- HEADLINES: Chicago mixed in pre-report positioning; Midday GFS weather forecast drier for SC and N Brazil; US weekly export sales were poor.
- Chicago values are mixed with profit taking noted in long grain/short soy spreads ahead of the January USDA report tomorrow. Trade volume has been more active this morning due to pre-report positioning. The January USDA report is the most important of the winter and several large funds wait until after the report to engage in new (yearly) positions. The January report sets the Chicago price tone heading into March. We look for USDA to cut Brazilian corn/soy production with a modest 1 million mt Argentine soy crop increase. Unless there is a big surprise in US corn or soybean yields, it is hard to see how the USDA report can be overly bearish following the early week selling.
- There is little fresh news available outside of the horribly slow weekly export sales data. The poor sales pace produced early Chicago selling and is capping rallies. Chicago brokers report that managed money has sold 2,000 contracts of wheat, 2,700 contracts of corn, and 1,000 contracts of soybeans. In the products, funds have sold 1,000 contracts of soymeal and 1,200 contracts of soyoil. Managed money will go through the report a net short.
- The US December CPI reading was hotter than expected due to sticky housing costs. The December CPI at 0.3% produced an annual inflation rate of 3.3% which pushed back the chance of any US Central Bank rate cut until April. We would anticipate 2 rate cuts in 2024 due to a US labour market that is still expanding and supporting the US economy. The US dollar bounced higher after the CPI report.
- FAS reported that for the week ending January 4 the US sold 4.7 million bu of wheat, 19.2 million bu of corn, and 10.3 million bu of soybeans. The US sales pace was horrible due to the New Year’s holiday. For their respective crop years to date, US wheat sales are 565 million bu (up 12 million or 2%), 1,192 million bu of corn (up 326 million or 37%), and 1,353 million bu of soybeans (down 276 million or 17%).
- Cold temperatures and low-price bids are keeping US farmers from making new cash sales. This is starting to raise Midwest cash basis bids. US farmers report that a bearish USDA report would not cause panic or alter their stored crop marketing plan. US farmers keep pointing to a smaller Brazilian soybean crop as a reason for their future price optimism.
- Brazilian fob soy export premiums fell 5-15 cents/bu yesterday as the harvest gains speed. The trade remembers the logistical and storage issues of last year when Brazilian fob soybean basis went from $3.00 over in January to $5.00 under during the gut slot of harvest in March. The $8.00/bu soy basis decline was the largest on record reflecting the lack of investment in Brazil’s storage and transportation. Brazilian traders will be more cautious in 2024.
- The midday GFS weather forecast is drier for N and NC Brazil compared to the overnight solution. The GFS forecast is starting to look more like the EU weather model with rain totals being cut by 0.5-1.50” over the 10-day period. The model offers more abundant rain in the 11-15 day forecast period, which is too far out for confidence. We should pay more attention to the 7-day Brazilian weather forecast due to dramatic differences in the week 2 forecast timeframe. Rain is in immediate need across the dry areas of Parana, MGDS and Soa Paulo in the next 2 weeks. Soybeans here are podding and corn is pollinating, it is critical that soil moisture levels are restored/improved to preserve 2024 Brazilian soy crop potential.
- The USDA January report looms with the trade expecting it to be a non-event. Our lean is that US 2023/24 wheat end stocks will rise, while corn and soybean stocks hold steady. The trade is looking for a 20 million bu rise in US soybean stocks, so a US soybean stocks total of 225 million bu would be supportive. Key thereafter is N Brazilian soy yields following the record dry Sept through December. Technically, a close above $0.49 in March soyoil futures turns the outlook bullish on a weekly reversal.