Soybean oil leads overnight grain losses.
Grain futures are lower across the board, led by soybean oil as Algo-rhythm headline reading trading programs aggressively sold soybean oil, dragging soybeans lower in the evening. Corn and wheat futures held most of the evening until London opened at 3:45 AM, and French milling wheat declined $3 MT allowing the whole grain complex to soften.
The EPA proposed biofuel mandate cuts for 2020 and 2021 as expected while boosting mandated blending volumes back to historical averages for 2022. Algo traders focused on the headlines that reflected the cuts in 2020 and 2021 and not the growth in biofuel demand, which will occur in 2022. Unless you are trading RIN values, the cuts for the prior two years are behind us and in the history books and have no bearing on current pricing, as the usage has been known.
The EPA also commented they would not accept ethanol waivers from smaller refineries claiming to be economicly harmed. Court challenges on the EPA will persist as neither the refinery nor biofuel industries are pleased with the EPA-mandated decisions. The USDA will be out with the December crop report tomorrow, and the selling that has persisted is also tied to perceptions that soybean and wheat exports will be trimmed, increasing their carryout’s, while it’s expected the WASDA will raise US ethanol grind by 25 million bushels, lowering the carryout for corn moderately. Also, on Thursday morning, Brazil’s CONAB will be out with their 2022 corn/soy production view. The risk-off mentality may persist until Thursday noon. Report-inspired weakness will likely be bought into, with South American weather forecasts are turning drier and warmer toward the end of the year.
Both the EU and GFS weather models agree on a forecast that calls for a lengthy period of dryness with rising temps across Argentina and S Brazil. Lite scattered showers will impact S Córdoba and La Pampa over the weekend, with high temps in the 80s and 90s accelerating soil moisture loss over the next ten days. According to the long-range model solutions, the arid weather trend is forecast to persist into early 2022. It would be premature to adjust S American row crop production lower yet, but dry weather begins to impact yield potential in 2 weeks.
Cattle futures worked lower yesterday in price while the cash cattle markets remained at a standstill. Show list offerings were quoted steady to $2 higher, with packers only having one more full work week remaining in the year. The boxed beef market continued its decline following what had been a disappointing seasonal rally. The choice cutout fell $4.50 on Tuesday, and the select value was off $2.17. The choice/select spread fell to a $12.35 choice premium. Cattle futures are carrying a hedge-able premium.