- Soy futures traded higher on Friday and closed higher for the week. S American weather remains the key focus with the forecast showing below normal rainfall in the 10-day forecast.
- US and S American soybean meal basis holds at multi-year highs. US soybean meal this week is offered at $45/ton over Chicago, the highest since early 2015. While the US is the highest offer, it has been tightness in S America and narrowing spreads that have lifted US values. Argentine meal is offered this week at $32/ton over Chicago, $8 under the US vs. the average of $28. Brazilian meal basis at $37/ton is $13 under the US against average of $22.
- Friday’s export sales report showed that the US meal export pace is running just behind last year, though total commitments are 102% of a year ago.
- While Argentine soybean stocks are large, Apr-Oct meal exports were just 86% of last year and barely above the export rate in the 2017/18 drought year.
- Fund length is at or near a record position. Yet global demand is historic, with the Brazilian harvest still 90 days away. There is no room for Brazilian yield loss.
- Chicago corn futures recovered on end user buying. Weakening cash basis and futures offered end users (and importers) the best chance to secure US cash corn since late October.
- The CFTC’s CoT report will be released on Monday. We estimate that managed funds are long a net 310,000 contracts of corn futures/options. Such length will produce a dynamic corn futures market into late 2020, when S American corn yields can be better assessed.
- US corn export sales through the week ending Nov 5 totalled 39 million bu, the lowest of the crop year. The market needs to see weekly US sales in excess of 50 million to validate a further hike in the US 20/21 corn export forecast.
- The odds of lengthy Argentine drought are rising as La Niña strengthens. Notice the pace of US sales in 2017/18 following the most recent drought in Argentina. The impact on US export demand was immediate in 2017/18.
- Fundamental corn direction hinges upon December Argentine rainfall and whether China returns as a US corn buyer. Is the current Chicago break enough to coax China back as a US corn buyer?
- US and world wheat futures recovered to end the week. Dec Chicago wheat’s premium to corn bounced off a longer-term uptrend line. Northern Hemisphere cash wheat is elevated despite looming competition from Australia and Russia’s uneventful Feb-Jun export quota. Wheat is likely to enter a neutral trend as N Hemisphere crops enter dormancy. We would caution against selling breaks until more is known about Russian/US HRW yield potential.
- Argentine farmers have been reluctant sellers in 2020/21. We note that Argentina’s wheat export tax of 12% is calculated using the government’s daily official fob wheat price. This official price is often $20/mt above market quotes, which further strips the farmer of revenue and keeps wheat in the bin.
- Also notice that the official value of Argentine Peso has weakened on a near-weekly basis over the last several years. Argentina does not look to be a major player in world wheat trade nearby, which helps sustain N Hemisphere export demand.
- Chart-based wheat support rests at $5.90, March Chicago. A more bullish trend is expected once EU feed businesses are using wheat beyond early winter.
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