18 February 2022

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  • HEADLINES:  Low volume Chicago rally with March option expiration at the close; Brazilian cash soy markets hold firm; What will Russia do?
  • Chicago grain futures are higher heading into the midday hour with short covering and moderate new fund demand featured. The market is closed on Monday for the US President’s Day holiday and March options expire at today’s close. The option expiration could produce some additional volume near the close. It does not require much in terms of order size to move the market today. The volume of Chicago trade is extremely slow as few want to be on the sell side of any order amid the geopolitical concern with Russia/Ukraine. The algos have been on the buy side of the market due to charts, headlines, and momentum.
  • Eastern Ukraine is seeing ethnic Russians causing provocation with a car bomb detonated in their early evening. Tensions are high and it is likely local infighting will develop over the weekend. The E Russian infighting has caused crude oil prices to recover while the US stock market has weakened. E Ukraine tensions are likely to grow during the long US weekend. Some suggest that Putin will defend ethnic Russians living in E Ukraine, which could be a trigger point for troop movement. This has the attention of grain traders with rumours swirling about what could occur next.
  • We look for a higher Chicago close today with the bears unwilling to add to positions ahead of the long weekend. The risk of a Ukraine invasion is something that cannot be ignored, but with high level Russian/EU/US diplomatic meetings planned, one would think that the odds of an invasion are diminished.
  • Following the US holiday, it will be Russian/Ukraine geopolitics, S American crop sizes and the WASDE S&D release next Friday that drives Chicago valuations. WASDE is expected to release updated new crop balance sheets on Friday morning, rather than the normal 12 Noon release. WASDE is likely to release neutral to slightly bearish 2022/23 US corn/soy end stocks.
  • Chicago brokers estimate that funds have bought 2,400 contracts of wheat, 4,100 contracts of corn, and 3,600 contracts of soybeans. In soy products, funds have bought 2,600 contracts of soyoil while being flat in soymeal. The soymeal market is having difficulty in finding new cash demand above $450/mt.
  • Brazilian soybean/soy product basis continues to hold firm/rally. We hear that China has booked another 3-6 cargoes of US new crop soybeans off the PNW this morning. The USDA announced the sale of 198,000 mt of US soybeans that were sold to an unknown destination. We believe that the 66,000 mt old crop cargo was Egypt adding to their forward coverage while the new crop sales of 132,000 mt were to China. The Chinese are building a massive book of US new crop sales as Brazilian soybean exports are forecast to slow/end in late summer. US soybeans are competitive in the world market from April onward.
  • The midday GFS weather forecast is wetter across Argentina and drier across Southern Brazil than the overnight run. The 10-day forecast has soaking rains covering a large share of Argentina from the middle of next week forward with 0.5-2.50”. The extended range 11-15 day forecast also went wetter for Argentina. Whether this wetter forecast is right will be proven over the weekend, but the EU model has also gone wetter in recent days.
  • What is concerning is the lack of rain for the Southern third of Brazil over the next 10 days as their winter corn crop is being seeded. The Southern Brazilian winter corn crop requires rain for proper seed germination.
  • The Plains weather forecast is cold with sub-zero temperatures in the 6-10 day period. This cold catches HRW wheat in a drought-stricken state. The US HRW wheat crop continues to suffer.
  • Soyoil futures have posted new rally highs with March soybeans struggling to hold above $16.00. The soymeal market lacks aggressive cash buyers this morning. The US farmer has been a huge seller of cash grain this week which is pressuring cash basis bids. China is hoping for a reserve release to help in old crop soybean supplies. Falling S American crop sizes supports breaks. A choppy market is expected into March.
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