Dry weather continued to dominate Argentina and S-Brazil with light amounts falling across the north Brazilian growing region. Little relief in store for Argentina until the weekend and the end of next week, placing a lot of emphasis on these rains actually falling before a true pattern change can take place. Southern Brazil too will remain dry until an upturn in shower activity early next week. Temps will be running above normal for Argentina today before cooling as the week progresses, while the 6-10 day period sees highs in the 80’s. Brazil will remain in good shape temperature wise for the next 7-10 days. December 18th-22nd look like the best rains for the dry areas in South America.
Slightly firmer markets this morning following the negative reaction to the USDA report yesterday morning. Our markets saw both sides before realizing a growing carryout in US soybeans and wheat was difficult to construe as supportive. Corn carryout did drop, but enough concerns remain about a future cut to exports, which would offset the increase to ethanol yesterday, that price remained subdued. Chicago wheat has now closed lower for the seventh session in a row, which appears to be the longest losing streak of 2017, and could be the longest losing streak going back much further. Since December 4th, Chicago wheat open interest has risen 35,482 contracts while price has dropped 27c/bu. Corn open interest is up 39,483 contracts since 12/4 while price is down 10.75c. Conversely, soybean open interest has dropped 36,564 contracts since its recent peak on 12/5 while price is down 19.75c. Should see managed funds adding to their net short positions in wheat and corn, while liquidating their net long in soybeans when the next COT data is released on Friday.
As noted above, US corn carryout fell by 50mbu yesterday as the USDA increased corn demand for ethanol by 50mbu thanks to the record production rates achieved the last several weeks. A further ethanol discussion will follow below, but no one can argue with the increase. Exports were left unchanged, and that is probably the right move at this juncture, given most are expecting a seasonal increase in corn sales and shipments as the calendar flips to 2018. If an increase to both is not seen in early January, then USDA may have grounds to cut the 1.925bbu export forecast. The US soybean carryout increased by 20mbu thanks to a 25mbu cut to US exports and a 5mbu increase to seed use. The end result was in line with trade estimates, and should provide a little breathing room for US exports. However, even at the reduced pace, exports are still expected to grow by 51mbu, despite the fact commitments and shipments are behind last year’s pace. This needs to be monitored closely over the next 6-weeks. US wheat carryout also rose thanks to a 25mbu cut to exports, which was mostly justified. Commitments and shipments had also fallen well behind a year ago, but second half exports are still expected to be solid, and the business announced to Algeria yesterday could be the start of that program.
South American estimates were left completely unchanged for both Brazil and Argentina on corn and soybeans. There were some rumblings Brazilian soybean production could be increased as CONAB had done earlier in the morning, but an unchanged estimate is completely understandable. Brazilian corn estimates are decidedly under the market, however, with the USDA remaining at 95MMT vs. 98.5MMT a year ago. Acreage is declining, but weather has been good enough to keep yield ideas on the up and up. Argentina estimates were unchanged as the trade was expecting, considering the planting campaign is not even complete there. Other big world changes would include Canadian wheat production being bumped to 30MMT from 27MMT last month and StatsCan at 29.98MMT last week. Oddly, Australian wheat production was not touched at 21.5MMT, despite ABARES moving to 20.3MMT earlier this month. In addition, Australian exports of 17.5MMT were maintained, but no one on the ground in Australia would subscribe to a number that large. Thanks to the aforementioned, world carryout rose for corn, soybeans and wheat again this month. Also worth noting, however, world demand rose to a new record 740.5MMT, which is 5MMT larger than where WASDE began the marketing year back in June. Based on normal growth rates over the last 10-20 years, world demand for 18/19 would be projected anywhere from a conservative 749.9MMT to an aggressive 753.6MMT.
The other big news yesterday was the HRW business to Algeria with 120,000MT announced, and another 60,000MT said to be in the works or conducted but not announced. Cash traders also said some Moroccan business under their preferential-duty program could also be conducted in coming days. HRW at the Gulf for January is as cheap as any other origin on a FOB basis, although freight spreads change things depending on destination. Yesterday also saw Egypt’s GASC tender and buy 295,000MT of wheat for January 21-31 shipment. This amounted to 235,000MT of Russian wheat and 60,000MT of Romanian wheat at an average FOB price of $193.27/MT and an average landed price of $208.37/MT. Interestingly, US-SRW would have been competitive on a landed basis, but could not make GASC protein specs. Point here being, US-SRW is now the cheapest priced feed wheat in the world as well, although getting commercials to give up lucrative storage returns to hit feed business isn’t all that likely. Lastly, MATIF/KW spreads hit the highest premium yesterday since August 2016 around $38.12/MT. Similar price spreads are true for MATIF/W.
Weekly ethanol production will be the focus for the Ag space later this morning given the record run rates of the last several weeks. Traders will also be watching given spot ethanol prices dropped to the lowest price in 12 years yesterday, the fourth month ethanol futures were traded back in June of 2005. It isn’t just spot futures prices trading weakly as calendar spreads are also at contract lows and paying as much as 2.5c/gln to store ethanol for as little as 30-days. Encouragingly, RBOB/Ethanol spreads are also trading at huge premiums with the spot month spread at the highest premium since July 2015. This should be encouraging max blending as well as higher inclusion of discretionary blending and use for higher ethanol blends. Helping support ethanol grind rates despite overflowing storage is solid demand for DDGs which are up $8-10/MT on a FOB basis at the Gulf since the beginning of the month. While storage tanks are overflowing with ethanol, DDGs storage is said to be scraping out the corners at many plants. Higher priced meal is forcing domestic feeders as well as importers to seek alternatives.
Bottom Line: Nothing in yesterday’s data to change the overall narrative, but without a higher close today, soybeans will be looking to put in their sixth lower close in a row and wheat its eighth. Our markets are technically and fundamentally weak at a time in which volumes will be declining into the holidays, and the only volatility will come by way of South American weather. Producers would do well to identify the top and bottom ends of our ranges when they develop and place marketing targets accordingly. In addition, new crops prices need to be tracked early and often this year while they still provide margin.
Good Luck Today.
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