Brooks Schaffer Market Report for Friday December 22

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

Markets have been in full holiday mode all week with light volumes trading. Soybeans continue to trade each weather forecast for Brazil. The 10-15 day models continue to show rain and then as we get closer the models lower the totals and leave the higher amounts in the 10-15 day. Totals so far have been overall disappointing, but the market continues to watch the better chances in the long term forecasts. The Chicago market has not put much of a premium in due to this uncertainty, but the domestic market in Brazil has rallied $1.75 since July. The growing season is so long in Brazil there is still a lot of time left and a lot of weather to trade through. They may be able to salvage bean yields but the second crop corn is going to suffer as they run out of time. Brazilian corn prices have rallied 77 cents since October in Mato Grosso due to these threats. But CONAB (Brazilian equivalent of USDA) still has Brazilian corn production at 118.5 million metric tons compared to 119 MMT they estimated before the season even started. Beans will remain very volatile as the market tries to gauge the damage done and upcoming. Argentina is getting beneficial rains which will make up for some losses in Brazil, but will not be able to offset all of the losses. 

Corn has been just drifting slowly lower without many headlines to push it otherwise. The corn market made new contract lows for the March, May and July expirations this week. The yield got a little smaller and demand has been increasing for corn but at the end of the day our projected two billion bushel carryout is enough cushion to keep corn users or institutional money from jumping in on the long side. Farmers put a lot of corn in the bin unpriced and have not been willing to sell it yet. With cash flow needs coming up, we need a lot of upside momentum to overcome the farmer selling that will hit the market on a bounce now. There are some bullish forces at work but they are more long term and still a great deal of uncertainty so have not been priced in yet. The biggest is the announcement last week from the US Treasury Department that ethanol would be eligible for tax breaks in sustainable aviation fuel. We do not know how much of a subsidy yet since it is based on the environmental score of the fuel and that has not been modeled yet. They are retooling the models and are expected to have results sometime close to March. If ethanol scores well enough on the environmental modeling and qualifies for a big enough tax credit, it could be a significant new source of demand and help pull the stocks cushion down. The EPA also requested the White House allow E-15 gas sales year round in the Midwest. If this sounds familiar, it’s because it was requested before but the oil industry successfully lobbied to get it killed saying it would cause gas supply shortages. If it is successful this time, it will become effective April 29th, 2024. Due to the rally in Brazilian corn prices and the weakness in the US dollar, US corn is the cheapest source in the world right now. That will help continue the robust pace of US exports. We are ahead of the pace needed to reach USDA’s estimate now. It was not that long ago that many analysts did not see a snowball’s chance of reaching USDA’s estimate. We have a lot of corn in the US to get sold but demand is going in the right direction at least. 

There have been a lot of logistical developments this week. Panama has received some much needed rains and has actually increased the estimated number of passages they will allow through the Panama Canal from 20 to 24 per day for January. This will start to help alleviate the backlog and is a step in the right direction. There have been terrorist attacks from land on ships traversing the Red Sea. As a result most world shipping has started avoiding the Suez Canal and the Red Sea. The US Navy and several other world powers are sending naval assets to the area to provide some protection, but the nature of the attacks makes protection very difficult so it will not be a quick fix. Avoiding the Red Sea adds at minimum several days to lots of shipments and raises costs. The US shut down two rail links between the US and Mexico this week. At Eagle Pass and El Paso Texas. The crossings were shut down to try to get a handle on the immigration crisis. Those two rail crossings account for 25% of Mexico’s corn imports and 60% of their soy products and their poultry industry is rightfully concerned. 

Markets will close at the normal time of 2:20 pm Eastern today, Friday December 22nd. There is no Sunday night trade and the market will remain closed Monday for Christmas. It will open back up Tuesday December 26th at 9:20 am. I hope everyone has a Merry Christmas!