather is forecast. It is early in the crop year for Argentina, but the extended forecast is dry. We cannot advise new sales with key support offered at $5.80 March corn, $12.40 March soybeans, and $7.75 March KC wheat. Long term lows are being formed in soyoil.