Morning Comments December 29, 2021

Grain Bins

While corn and soybeans were able to shake off some of the initial wheat-induced weakness early yesterday morning and surged to new highs for the move, selling pressure overtook both markets, taking corn down 10 cents for the day, while soybeans were off a couple. 

As we work further into the holiday week, we seem to be running out of new things to talk about. The dryness continues in portions of South America, with one well-followed crop analyst dropping his prediction for the Brazilian soybean crop another 2 mmt on the week, down to 140 mmt. If realized, this would still be a record crop, up nearly 80 million bushels from last year's production, but would be off 4 mmt from current USDA estimates.

Thinking back to a year ago is giving many traders pause though as many will remember how dire the situation appeared as we entered January. Many analysts a year ago were significantly reducing their crop estimates around this time, some of the same ones we're talking about today were discussing a crop in the mid-120s, only to see a pattern shift take place, allowing Brazil to move forward and produce 138 mmt. 

At this point, the meteorologists still manning their stations through the holiday week continue to point towards increased rainfall potential the end of this week into next week, with some saying things look to shift to a bit more in the way of a wetter pattern as we work further into January. Of course, as with any weather market, we will definitely need to see actual rainfall amounts before any of the staunchest weather bulls will be convinced.

The recent run up in bean prices has pushed Chinese crush margins back into negative territory, with many end users in the country choosing to sit on their hands when it comes to buying any additional inventory. We had seen a surge in buying interest throughout the last half of November into the start of December as reduced futures prices and weaker basis offers had provided crushers an opportunity to book positive margins.

According to one Chinese analytical group, buying interest out of the country was cut in half last week versus the week prior as no one is in a hurry to book negative margins, especially ahead of the New Year holiday set to start there January 15th.

In other news, the world continues to monitor what is taking place in Australia when it comes to overall wheat production as harvest has progressed to over 90% complete. Concerns that much of the crop would be too damaged to provide the world with milling quality wheat have waned as it appears the crop is massive enough to provide the world with both plentiful milling quality wheat as well as a healthy dose of feed wheat.

One well-followed analyst in the country increased their Aussie wheat crop estimate to 39 mmt, over 200 million bushels larger than the previous record. If realized, this would add 5 mmt (184 mbu) to the global production outlook versus current USDA estimates. 

The influx of decent wheat out of Australia into the global pipeline has put significant pressure on European milling wheat futures, with their big drop overnight Monday predicating yesterday's double digit fall in U.S. wheat values across all classes.

After the close last night, Egypt's wheat buyers announced a tender, looking to purchase another chunk of wheat on cheaper values. So far this morning it appears as though 15 different groups have provided offers, with traders waiting to get confirmation on values. 

Looking ahead, we got a good bit of decent global economic data yesterday allowing crude to work its way back towards one-month highs and nearly erasing the Omicron induced drop we saw on Black Friday. Folks are pointing to a strong Christmas travel and shopping season as a reason to believe much of society will continue to function as normal as possible even in the face of new Covid variants.

With cases surging throughout the Northern Hemisphere and talk of many hospitals at or near capacity for a variety of reasons, though, some caution taking too much stock in what could be a Christmas season outlier, thinking Q1 of 22 could start to show significant slowdowns in economic activity. 

We will get updated energy information this morning. With the Christmas holiday acting as a bit of a speedbump it is likely we will see a touch lower ethanol production figure week over week, though indicated gasoline demand is expected to be high.

Corn down 3 to 4

Beans down 10 to 11