- Gulf US soybean basis levels appear to be closely following last year’s pattern with gains since early December. The rally in Gulf soybean basis was occurring long before the onset of arctic cold, and we are told that there has been a modest increase in Midwest soybean origination, but that supplies are less than crushers and exporters desire. This means that US cash soybean basis could stay strong in coming weeks. US nor S American farmers are making cash soy sales in a declining marketplace. The marketplace will have to encourage additional sales post the USDA January report.
- Virtually no precipitation has fallen across the US Southern Plains, including KS and pockets of NE since the middle of autumn, and another two weeks of complete dryness is likely. This, along with bitterly cold temperatures, has put a bid under HRW wheat prices in recent weeks. We would note that winterkill will likely never be fully quantified, but dryness is always more of a concern. NOAA’s drought forecast released in December, which leaned heavily on La Niña’s arrival, has so far proven correct. While current weather is not impacting wheat yield directly, there does appear to be a correlation between winter and spring precipitation. Assuming latest model runs verify, KS precipitation in Dec-Jan this year will be 60% below normal. The odds that drought continues into spring have been elevated. Dryness also appears to a bit more structural in nature amid the development and deepening of La Niña. Latest ENSO model forecasts suggests that a weak to moderate La Niña will persist into the later part of spring, thereby including a majority of winter wheat’s critical growing stage. Wheat yield in KS has been below trend in 7 of the last 10 La Niña springs, and yield exceeded trend significantly in only two of those years. It is far too early to bet on drought, but measuring probabilities 45-60 days ahead of the end of dormancy is important.
- Low volume and slow has been Chicago this morning with the grain markets slightly higher with soybeans/soy products slightly lower. Traders continue to await Thursday’s Brazilian crop estimates from CONAB and the USDA January Crop Report. Soybean futures have retested prior lows with March taking aim at $9.5475 with funds still exiting long soymeal positions. We estimate that funds are now short around 97-99,000 contracts of soybeans as they add to their net short position. Funds have been modest buyers of wheat. Chicago brokers estimate that funds have sold 4,300 contracts of soybeans, 2,900 contracts of soymeal, and 1,200 contracts of soyoil. In the grains, funds have bought 2,000 contracts of corn and 1,600 contracts of wheat. The funds continue to add to net short soybean position, while covering a modest portion of their grain short.
- The expectation of a bearish USDA January report is pulling the soy complex back to its prior lows as traders discuss a sizeable drop in US soybean exports. Corn and wheat are trying to hold near unchanged amid the soybean downdraft. China is seeking world soybeans on the break, but fund selling is keeping Chicago values under pressure.