- HEADLINES: Dramatic rally in Chicago soy as Brazilian export premiums soar; Warm/dry weather threatens Argentine crop yield potential.
- Chicago futures are sharply higher at midday as new investment funds flow into corn, soybeans, and wheat in a new month. March soybeans have rallied to a new contract high at $15.39/bu, March soymeal has scored a new contract high at $437/ton while March soyoil tests Monday’s contract high at 66.77 cents. The next upside price target in soybeans rests at $16.23, the June 2021 high, $16.77, the May 2021 high and then $17.95, the drought high back in 2012. We see reasonable odds that the $17.95 high set back in 2012 will be tested or exceeded in an acute demand rationing rally effort.
- Corn/wheat have followed the soy complex to the upside, but it is February Argentine weather that will determine the Argentine corn crop size. The initial Argentine corn crop (35%) was stressed by extreme record heat in January that cut the crop by an estimated 7 million mt. The second crop seeded in late November/December will reach its reproductive stage in February and was adversely impacted by 3 million mt due to early heat/drought. If February weather is too dry or too hot, Argentine 2022 corn production could easily slip below 40 million mt and create a world shortage of exportable feed grains.
- Chicago is digesting S American crop losses that are adding up. In soybeans, Brazil/Argentina/Paraguay is estimated to have lost 27-31 million mt and 17-21 million mt of corn. The combined total of 44-52 million mt is massive in a world that already was short of supply. And the world’s largest buyer, China is poorly covered on forward corn and soybean import needs.
- Dry Argentine/Southern Brazilian 2-week weather forecasts are adding to the upside potential. There being no room left in balance sheets to lose any additional S American crop. World exporter stock/use ratios were already record low and S American crop losses compound the demand rationing chore. The onus on the Northern Hemisphere to produce record harvests is massive. Chicago prices can correct for a few days, but a lasting bearish price trend demands record large US corn/soybean production in July/August/September.
- Chicago brokers estimate that managed money has bought 7,300 contracts of soybeans, 9,500-10,500 contracts of corn, and 4,200 contracts of wheat. In soy products, funds have bought 5,300 contracts of soymeal and 3,200 contracts of soyoil.
- The USDA reported that 110,000 mt of US corn was sold to Mexico in 2021/22 and 132,000 mt of US soybeans to China in 2022/23. China is active in new crop bids trying to cover a portion of their September-November import need.
- Brazilian fob/cif soybean basis bids are sharply higher at midday as panic sets in with importers and end users. We understand that premiums are up 9-15 cents/bu for March/April Brazilian soybeans.
- The midday GFS weather forecast is consistent with the overnight run in a dry forecast for Southern Brazil/Argentina for another 10 days. Argentine weather has been arid for the past 5 days and the crop areas that missed last week’s rains are back to showing stress under 90 plus degree heat. A few light showers of 0.2-0.85” are possible on the weekend with another long stretch of dry weather following for Argentina. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. The hot/dry weather will further reduce Argentine crop potential and could catch the second corn crop during pollination. S American crop risks are elevated.
- An acute Chicago demand rationing rally is underway in soybeans with China short bought and set to return from their New Year’s holiday late week. The next upside target rests at $16-18.00 March, a wide range. And any additional yield loss to the Argentine corn crop could spark a like dramatic rally in Chicago corn futures. Wheat is lagging on Russian aggression uncertainty with new contract highs forecast if Putin sets foot on the wrong side of the line. Soy/corn are big bull markets with extreme volatility. Our stance stays bullish.