- HEADLINES: Brazilian soybean fob basis falls on supply to $1.00 under Gulf; US inflation rate stays high at 6.4%; funds sell soybeans/soymeal.
- Chicago corn, soybean and wheat futures are mixed at midday. An early rally effort failed amid the pressure from declining Brazilian soybean interior and export basis levels and this week’s slowing Chinese interest. Chicago March wheat futures came close to reaching our long-held target at $8.00/bu while soybeans were unable to breach resistance at $15.45-15.55. Soy products are slightly lower in sympathy with the losses in beans.
- Chicago has a heavy tone as March corn was unable to penetrate resistance at $6.90-7.00. A close below $6.80 March corn would turn price trends down with the next level of key support at $6.70. We note that Brazil is back offering its first season corn back for export in the first half of March, which is seasonally unusual with the soybean export program in full swing. Argentina is offering corn for export below the US from June onward. If the Argentine corn crop continues to drop due to the drought, new crop US corn exports will enjoy some benefit. Argentina and Brazil will be aggressive offering the world corn from June through November.
- Chicago brokers estimate that funds have bought 2,300 contracts of wheat and 2,000 contracts of corn, while selling 3,900 contracts of soybeans. In the products, funds have sold 2,500 contracts of soyoil and 1,900 contracts of soymeal. The fund activity has been on either side this morning. CFTC data is needed to determine the limited fund length.
- Brazilian soybean basis continues to implode based on the advancing record large soybean harvest. We understand that Mato Grosso’s soybean harvest surpassed 50% today with the total Brazilian harvest reaching 23%. An estimated 35 million mt of soybeans have been gathered with winter corn seeding advancing quickly. The supply pressure is growing amid a lack of storage with the premium for Brazilian soybeans falling below Chicago.
- March Paranagua soybeans are being offered at 4-8 cents under March which compares to the US Gulf at $1.10 over. Brazilian soybeans are now $1.00-1.10 cheaper that the US Gulf. And China is not showing keen interest in large new purchases. We expect that as the Brazilian harvest reaches beyond 50% that basis cuts will become more aggressive. Traders will have to decide whether the aggressive Brazilian export program replaces additional Argentine crop losses. We suspect that Brazil’s record soy harvest now displaces additional Argentine crop losses. The last time that Brazil’s soy basis level was negative was May 2021.
- The US inflation rate (CPI) declined to 6.4% in January. The rate was well above the 2.0% US Central Bank’s target. The US inflation will continue to ebb lower. We maintain that US interest rates will stay higher for longer with an outside chance the FED raises rates to 5.50-6.00% before hitting the pause button in September. A US recession could develop in Q4 or early 2024.
- The midday GFS weather forecast is like the overnight run which is not offering additional rain for Argentina/S Brazil over the next 10 days. The dry Argentine weather pattern lingers into February 23 with heat expected after Feb 21. Until then, near to below normal temperatures prevail which will aid crops. Another couple of good rains are needed before mid-March. The Brazilian forecast calls for near to below normal rainfall into the weekend and near normal totals next week.
- The market is shifting its price focus from Argentine dryness to Brazilian abundance/basis declines. Brazilian fob soybeans are $1.00/bu cheaper than the US Gulf which will dissuade China (and others) from new US purchases. Moreover, China has a flotilla of soybeans heading its way from the US and Brazil, and their need for additional large purchases is limited. Corn, soybean, and wheat futures are testing key resistance, this is no place to chase a rally.