Morning Comments December 23, 2021

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We continue to march higher as forecast models keep the dry spots in South America dry for the next 7 days, with talk the dry stretch could last well into January. Old crop beans are solidly above $13 with old crop corn breaking out about $6 and trading at the highest level we have seen since June. 

As we discussed yesterday, the dryness has caught the attention of traders and analysts with government groups associated with agriculture reducing their production expectations as well. We saw an agency responsible for rural economic outlooks in Parana yesterday reduce their soybean production estimate 2.3 mmt from last year's production, down a similar amount from last month's estimate.

One thing of interest though in many of the conversations regarding what is happening in South America is the variance in maturity of the crop and just how weather going forward could impact production as a whole. While Parana is struggling with dry conditions and a soybean crop that is well advanced, other problem areas like Rio Grande do Sul and Argentina would see a crop saved and full potential restored if a breakdown in the weather pattern were to happen by mid-January.

Well-followed meteorologist Eric Snodgrass put it best in a recent forecast, while the U.S. agricultural area runs along a similar latitude, or within a similar area/distance from the equator from a horizontal perspective pushing its growing season into a 3-4 month window, South American production runs long, or more north to south, providing a far more stretched out growing season. 

This spread in the growing season means that while farmers in Mato Grosso down into Northern Parana will be looking to start harvest soon, farmers in Rio Grande do Sul and other areas relatively locally are just finishing up planting. Some forecasters believe a breakdown in La Nina is on the horizon, though just how quickly that takes place will have a major effect on where prices trend for the first few months of the New Year.

Outside of South American weather, we continue to see European energy prices soar, with natural gas prices hitting a record high earlier this week. While most of the focus when it comes to European natural gas values and agriculture has been on fertilizer production, there has been talk that the surge in costs could push soybean crushers in the region to shut down. 

This concern over a potential reduction in European supplies has pushed meal prices back to the high side, with front month meal breaking out above $400 for the first time since mid-summer. While many in the industry say they are covered when it comes to energy inputs for January and are unlikely to slow down or stop production, the risk of seeing a significant cut to output remains on the table.

We are also closely monitoring talk out of Ukraine regarding a potential limit in what they will export when it comes to milling quality wheat for the first half of 2022. While much of the concern appears to be mostly based on rumor, the fear of further cuts to global supply continuing to inflate food prices remains in the forefront of many people's minds.

Ethanol production yesterday came in relatively close to expectations, with stocks down slightly. We did see gasoline demand fall off from the week prior, remaining squishy at best.

Looking ahead, we will get updated export sales this morning at 8:30 a.m. Eastern. Today is the last day before the holiday, with markets closed tonight and tomorrow, reopening Sunday night.

Outside markets are a touch stronger this morning as we are starting to see case rates out of South Africa where Omicron was discovered falling off, potentially indicating the worst is over there and this variant is as mild as what some had hoped.

Corn steady to 1 lower

Beans 4-5 lower