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Sunday Outlook

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Weekend Developments

·         Friday’s CFTC report showed speculative hedge funds pulling back modestly on their ownership in the grain and oilseed markets as of December 2, but the data did not include Friday’s rally. The data also suggested that end users had been more aggressive in buying than were farmers in selling their crops.

·         Trade chatter Friday focused on the possibility that China is about to lift restrictions on imports of U.S. dried distillers grains and solubles. That would be expected to boost ethanol grind margins, as well as further tighten the protein market.

·         DDGS prices have rallied as much as 25% in some markets in recent weeks as soymeal supplies tightened and on speculation of a possible resurgence of purchases by Chinese feed mills.

·         Renewed DDGS exports to China would be friendly for the protein market, as exporters have found other customers to replace much of the lost Chinese business already, but improved margins couldn’t push ethanol production much higher, as the industry is already operating near capacity.

·         Rail soymeal basis dropped $15 per ton at several locations in the Eastern Midwest Friday as rail logistics and processor activity improved.

·         Global demand for corn, and especially soybeans, is strong and will likely stay strong.

·         Production is currently significantly larger than that demand, with no signs yet on the horizon of that changing amid very favorable weather in the bulk of South American growing regions.

·         Stocks are tight now because farmers aren’t selling in many of the major producing areas of the world, but the bushels are still there.

·         The Bank of Argentina sent notices to its branch banks not to extend credit to farmers beyond January 1 if they continue to hold soybeans in storage. This could dump soybeans and soymeal on the world market if it is effective. Argentine farmers are heavily dependent on credit, but some farmers have access to other sources of credit.

·         Global supplies of corn and soybeans are expected to increase significantly in February as the Southern Hemisphere harvest gains momentum.

·         There’s little question about the bearishness of corn and soybean fundamentals longer-term if weather remains favorable. The primary question revolves around when near-term fundamentals will break, and whether traders can risk higher prices in the short-term.

·         Near-term, USDA releases its December crop report Wednesday morning. Trade expectations going into the report for marketing year ending stocks are as follows:

U.S. Ending Stocks

2014-15

Wheat

Corn

Soybeans

billions of bushels

USDA December Report

Average Trade Estimate

0.654

2.027

0.427

Highest Trade Estimate

0.681

2.156

0.455

Lowest Trade Estimate

0.642

1.905

0.400

Previous USDA Estimate

0.644

2.008

0.450

Water Street Solutions

0.673

2.076

0.403

Commodity Weather Group Weekend Summary

In the U.S., weekend rains favored the southern Midwest/northern Delta (.25 to 1.5”, locally 2.75”) but did also linger in the far southeast Plains (.10 to .50”, locally 1”). Other than very light showers around the Great Lakes in the next couple of days, most areas avoid rains until next Sunday to Tuesday, favoring the southern Midwest/northern Delta. Additional showers then favor the far southeast Plains and Delta in the 11 to 15 day, but the bulk of remaining harvest areas still see fairly limited showers and push toward completion.

Temperatures may be warm enough in the 6 to 10 day for wheat to add a bit of growth in the Plains and for late-seeded areas to germinate in the southwest Midwest. Pacific Northwest soil moisture will also continue to improve for wheat areas.

In South America, weekend storms favored parts of Mato Grosso, Goias, Minas Gerais, and Bahia in Brazil and will be widespread in the next 2 weeks. While some guidance continues to produce excess moisture in parts of central/northwest Brazil, this remains a low risk considering recent model wet biases, and moisture will aid crop growth.

Argentine showers did scatter across parts of northern/western Buenos Aires, central/southeast Cordoba, and southern Santa Fe. Additional rains occur late Tuesday and again to finish the week, favoring northern Cordoba, Santa Fe, Entre Rios, and northeast Buenos Aires. Showers are then more limited in the 6 to 15 day but still occur intermittently, mainly in the west.

The rains will slow late corn/soy seeding at times (particularly this week) but should not threaten major fieldwork delays. 90s were widespread across the west to finish last week and briefly return early this week but show no signs of being sustained. More limited showers for wet Buenos Aires wheat areas offer some benefit over the next 2 weeks, but long-term moisture surpluses remain an issue.

No Winterkill Risks for FSU Wheat Next 2 Weeks, Snow Cover Should Slowly Start to Expand. Sub-zero temperatures were limited to snow-protected sections of the southeast Volga in Russia over the weekend. Gradually expanding snow cover is expected in the next 10 days, with no winterkill risks.

 

All opinions expressed in this commentary are solely those of Water Street Advisory. This data and these comments are provided for information purposes only and are not intended to be used for specific trading strategies. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. There is significant risk of loss involved in commodity futures and options trading and may not be suitable for all investors.

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Arlan Suderman | Senior Market Analyst
WATER STREET ADVISORY® | www.waterstreet.org
(316) 729-4599 | asuderman@waterstreet.org

Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK involved in trading futures and or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL. This information is provided freely and is NOT in the capacity of a trading advisor. NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. Information provided is not to be construed as an offer to sell or solicitation to buy any commodity or security named herein.

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