10 February 2023

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  • HEADLINES: Wheat soars on Russian geopolitical worry, Argentine GFS forecast arid into March; China buys US soybeans.
  • Chicago corn, soybean and wheat futures are sharply higher at midday on fund short covering, dry Argentine weather forecasts and new Russian aggression in its war against Ukraine. Managed money has been active buyers of wheat, corn, soybeans and soyoil. Unlike yesterday, funds have been limited buyers of soymeal and are basically flat. The morning trade volume has been sizeable with more than 152,000 contracts of March corn, 82,000 contracts of March wheat, and 112,000 contracts of March soybeans trading hands. Monday is the last day of the index fund roll which should add to today’s volume at the close.
  • We calculate that funds are back to holding a record or near record long position in meal, while adding to their length in soybeans/corn. Funds are holding a sizeable net short Chicago wheat position of more than 55,000 contracts which is vulnerable if Russia ups its aggression in its war against Ukraine. Wheat charts turn more bullish with close above $7.80 March Chicago with values able to push above the 50-day moving average earlier this week.
  • Chicago brokers estimate that funds have bought 7,400 contracts of wheat, 5,600 contracts of corn, and 5,100 contracts of soybeans. In the products, funds have booked 3,200 contracts of soyoil while buying 900 contracts of soymeal. Managed money has been Chicago buyers from the opening bell.
  • China is rumoured to be back in the US Gulf soybean market taking 3-4 cargoes in the past 48 hours. The return of Chinese demand was a surprise, but the buying is likely for their soybean reserve. China prefers to source reserve soybeans from the US or Argentina. With the Argentine soy crop getting smaller, it may have pushed the Chinese Government to be buyers from the US.
  • The CFTC will be unable to update its weekly CoT report today as data is lacking from key market participants. The CFTC hopes to release the report when data is available/updated, and go backwards to release the report starting with January 31 and following with February 7. Trader’s hope is that the CoT updates will be available next week.
  • Russia is positioning itself for coming UN negotiations over the continuance of the Black Sea Grain Export Corridor Agreement which expires on March 19.  Russia continues to argue that Ukraine exported grain is not flowing to needy countries, but western nations like the EU. Moreover, the Russian military is stepping up their rocket attacks on Ukraine infrastructure including its power grid. The uncertainty of a corridor deal extension and Russian military push has short wheat holders worried about growing geopolitical tensions.
  • The midday GFS weather forecast is drier for Argentina/S Brazil. The model has pulled the rain potential northward into N Argentina and S Brazil into early next week with totals in the heart of the growing area ranging from 0.1-0.7”. Such rain is far less than what is needed to replace lost soil moisture and the drought will worsen. In fact, the 10–15-day period maintains an arid trend into the closing days of February, a growing concern that Argentine crop yield/production.

However, we note that the GFS forecast has under-forecast rain with the past 3 storm systems, and we fear that the model is making the same mistake again. We look for rain of 0.5-2.00” in the period from Sunday through Wednesday. Heat returns around Feb 20 and then lasts into the Feb 26.

  • Chicago is adding back weather/war risk premium into price heading into the weekend. Brazilian hedge pressure late session will pull soybean values off their highs as the harvest accelerates and pushes further south. Yet, Russian aggression against Ukraine is on the increase which worries anyone short wheat. We hold to a view that spot Chicago wheat peaks between $7.90-8.10, March soybeans above $15.40 and March corn above $6.85. Chicago is still stuck in a wide ranging trade. Don’t buy rallies or sell breaks with Argentine crop sizes still in decline.
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