- Chicago futures are mixed at midday in moderate volume with everyone trying to guess if China will secure US ag goods (if anything) following Wednesday’s Phase One Agreement signing. The bulls argue that China will make purchases prior to their January 25 Lunar New Year holiday with the bears claiming that China will sign the agreement and then do nothing.
- We expect that China will start their ag buying and adhere to quarterly purchase promises that will be closely followed by USTR. China will not be allowed to wait until the final days of an annual agreement and then “buy it all”. Rather China will conclude regular purchases that will be watched closely by both sides. We expect that China will secure what it needs, US pork, DDGs, ethanol and soybeans. However, we would point out that open interest in Chicago corn/wheat/soybeans has recently been surging.
- Research calculations suggest Chicago corn open interest has risen nearly 60,000 contracts in the past 6 trading sessions while wheat is also up sharply. On Monday, Chicago corn futures open interest was up another 8,153 contacts, wheat up 10,927 contracts with soybeans up 7,123 contracts.
- The sharp rise in open interest has some speculating that China has been securing US futures for forward purchase coverage. We would suggest that the index fund rebalance is also underway and that it is not fair to suggest that all that demand is from China. However, the futures buying has traders on alert that China may be buying futures to engage in a versus cash in the future. The 86-page Phase One Agreement is expected to be released Wednesday morning.
- Chicago brokers estimate that funds are flat in corn, have bought 4,000 contracts of Chicago wheat and 4,200 contracts of soybeans. In soy products, funds are flat of soymeal while buying 3,100 contracts of soyoil.
- Egypt’s GASC secured 240,000 mt of Russian/Romanian wheat at prices that range from $235.30 to $237.00 with freight rates that range from $12.90 to $13.55/MT. Russia sold 180,000 mt while Romania sold 60,000 mt. The purchase covers GASC wheat milling needs into late March. We look for GASC to tender another few times before the arrival of their own wheat harvest in April and May. Turkey has also covered its wheat import need into late March today in a tender.
- The GFS weather forecast is slightly drier for Argentina and more in line with the overnight EU model solution. The remainder of Brazil and Northern Argentina looks to receive adequate rainfall, with their being no hint of any extremely warm temperatures. The combination of cool temperatures and at least normal rainfall is boosting the Brazilian soy crop. A cold front is pushing through S Argentina and producing a few spits of rain. Better rain chances are forecast this afternoon and evening. The rains then push into S Brazil late Wednesday/Thursday. Dry weather follows with improved rain chances returning mid to late next week. The forecast remains generally favourable for S American crops with rain needed across S Argentina.
- Chicago wheat pushed to new rally highs with March corn unable to rise above last week’s high at $3.92. Soybean futures are sagging on the growing S American supply prospect. China is “chock full” of beans amid large November/December imports. Chinese crushers are having trouble moving meal and stocks are building. It is all up to China whether they make new purchases which can push wheat/corn to new rally highs.