- HEADLINES: Chicago falls sharply on Brazilian fuel tax mandate from Lula; China Covid worry amid slowing world economic growth; Argentine forecast drier at midday.
- Chicago ag futures opened mixed to slightly higher and fell sharply on fund inspired selling and profit taking. Wheat, corn, and soybean futures are all sharply lower at midday with gains heading into the New Year’s holiday fading in a host of financial markets. Selling is noted across commodity, stock, and other financial markets as the worry of US stagflation looms in 2023.
- Crude oil prices are down $2.65/barrel at $77.60 basis February futures with the US dollar sharply higher. The DOW is down nearly 200 points with energy and automotive stocks sagging. Most analytical firms are forecasting a world recession with lingering inflationary pressures due to rising wage pressures. The IFM forecast that world economic growth in 2023 could be one of the slowest in the past several decades, which does not beget strong future raw material demand. The worry is that sagging demand will not support existing grain or livestock price levels.
- Adding to the worry is that China’s Covid surge is adding to the concern of future demand. China hospitals are reported to be filling quickly. The Chinese Government has stopped reporting Covid infections/deaths leading to considerable speculation as to the health of China’s economy. Some fear that China is going to go through what the rest of the world endured in the spring of 2020 amid the Covid pandemic. Chinese pork prices fell over 30% in December, a record for any month, which adds to the demand worry. The economic headwinds and China’s embattlement with Covid looks to produce a soft first half of the year for raw material markets.
- Chicago brokers estimate that funds have sold 8,400 contracts of soybeans and 10,500-11,000 contracts of corn, and 4,400 contracts of wheat. In the soy products, funds have sold 3,400 contracts of soyoil and 6,400 contracts of soymeal. End user pricing has been modest on the early decline.
- US FGIS export inspections for the week ending Dec 29 were 26.2 million bu of corn, 53.7 million bu of soybeans, and just 3,148 million bu of wheat. For their respective crop years to date, the US has exported 377 million bu of corn (down 137 million or 27%), 1,051 million bu of soybeans (down 80 million or 7.5%), and 435 million bu of wheat (down 13 million or 3%).
- Brazilian President Lula offered a surprising decree that exempted fossil fuels from tax which would have benefited domestic biofuel industries. And the value of the Brazilian Real fell to 5.43:1 US$ today which is down 1.5%. Private forecasts have the Real weakening to 6:1 in 2023, boosting Brazilian farmers. The lack of a fuel tax will create additional federal borrowing.
- Threateningly warm and dry weather will impact a majority of Argentina and far southern Brazil over the next 10 days. A lack of subsoil moisture will collide with high temperatures in the 90s & 100s across Argentina late next week. The extended range 11-15 day forecast also reduced rainfall potential keeping Argentina in a drought threatening trend into January 19.
- The Brazilian forecast stays favourable with an abundance of rain and cooler than normal temperatures into January 15. However, at some point the rains will need to subside to allow the harvest of soybeans and the seeding of winter corn. That will not become a big concern until February.
- It is a bearish start to 2023 with corn/soy charts starting to break down. The falling Brazilian Real will boost their farm income while Chinese demand will be adversely impacted by the fast spread of Covid. The only bullish fundamental is the ongoing Argentine drought and potential crop loss. We maintain a bearish longer-term outlook as El Niño looks to boost US crop yields in 2023.