- HEADLINES: Argentine rain forecast washes over index fund buyers with Chicago sharply lower at midday; Soyoil holds on oil share spreading.
- Chicago ag markets are mixed at midday as the grains, soybeans, and soymeal sag. New fund inflows are being witnessed this morning with the volume of buying below yesterday. Funds tend to move money in and out of markets in 2–3-day time horizons, so most of the recent investment by Goldman (and others) in commodities as an asset class should be completed by today’s close.
- This morning it was a battle between the fund flows and improving S American weather. We expect that as the fund flows slow, a Chicago correction will unfold into the weekend. China is on holiday next week, so any fresh grain/soy demand will be modest. China has covered its February soybean import needs and is 60-65% finished with March/April. Amid the sharp discounts of Brazilian soybean fob offers, fresh future US soybean demand will be limited. And Asian feed compounders have secured Australian feed wheat due to its attractive price and lower transit cost compared to corn. US corn export demand will continue to suffer. We look for a mixed Chicago close with the coming Argentine rain for Thursday/Friday likely to pressure Chicago values.
- Chicago brokers estimate that funds have bought 2,200 contracts of wheat and 1,500 contracts of corn, while selling a net 5,600 contracts of soybeans. In the products, funds have sold 3,800 contracts of soymeal and bought 2,900 contracts of soyoil. The oil share trade should perform amid the coming improved Argentine rain which will act to stabilise summer row crops.
- There were no new FAS Daily Export sales announcements. And remember that FAS will release their weekly export sales report on Friday due to Monday’s MLK holiday.
- There is no shortage of world soy crush capacity, just a potential shortage of soybeans due to the Argentine drought. Nearby, we expect that Argentine will continue to crush soybeans amid strong margins into the new crop harvest. And India will double its soymeal exports in 2022/23 while Paraguay/Brazil will both export beans to Argentina for future processing. If there is a shortage of soybean crush, it will be with the US new crop position if the US suffers weather adversity. Spot Chicago soymeal has rallied near record highs above $500/mt. This rally was based on the Argentine drought and a record inflow of investor funds into Chicago soymeal futures. Funds are estimated to be long nearly 150,000 contracts of soymeal at Monday’s close. If the rains fall across Argentina, fund meal length will be vulnerable to liquidation. And US and world livestock feeders are looking to alternative protein supplies in their feed rations on soaring meal prices. An important price top is forming in soymeal should normal Argentine weather returns into March.
- The midday weather forecast is little changed from the overnight GFS solution. However, it is worth noting that the GFS forecast is not as wet as the EU overnight solution. The GFS has not been doing a very good job in itemising nearby total rainfall amounts.
- A wetter pattern develops across Argentina’s crop belt starting tomorrow with 10-day cumulative rainfall 1.50-4.00” with the passage of 3 fronts. Such rain is near to above normal, the first time that such a statement can be made in the 2022/23 crop year. Extreme heat will be confined to the next 24 hours before showers develop Thursday/Friday/Saturday with 0.5-2.00” accumulations.
- Near normal rainfall drops across Brazil which will be ideal for late podding soybeans in the north while RGDS sees improving rain chances this weekend. No extreme heat is noted for Brazilian crops and the outlook stays favourable for record production.
- Index fund buying is starting to subside in the grains which is allowing improved rainfall forecasts for Argentina/S Brazil to weigh on Chicago prices. China is on holiday next week and if the Argentine rain persists, long liquidation in the soy complex could develop. It is just tough to be long soy as Brazil starts its harvest of a record soybean crop of 5.6 billion bu.