- Weekly US export data has been released as follows:
- The weekly data was described as “solid”, but US soybean, corn and wheat sales pace will likely slow dramatically as other origins become more aggressive and this forces closure of the US export window. There remains a massive volume of soybeans, corn and wheat yet to ship, (note the difference between sales and shipments, which leaves an unshipped commitment) and with end users already well covered they have little, if any, reason to chase price rallies.
- EU weekly customs data reported wheat exports totalling 495,596 mt, which brings the season total to 16.99 million mt. This is 1.4 million mt (7.7%) behind last year. Barley exports for the week reached 155,139 mt.
- US cash corn basis levels continue to decline as Chicago prices rise amid rising cash supplies. US farmers have been active sellers on the latest rally and livestock feeders, exporters and ethanol plants have at least 8-10 weeks of coverage. In fact, the piles at Midwest elevators are at levels that have not been seen since harvest. Large supplies of cash corn are likely to keep cash basis levels weak into spring planting. The cash market argues that the current futures rally cannot be sustained.
- US longer range weather outlooks suggest no major drought issues across Central regions and indeed look for improvements in current dry areas. Temperatures are forecast to average at or just above normal, which should bode well for spring planting, which is fast approaching.
- Chicago markets have been somewhat mixed today with soybeans and corn easier whilst the wheat market has made gains. Both corn and wheat in Chicago made new rally highs in more normal trade volume as the fund’s aggression appears to have eased a touch for now.
- Why have the funds been so aggressive? Some are trading the moving averages whilst others are betting on improving macros and world economy, and there is a general belief that from an historic perspective ag commodities are plain cheap! There has also been a move towards “nationalism” in a number of key world economies: US, UK and Europe as well as Chinas, which is creating some belief in reflation, which is in turn adding to “value picking” by funds – hence them looking at “cheap” ag commodities. Given this scenario we doubt that the funds will let go of length any time soon and, as such, if they are not sellers it seems that a sharp dip in prices is not on the cards right now. However, it should not be taken that we are on a one way street and downside risk is absent.
- Initially, regionalism/nationalism are positive for economic growth, at least until excessive goods or services try to be exported. It is the trade debate on a world basis that complicates a bullish outlook for commodities. When that economic phase of trade begins, it rests with US President Trump and other world political leaders. For now, world leaders seem to be preoccupied with domestic issues, but we (and others) would be shocked if trade does not emerge as a new global economic topic in the near future.
- China appears to be slowing soybean purchases on account of the widening avian influenza outbreak and Brazilian soybean yields continue to be reported as “off the charts”. US wheat is non-competitive from a global perspective and as a consequence we reiterate our view that now is not the time to be turning bullish.