Markets Listless While US & China Negotiate

Jan 30, 12:26 pm | Mid-day Commentary | Share this:

It’s been a mostly firm session in reduced volume. Neither the bulls nor bears have much to sink their teeth into, particularly with tomorrow’s export sales report only featuring demand through the week ending Dec 20th. Large grain sales are expected, but whether USDA forecasts need changing won’t be known until mid-February. And whether USDA will have access to up-to-date export data prior to the release of the Feb WASDE is unknown.

NASS has confirmed that quarterly US stocks and new crop winter wheat seedings will be included in next Friday’s data release. 

US-Chinese negotiations will be ongoing into late week. So far, no real information or sentiment is available.

This week’s EIA report is mixed, but generally bearish. US ethanol production through last Friday totaled 298 Mil Gal, down 6 Mil from the prior week. This is below the previous year for a third consecutive week. Ethanol’s corn demand draw can be changed along with production margins over the next 6-7 months, but our work suggests USDA will cut corn-ethanol use 50 Mil Bu in next week’s report. And US ethanol stocks last week increased 20 Mil Gal to a 15-week high. Ethanol supplies are ample. Crude stocks, less reserves, were also up slightly on the week, though energy markets at midday are stronger across the board.

Our Black Sea sources now peg wheat replacement costs in Russia at roughly $242/MT near export terminals. This compares to spot fob offers this AM of $254/MT. Even at 4-year high fob prices, Russian exporter margins remain thin – not to mention livestock/milling margins. Interior Black Sea grain prices are fully expected to rally further in the next 3-4 weeks. Missing Egypt’s tender Tuesday was disappointing for the bulls, but there’s still a sizable amount of world trade yet to be executed. 

The Central US forecast is consistent with prior runs in allowing extreme cold to return to the N Plains and Upper Midwest mid/late next week. Following a brief warm-up this weekend, low temps return to sub-zero levels across the Dakotas, MN, WI and IA next Tues-Fri. Along with additional snow early next week, logistical snarls will remain in the next 10 days. Winterkill remains an issue in KS & NE.  

A lack of snow cover in Southern Russia is also being monitored.

Midday GFS South American Weather Discussion: The midday GFS is little changed from the morning run, and so the GFS and EU models look to end the day at odds on precip totals and coverage in Central Brazil. Draws in soil moisture continue into the weekend. Much better rain falls across key areas of Mato Grosso, Goias and Minas Gerais (45-50% of soy production) in the 6-15 day period. At issue will be whether this pattern expands into Mato Grosso do Sul and Parana? We view the forecast as mixed. A pattern shift does lie ahead, but not all areas will benefit. Yield stabilization is the primary theme. 

AgResource Market Analysis: Soybeans are overvalued without a deal with China in the near term. Wheat is undervalued as substantial demand will be increasingly funneled to the US. Corn is caught in between, and overall choppy trade persist amid political uncertainty, which has acted as a weight since summer.