Morning Comments December 16, 2021

Winter Bales

Trading these markets should come with its own dose of Dramamine as we lurch from one direction to the next thanks to relatively light volume and increasing uncertainty over what the New Year is going to bring with it from a fundamental standpoint.

Yesterday we saw corn surge to its recent high yet again before falling back and closing lower on more rumors of Chinese interest. Folks are saying China has inquired a handful of times on what values for corn would be April forward. This rumored interest is part of the reason we have seen the July/December 22 spread move as strongly as what it has back into a deep inversion.

A couple of majors in the grain industry have said China followed a similar pattern a year ago and to remain prepared for the same thing to happen again. However, as we talked about yesterday, last year it became clear by mid-April that the Brazilian second corn crop was in trouble and unlikely to meet any type of production expectations due to drought.

One would imagine while U.S. traders are excited over the potential repeat of big summer business, the Chinese may be treating this as more of a hedge against supply shortages if we were to see another skid in Brazilian production rather than a potential push to big trades being done, but only time will tell.

Interesting to note, Ukrainian corn production estimates continue to grow, with traders and government groups now looking at a 10 mmt (390 mbu) increase in overall production from a year ago. Current estimates put Chinese purchases of Ukrainian corn at 8-10 mmt so far this year, with the USDA estimating total Ukrainian corn exports at just over 32 mmt, or up 10 mmt on the year.

There was lots of talk yesterday and overnight as well regarding toxins in Chinese corn causing a spike in prices and a move to import more grains for blending. According to a private Chinese analyst, traders will likely look to import more wheat for blending as it can help cut down the levels of vomitoxin and other issues.

Questions regarding wheat blending are sure to peak the interest of a lot of folks throughout the Australian countryside as a break in the weather has allowed farmers to work on wrapping up Summer grain harvest there. Folks are struggling with some of the feed quality wheat as values in the country have fallen nearly $2.00/bushel in some locations where feed wheat is overly plentiful. 

This drop in values in the interior of Australia trumped increases in values and rumors of further export curbs out of Russia yesterday, as it appears wheat traders are done playing with fire until after the first of the year.

We got updated ethanol and NOPA crush figures yesterday. Ethanol figures showed a slight drop in production week over week, but remain stout, with only a slight increase in stocks. Gasoline demand on the week surged to a 6-week high.

Crush figures came in a bit lower than expectations but remain strong, as well as margins continue to incentivize production. Traders were surprised by a flat soy oil stocks figure, something that could likely toss some support back into that market structure, helping keep a floor under beans in the short term. 

Fed Chair Jerome Powell confirmed pretty much all of the pre-meeting expectations folks had coming into the week. Tapering will be accelerated, with an idea that much of the Fed's bond buying program will be wrapped up early in 2022. With an earlier than originally expected tapering there are ideas the first rate hike of the year could happen late Q1 rather than mid Q2 as earlier discussed. 

While one would think a more hawkish stance from the Fed may be bearish to outside markets, the upbeat outlook when it comes to employment, consumer demand and the economy as a whole has investors still in looking to buy.

Looking ahead, we will get updated export sales figures this morning at 8:30 a.m. Eastern. Outside of that we will likely continue to trade on Chinese rumors as well as South American weather, with a nice twist of outside market developments likely to keep us on our toes. 

Corn 1-2 higher

Beans 7 to 8 higher