Fundamentally, South America had production concerns, good ethanol production considering crush margins, and a surprising export sales report for corn. On the technical side, long term trend support held in soybeans and the bottom of our recent channel in wheat acted to support prices.
On the South American front, private analyst Oil World revised their production estimate by 3 million metric tons for the current marketing year. Oil World pointed to slow planting pace in both Brazil and Argentina in the last month as the reason for their revision lower.
Just in the last week planting conditions have improved and the Buenos Aires grain exchange now reports their planting progress just 9% behind last year’s pace – improving from 15% behind last week.
EIA ethanol production was reported Wednesday at 811,000 barrels per day, off 13,000 barrels per day from the previous week. Ethanol crush margins moved 20 cents lower to $1.00 per bushel as a result of a corn market that has drifted higher while we have seen no appreciation in the price of ethanol. This is an extremely tight margin historically, and does not bode well for ethanol production in the coming weeks. Presently the USDA projects 4.5 billion bushels of corn going to ethanol production; considering current crush margins our model shows 4.4 billion bushels going to ethanol in the current marketing year.
Friday’s export sales report showed 769,000 MT of corn sold during the week ending 11/15, well exceeding trade expectations of 300,000-450,000 MT. This was a good showing for a US corn market that has struggled to find buyers in recent weeks.
Japan accounted for over half of export sales booked, confirming trade chatter last week that Asian buyers were considering sourcing corn from the US after logistical issues hampered grain deliveries from South America. Soybeans were in-line with trade expectations and wheat had a strong showing after Japan and Mexico returned to the US export market.
Technically, the long term trend in soybeans remain unchanged, with last week’s price action confirming “higher highs, and higher lows” on the daily chart. We expect the soybean market to continue drifting higher in the coming weeks as technical support, tight stocks, and strong demand both domestically and abroad support price action.
One thing potentially limiting any rally is the mountain of long contracts held by fund traders in the soybean market. Keep an eye on export demand and the long term trend in the coming weeks for indications of market direction.
