Update for December 11th, 2020
Yesterday’s USDA report was a typical December WASDE nonevent. Many traders had expected to see some bullish adjustments but that did not materialize. The U.S. corn balance sheet was left completely unchanged while soybean crush estimates were raised which in turn reduced the expected soybean carryout. No changes were made to the USDA’s forecast for Brazil’s corn or soybean production but estimates were lowered for the Argentine crops.
Traders will once again be turning their focus back to South American weather and Chinese buying. The outlook over the weekend looks wet for Brazil so expect markets Monday to reflect actual rainfall amounts. U.S. soybean export sales have been declining for over a month now and are now down 42% vs the prior 4-week average. Of the sales that were made, China was the largest customer. During this same time period “Unknown Destinations” canceled 715,200 MT in U.S. soybean purchases.
The 3-day outlook for Brazil shows widespread rainfall with Mato Grosso forecast to receive the heaviest amounts.
The 4-to-7-day forecast moves the precipitation farther south with higher rainfall amounts expected.
Outlooks for Argentina show a continuation of the dry conditions with scattered light precipitation expected.
U.S. gasoline demand has dropped off once again as new shutdowns occur across parts of the country. As a result, supplies of ethanol are increasing to pre-pandemic levels we saw last March. Expanding ethanol stocks, higher corn prices and the reduction in demand have significantly reduced forward profit margins, in fact current margins going into 2021 are negative $0.10-$0.20 per gallon. Once again forming a perfect storm for the ethanol industry. On a positive note, U.S. crude oil prices were up yesterday by over 3% based on the hopes that the distribution of the vaccine will be the turning point for a return to our normal activities once again, hopefully this optimism will spillover into the ethanol sector.
We’ve been aware of the developing drought in parts of the country but a new United Nations report, The State of Food and Agriculture 2020 offers us an even larger global perspective. Findings from the report show that more than 3 billion people across the globe live in agricultural areas with high to very high-water shortages and nearly 50% of those individuals will or do face extreme restrictions. Additionally, globally supplies of freshwater have fallen by more than 20% over the past 20 years accentuating the need for conservation practices especially in the ag sector-the single largest consumer of water. Nearly 316 million cropland acres across the world deal with frequent drought conditions and 422 million acres of irrigated cropland is highly water-stressed.
“Of the four major globally traded crop commodities-corn, rice, soy, and wheat-wheat is in the highest demand for household consumption and faces the highest threat from water shortages. More than half of irrigated wheat is currently exposed to extremely high stress. By 2040, nearly three-quarters of wheat production will be under threat.”
Looking at the updated U.S. Drought Monitor notice the expansion of dryness from west to east that has now reached the western portion of the U.S. Corn Belt.
The U.S. forecast that brings us through Monday is shown below.
The U.S. 6-10 day outlook.