Biofuel Buzz Lifts Beans, But Bearish Charts Still Loom

Beans and bean oil moved higher on a news report the Trump team will submit aggressive increases in the updated bio-fuel policy in the next 6-weeks while the grains drifted lower after the mid-week bounce. Every major farm lobbying group has been pushing for meaningful upward mandates in the bio-fuel industry with the hope that Sustainable Aviation Fuel and bio-diesel expansion could become the domestic support for beans that ethanol has long been for corn. There is a long way to go before this would impact domestic use, but it could be an important step to help replace the bean demand that has been lost to Brazil’s massive expansion and close relationship with China. The end of the week trade will see some positive momentum after Monday’s brutal USDA report, but with bearish chart formations in the daily and weekly charts, the funds will have to decide if they will defend their net long in beans or continue to be gradual sellers as Brazil’s harvest speeds up.

News and Notes:

• Non-threatening forecasts remain in place for Brazil and Argentina into late January with conditions setting up for a great end to important reproductive phases for both crops. Confirming the season long good weather in Argentina, the Rosario Grain Exchange raised their latest Argentine corn crop estimate to 62 MMT (2.44 BBU) which is up an amazing 475 MBU from last year’s crop. The neutral La Nina/El Nino during the growing season has transitioned into a mild La Nina, which remains conducive for big SA yields and historically good growing conditions across the US Corn Belt this summer. Genetic and technological advancements that are now available to every major production country, are contributing to the worldwide trend of large yields even in inconsistent weather, and when Mother Nature cooperates, the yields are outstanding.
• The daily March corn chart is on Page 2 and shows Monday’s USDA inspired brutal collapse to force the bulls and bears to take stock of the current condition and do their best to begin to heal the technical factors. A slower period of consolidation at a new lower range is the most likely direction in the coming weeks. The funds are holding a modest net short corn position which is unlikely to become too large as US corn demand remains strong and will probably improve at these lower price levels.
• The weekly export report was only above expectations for beans on the recent flurry of Chinese purchases to end their trade obligation, while wheat was terrible. Corn remains strong but not above expectations. Corn is the only market running ahead of last year while beans and wheat are well behind last year, with beans nowhere near USDA projections.
• Crude oil’s early week surge was capped and wiped out with President Trump’s softer Wednesday afternoon comments about possible military against Iran. The battle between low fuel prices to fight inflation (an important piece of Trump’s policy) and an aggressive new bio-fuel policy, will need to find a happy medium to ensure profitability for all involved. Crude oil below $55 a barrel (today’s close was $59.25) will be a challenge for margins, even with low corn and bean prices.
• The basic outline of the Reuter’s article about new bio-fuel guidelines is that biodiesel will be mandated up to 5.2-5.6 BGal, which is 30% more than in 2024. This news pushed soy oil to its largest daily gains in nearly 3-years.

It would be nice if all the government agencies would get on the same page to produce several consecutive bullish stories for the ag sector, but we remain in the one step forward and one step backward pattern we have seen for most of the last 2 ½ years. SAF and increased bio-diesel mandates are key pieces to increase domestic use of US bushels, but ending the use of imported used cooking oil has to be included in any policy update. Friday’s trade may be slowest of the week as the markets will be closed on Monday for MLK Day, which should produce some traders moving toward the sideline until next week.