- Managed funds are sitting on one of their largest net short position in agri commodities since the harvest of 2015. The large fund short in corn and wheat could easily propel a further Chicago rally. However, the advance is unlikely to be linear, but rather choppy as a dance of “two steps up and one step backwards” plays out. The chart below shows that large fund shorts could help positive seasonal price trends persist as the US harvest nears completion. The record large US export demand for soybeans and corn through to January will offer support to Chicago markets. We would be careful about selling market breaks as US farmer selling eases back.
- Chicago markets are all higher as we approach the close tonight, price breaks found support! Reports from the US combines suggest that NASS’s latest figures are close whilst record corn yields across parts of IL, SD and NE continue to roll in. Soybean results have not changed significantly with yields mostly at record or better than initially expected levels. Cash basis prices are stabilising as we would expect as harvests approach 60 and 75% complete for corn and soybeans respectively. The lack of S American supplies is probably the key factor preventing further price decline.
- Macro markets are supportive today with crude once again at rally highs, spot prices are approaching $52/barrel and US stock levels continue to decline. The crude oil price rally is supporting currencies in Russia, Brazil and Australia, which is in turn supporting US wheat prices in the global marketplace.
- A host of private weather firms, as well as NOAA, are turning a bit more certain on the development of La Niña in the final weeks of 2016. Latest model guidance also indicates a moderate La Niña is probable through the first quarter of 2017. La Niña is, at times, a negative for S American rainfall and temperatures in the December-February period, but it’s late development produces more uncertainty with respect to crop-critical weather. We note the near term S American outlook suggests rising soil moisture and a boost in early season crop ratings, but along with a cooling PDO index long term weather watchers, ourselves included, will be on alert.
- US harvest in the next two to three weeks will be winding down, and seasonal price trends are steady/higher into late year. We would advise caution against turning overly bullish at current price levels.