Brooks Schaffer Market Report for Friday December 15

This is the Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

Grain and oilseeds markets continue to trade the same range on much of the same news we have been trading for the last few weeks. You can almost know exactly which way the precipitation forecast models are trending for Brazil by which way the beans are trading that day. The forecasts have not done much to give us confidence but the market continues to trade each model run as if the rain was currently falling. Much of Brazil is still very dry seasonally and the forecast calls for heat to build in much of the Northern growing region once again. The showers that are falling are scattered and spotty rather than the big soaking general rains typical of the monsoonal rains. USDA was conservative in their cut of Brazilian production last week, but at least they made a cut. CONAB (the Brazilian equivalent of USDA) also made some cuts to production but they still have yield projected a bit higher than last year’s near record yield. They have faced and continue to face much more adversity during the growing season this year compared to last year. I believe we are going to need to see additional cuts to Brazilian production which should further tighten the world balance sheet. I look for beans to remain very volatile but should give us rallies for pricing opportunities. 

I am a bit more pessimistic about the rally potential for the corn market. We have priced in the smaller US crop and it is put away in the bin now. The low prices are stimulating demand as exports and ethanol demand are both ahead of the pace needed to reach USDA’s target. The headwind the corn market has not been able to overcome despite a smaller crop and improving demand is that we still have around 2 billion bushel carryout. That is not overly burdensome stocks but it is an adequate cushion and keeps end users from feeling any need to get aggressive forward pricing. The biggest thing that the market is going to have to overcome to rally out of this range is farmer selling. We, the farmers, own a lot of the crop still. The best chance we have for a rally in the corn market comes after harvest before the end of the year. Since we did not see enough of a rally to attract a lot of farmer selling, the US farmers are still sitting on a lot of corn. As we move into the new year bills, taxes and other cash flow needs are coming due and that makes the farmer a natural seller. End users feel no urgency to buy corn here and the funds are not building a long position so there is not as big of a pool of buyers. When the market does find a little momentum higher, we sell corn and slow the strength. We need something big and something new to overcome this. It could be big cuts in the South American corn crop or a big demand bump from somewhere. I think we need to adjust our expectations to this new reality though and adjust price targets accordingly. 

There was some news that moved the market this week out of Argentina. The new president, Javier Milei, took office this week and wasted no time making some big changes. He was elected after making some very dramatic campaign promises like adopting the US dollar as currency and abolishing the central bank. After the election, he had started to walk back some of his more dramatic positions. He faces a hostile legislature, a very entrenched and very big bureaucracy, and a public who is accustomed to getting a lot from the government. In his first days in office, he slashed the value of their currency by 50%, ended spending on public works, and ended subsidies in the energy and transportation sector. This is all an effort to tackle runaway inflation. One part of the plan is to encourage exports especially agricultural exports. They are currently sold out of almost everything after the drought last growing season, but the market reads this as there will be more Argentine commodities for sale in the world when the new crop comes to market.