- HEADLINES: Markets shed weather premium; Weekly export sales disappoint.
- Chicago ag futures are sharply lower at midday amid weak weekly export sales but mostly as weather premium is being extracted. Coming Argentine rainfall is not new to the marketplace, but the consistency of model releases is raising confidence that a bulk of Argentina, Paraguay and Southern Brazil will see accumulation of 2-4” over the next 10-12 days. It is too late to alter yield potential in Paraguay and Southern Brazil, but with the majority of crop-critical weather in Argentine due in February and early March, the trade is hopeful that yields there can be salvaged. The exact placement and amounts of precipitation in Argentina next week will be scrutinised heavily, but for now worst-case drought scenarios are being pushed back.
- US export sales through the week ending Jan 6 included 18 million bu corn, vs. 10 million the prior week, 27 million bu of soybeans, vs. 14 million the prior week, and 10 million bu of wheat, vs. 2 million the previous week. All are viewed as disappointing relative to USDA’s annual forecasts. We view the lack of expanding US demand as short-lived but there is a lack of bullish news to offset S American weather-based liquidation.
- For their respective crop years to date, the US has sold 1,632 million bu of corn, down 9% from last year, 1,559 million bu of soybeans, down 23% from last year, and 593 million bu of wheat, also down 23%. US wheat export pace analysis suggests the USDA’s new 825 million bu is about right, while final corn and soy exports more than ever will be a function of spring/summer sales and shipments. Note that Brazilian fob soybean basis for March onward has rallied sharply over the last 30 days, which is evidence that actual cash markets have become concerned over exportable surpluses there.
- Iran this morning secured 240,000 mt of optional origin wheat. Full Iraqi purchase details are lacking but newswires confirm Iraq has so purchased 150,000 mt of Aussie origin. Algeria closes its tender for March supplies today and Turkey returns next week for upward of 350,000 mt of likely Russian origin. Paris milling wheat futures are down €5.50-6.00/mt as Algeria looks to continue to shun French wheat, but overall the break in world wheat values has uncovered renewed importer interest.
- Additionally, Ukraine through early Jan has shipped 10.8 million mt of high-protein milling wheat, or some 80% of the government’s projected total. Ukraine joins Europe and Russia (due to Russia’s Feb-Jun quota) in having limited ability to fill future importer milling wheat demand. US exports have not benefited from supply tightness elsewhere, but world cash prices relationships must be monitored. Gulf HRW today is offered at parity with Russian origin on a fob basis.
- The US$ has fallen below major chart-based support, with the longer-term outlook turning more bearish as more $ printed in the last 18 months are put into the economy. The US$, along with currencies in S America and the Black Sea, will be more important to ag price determination in 2022.
- The midday GFS weather forecast is unchanged completely from the morning run, with moderate to heavy showers and cooler temperatures due in Argentina beginning early next week. Precipitation totals upwards of 4” will impact northern Argentine crop areas. Welcomed dryness blankets Central Brazil, where soy harvest progress accelerates. The 10-day forecast by itself is favourable, but Feb weather in Argentina remains critical as moisture deficits from mid-Nov to mid-Jan sit at 3-6”.
- Chicago corn, wheat and soy markets have fallen to support levels, which are expected to hold. This is no place to add to sales as S American production estimates are still much too high. Additional weakness should be rewarded with expanded end user supply coverage.