- Chicago soybeans have scored new contract highs while corn/wheat follow. Rumours that China is back booking US soybeans for February has firmed cash basis bids as spot futures to leap closer to the nearby $12.00 target basis January (high price so far at $11.8975). Chinese crushers have covered about 40-50% of their late January/February crush import needs and are starting to chase the market higher. China booked most of their Brazilian soybean purchases on basis and continue to buy Chicago futures to lock down price. The weather risks for importers/crushers are rising with each dry day across S America.
- Chicago soyoil futures leapt above the 2016 highs at $38.11 cents/pound with a weekly close above this key resistance confirming a new upside target of $45-50.00 cents. The biggest consumption of vegoil is foodstuffs, so rationing demand and/or expanding supply is difficult until the next Northern Hemisphere growing season. It is a bull story for palm, sun, canola, rapeseed oil and soyoil. Of the world’s major vegoils, soyoil is the cheapest and will gain additional demand with it being focused on the US.
- We should also mention that US corn is the cheapest feedgrain in the world, below both barley/sorghum and non-US corn. Although there has been a sizeable price rally, limited demand rationing is occurring. US Gulf corn is the cheapest source of corn supply through April (and likely May) as Argentine exporters raise their fob basis bids amid crop shortfalls. Argentina’s first corn seeding fell short by 25% meaning that their domestic market will sop up much of the new harvest in March. This reduces exportable supply and leaves the US in the prime seat for fulfilling world corn demand. The US 2020/21 corn export profile is likely to rise another 250-400 million bu in coming monthly WASDE reports as S American corn supplies are reduced. The story of corn is one of increasing US demand and tightening world stocks.
- FAS announced that 140,000 mt of US corn was sold to an unknown buyer. We would guess that the buyer is China, which has been rumoured since Monday. The weekly US export sales report is expected to reflect that the US is exporting larger supplies of soybeans/soyoil and corn that stocks will allow.
- The US EAI report showed a fall in US corn ethanol production to 283 million gallons vs 287 million gallons last week. Amid the growing hope for a Covid-19 vaccine, US corn ethanol demand estimates are no longer in retreat. This week’s corn grind would model out to a 5,110 million bu annual crop year usage rate. On that basis we would look to raise our US corn ethanol 2020/21 grind estimate with a few additional weeks of solid demand.
- Chicago brokers estimate that funds have bought 6,700 contracts of soybeans, 4,900 contracts of corn, and 2,100 contracts of wheat. In soy products, funds have bought 6,500 contracts of soyoil and 2,900 contracts of meal. December meal futures have failed to rise above $400/mt due to the weakness in domestic Chinese meal offers. Soyoil will contribute a larger share to crush margins.
- The midday GFS weather model is wetter across S Brazil and N Argentina than the overnight run. The rain for RGDS arrives on November 27 but our confidence this far out is low. Yet, the midday model keeps trying to add rain for S Brazil and NE Argentina, we will have to watch if such rain materialises. The southern half of Mato Grosso stays dry with below normal rain across Mato Grosso Du Sol. And the southern two thirds of Argentina holds in a below normal rainfall trend with rising temperatures during the 8-14 day period. The dryness across the Mato Grosso is the big crop worry, currently.
- The bull in soyoil should be enough to take January beans to $12.00. Higher prices will also require some help from meal. Corn spreads are narrowing with December corn testing contract highs at $4.28. Our market stance stays bullish amid strong demand and concerning S American weather. The upside leadership is soyoil, soybeans and corn. The wheat market is awaiting a decision from the Russian Government on an export tax. The livestock lobby in Russia is strong and often times can sway politicians.