- HEADLINES: Lines cross and funds sell Chicago; Argentina to boost export duty on grain and keep soy at 33%; Midday GFS midday weather forecast drier in week 2.
- Argentine devalued the official peso rate by 54% to 800:1 US$, knifed government spending, and reduced energy and transportation subsidies. These changes were accomplished by Presidential decree late Tuesday. Argentine’s economic minister Caputo stated that Argentina will be worse off than before the announcements as an economic shock therapy is applied.
- Importantly, the Milei government indicated that it would eliminate the taxation of exports without providing a timeframe. We would note that an elimination of Argentine export taxes requires an act of Congress, which is not aligned with President Milei. And the repayment of the $44 billion IMF loan demands that ag export taxes stay as a source of revenue. Amid the talk that ag export taxes could be eliminated, Argentine farmers will keep planting, but not selling old or new crops. The Argentine farmer is bullish of their future. Yet, we suspect that ag export taxes will take a considerable time to end and there are strong rumours that Argentina will return to the taxation of corn and wheat to collect additional revenue. Argentine needs the tax revenue to pay the IMF loan as they cannot risk a default in this fragile economic timeframe.
- Algeria is said to have secured a sizeable 930,000 mt of wheat with most sellers being from the EU. The sale occurred at a $7/mt premium to their last purchase and reflects that world cash wheat values are rising. Russian fob wheat values are pushing upwards into the holidays on logistical snarls.
- A heat wave for N Brazil gains attention as private soy crop estimates fall and traders understand that it is the Argentine Congress that approves export tax changes. USDA will report large wheat, soy and corn sales on Thursday with a key NOPA crude report due Friday.
- Chicago grain futures are holding in the red at midday with algo/AI trading systems pressuring the market on the bearish overnight trading and the breaking of Monday’s low in corn/soybeans. If you recall, soybean futures took out the prior week’s high on Monday which triggered fund buying. These momentum traders placed sell stops under Monday’s low which were triggered this morning. For many traders, recent weeks have been choppy with the exception being a rally in Chicago wheat tied to Chinese SRW demand.
- Increasingly, traders are closing their books on 2023 which is adding to daily market volatility amid the lack of resting orders. Look for swinging Chicago trade to persist until S American weather/crop sizes are known. We look for a lower Chicago close, with short covering noted near the close ahead of what is expected to be solid US weekly export grain sales. Look for a rally effort into the weekend as N Brazilian dryness is noteworthy.
- Chicago brokers report that funds have sold 4,600 contracts of corn, 3,900 contracts of Chicago wheat, and 8,700 contracts of soybeans. In soy products, funds have sold 6,800 contracts of soymeal and 4,100 contracts of soyoil. It has been a sell (risk off) day across Chicago.
- The USDA reported the sale of 125,000 mt of US soybeans to an unknown destination for the 2024/25 crop year. The buyer is likely an EU crusher trying to lock down margin into next year.
- As previously noted, Argentine President Milei will increase corn/wheat export duties from 12% to 15%, and not change the 33% export tax on soybeans/ soy products. The Milei Administration indicated that ag export taxes would stay in place until Argentina’s financial crisis passed.
- Argentina will try to repay the IMF for their $44 billion dollar loan through ag export taxes, unless the Government wants to find a new source of revenue. The Argentine farmer is less cheerful about the overnight Peso devaluation and the coming tax bill. However, farmers are hopeful that President Milei will keep his campaign promise to end ag export taxation, at some point.
- Yet unknown is whether the hike in grain taxes will apply to exporters that booked corn export licenses prior to Tuesday’s announcement. It appears that the large volumes of Argentine corn export licenses that were booked suggesting that someone had a “heads-up” on the coming grain tax increase.
- And President Milei returned the grain/soy dollar program to 20% of the Blue and 80% of the official Peso rate, which is financially less appealing for farmers. Argentine farmers will remain as tight-fisted holders of corn/soy and wheat stocks until there is greater policy clarity on currency/export taxes.
- The midday GFS 7-day weather forecast is dry for Northern and Central Brazil with widespread 90’s and lower 100’s adding stress to the crop. The GFS model keeps backloading rain from December 21 onward which is like the overnight run. The extended range forecast has been too wet for weeks, and our confidence in any wet extended forecast is low. Northern Brazilian crop areas will be in dire need of rain by December 21 and rain amounts/locations will be important to monitor. A normal monsoon has yet to form across Northern and Central Brazil which is leading to the below normal rain trend of the past 3 months. The week 2 midday forecast is drier.
- S Brazil/Argentina will enjoy near to above normal rain and near normal temperatures with highs in the 80’s/90’s. There is no indication of adverse weather for Argentine crops. Our red flag worry is for N Brazil.
- It has not paid to sell sharp breaks or buy sharp Chicago rallies in recent weeks. Today appears to be no different as line X crosses line Y with managed money the sellers. China has used the Chicago break to secure 3-6 cargoes of US soybeans for their reserve. And there is talk of US corn being worked into N Brazil. Brazil cash corn is trading at $6.60/bu. Look for large US corn, soybean, and wheat sales on Thursday with NOPA crush on Friday.