- Chicago futures opened lower and recovered in morning trade as funds returned to their short covering ways. Fund buying returned after the traditional opening which is becoming commonplace until their short corn/soy position is covered. There can always be a modest correction or pause, but the arrival of sizeable new demand (China) is welcomed. Looming China demand limits the downside in Chicago heading into the January Crop Report. S America and the US MUST produce big crops in 2020 to reignite a sustained bearish decline. The complexion of the Chicago/CME price action has changed amid the return of China to the US marketplace as a big ag product buyer.
- Chicago brokers estimate that funds have bought 3,000 contracts of corn and 4,000 contracts of soybeans, while being flat in wheat. In soy products, funds have sold 2,000 contracts of soyoil and bought 2,000 contracts of soymeal.
- The complexion of US trade disputes changed last week with the US/China principle agreement, the coming vote on USMCA and the fast track for US/EU and a hard Brexit turning the UK to the US on trade. Chicago/CME can correct, but amid the better demand for US ag products in coming months, the ag markets will have levity and producers must be more patient to reward rallies. For the next 4-8 weeks, a bullish rather than bearish outlook should be embraced.
- Egypt is signalling that it will resume checks of wheat cargoes at port of origin. This will hopefully reduce the CIF wheat cost for GASC amid rising world wheat prices. The “sellers” premium for wheat sales to GASC should fall and it is hoped that any cargoes found not to comply will be rejected far earlier in the process. The change has exporters wondering if the next few GASC tenders could be pushed forward as coverage now extends into February 7.
- Argentina will likely raise their export taxes on corn, soybeans, wheat and other ag products by another 3%, or 8% for row crops, following the weekend Presidential Decree of a new 5% tax. FOB trading has dramatically slowed on the tax news, and traders are waiting for Government clarification on what the exact tax rate will be. Research indicates that the tax will not have much if any impact on Argentine 2020/21 production plans. The Argentine currency exchange, The ROFEX, is pricing the Argentine Peso at 84:1 US$ or another 42% decline from today’s rate. This fall in the Peso more than offsets the 8%increase in grain taxes. Argentine farmers report that they will expand wheat and soybean seeding in 2020. Corn acres will decline in cost.
- The midday GFS weather forecast is like the overnight, with the exception being that the midday has pulled out 0.5-1.00″ of rain for Southern Argentina. The dryness across NE Brazil remains intact, it is the reduction in rainfall totals for S Argentina that must be closely followed. The extended range forecast offers improved rainfall chances for S Argentina and much of the Brazilian crop areas. Overall, the 2-week forecast is non-threatening. A record Brazilian soybean crop is being made.
- Chicago corrections/breaks will be short and shallow as values push higher into early 2020. The return a big buyer of US ag products will keep the bears dancing. US grain and soy fob offers are expected to push well above the rest of the world. At some point, imports of S American corn/soy beans are expected as their 2020 harvest gets underway February and March. Spot China demand nearby will be for US pork and soybeans. Other US ag goods such as DDGs, ethanol, corn and wheat will have to wait until the US/China Phase One Agreement is signed and 30-45 days has passed for its installation.