- Chicago ag futures are mixed at midday with the grains leading the rally. Wheat rallied strongly on renewed fund buying with corn futures tagging along.
- Traders are pointing to the Australian wheat crop size cut along with the potential for China demand for US wheat as a rationale for the rally. The UN also put out a note on the weekend that locusts from Africa could impact crops in SE Asia. Bloomberg carried the story which likely added to fund buying.
- Chicago soybean futures are weaker with the Brazilian Real rising against last week’s historic high at 4.36:1. The Argentine Peso has pushed out to 62:1. The strength of the US$ has acted to cap Chicago soybean futures amid the Brazilian soy harvest kicking into a higher gear. We estimate that 45% of the Mato Grosso soybean harvest is completed with winter corn being actively seeded.
- We look for a mixed close with traders trying to decipher what tariff rate China will allow US ag imports to which importers. Chinese importers will want to get ahead of the March 2 start for accepting applications and make cash purchases. China will be looking to book July forward US soybeans and US meats in the initial tenders. US corn is the cheapest in the world for another 6 weeks, but that discount is narrowing against cheap Argentine offers.
- Chicago brokers estimate that funds have bought 3,900 contracts of Chicago wheat and 4,300 contracts of corn, while selling 2,300 contracts of soybeans. In soy products, funds have sold 900 contracts of soymeal and bought 1,200 soyoil.
- US export inspections for the week ending February 14 were 31.3 million bu of corn, 36.5 million bu of soybeans, and 18.4 million bu of wheat. China shipped out 7.4 million bu of US soybeans off the PNW.
- For their respective crop years to date, the US has exported 484 million bu of corn (down 468 million or 49%), 1,038 million bu of soybeans (up 164 million or 19%), and 651 million bu of wheat (up 73 million or 13%).
- US 2019/20 corn exports are still likely overstated by 75-100 million bu based on research.
- Locusts are a problem in NE Africa, but whether the insects can manage to migrate into India/Pakistan and across the Himalayas into China is possible, but doubtful. North African dryness is likely to raise wheat/grain import potential in 2020/21. Rains are needed which is more important than locusts.
- NOPA reported a record large January soybean crush rate of 176.9 million bu with soyoil stocks rising to a much larger than expected 2,013 million pounds. The report was bearish for soyoil, but supportive for soybeans.
- The midday GFS weather forecast has added rain for Brazil while being drier for Argentina. Above normal rain looks to drop across Central and Northern Brazil which will cause harvest delays but maintain favourable soil moisture for winter corn. The 10-day forecast for Argentina is arid, but cool. Amid the rain that fell on the weekend, the outlook for Argentine crops is favourable (for now). Finishing rains will be required in early and mid-March. No heat is noted for S America for the next two weeks.
- The hope for actual China demand for US ag goods is rising with the Chinese commitment to lower duties and issue import licenses starting in 13 days (Mar 2). We expect that China will make US ag purchases in early March as a show of good faith in their commitment to adhere to Phase One. When a China ag purchase is made, it will resonate across all US markets that a wave of new demand is pending.