- Chicago soy prices are sharply higher to start 2019. Rumours abound in the cash market that China is back asking for offers and purchasing US soybeans. There are no cash rumours on China buying US grain, but cash connected sources expect that once China finishes their buying of 5 million mt of soybeans, their attention could shift to US grains, including corn, wheat and rice. The problem is that no FAS/USDA confirmation will be offered with the Government shuttered via President Trump’s and incoming Democratic leadership dispute over the US/Mexico border wall. Hope is that the US political leadership can find a solution to reopen Government and return needed US ag sales data. Amid the firm close and rising price of soybeans/soymeal within China’s domestic marketplace, a higher Chicago close is expected with the most active March soybean contract to close above $9.00 prior resistance.
- Chicago brokers estimate that funds have bought 6,400 contracts of soybeans, 3,200 contracts of corn, and 2,100 contracts of wheat. In soy products, funds have bought 2,900 contracts of soyoil and 1,700 contracts of soymeal. Cash connected sources indicate that China has purchased another 20-30 cargoes of US soybeans (1.2-1.80 million mt of US soybeans by state buyer Sinograin) for their reserve. China has made soybean purchases on each Wednesday up until last week, they took off for the post-Christmas holiday, but returned today. The purchases are likely to take China close to their long rumoured 5.0 million mt of purchases. Any purchase amount above 5.0 million would be a bullish surprise.
- Amid the lack of USDA information, traders have been focused on the coming index fund roll which starts on the 5th business day of January (Tuesday Jan 8). Estimates by commodity vary amid the amount of money leaving or coming into the commodity space. Yet, based on the sharp fall in crude oil, it is expected that index funds will sell some; 42-46,000 contracts of corn, 26-28,000 contracts of wheat, and will be buyers of 7-9,000 contracts of soybeans. And index funds could buy 30-32,000 contracts of soyoil and 8-10,000 contracts of soymeal. There are larger estimates of sales of US corn and wheat, but we suspect that funds coming into the commodity market is smaller. US President Trump stated that he expected the stock markets to recover once the US inks trade deals. The statement indicates the focus of the President is on reaching a trade deal and its importance to investors.
- The midday GFS S American weather forecast is like the overnight run with below normal rain chances across NC and NE Brazil into late January. Soaking rain of 3-8.00” impact N Argentina with drier weather across BA. The weather forecast for Brazil offers too little rain and crop sizes will continue to decline. And a growing worry would be Argentina where low-lying flooding could damage wheat quality loss and wash out some newly planted soybeans. If the NC Brazilian dryness continues through January, the crop may decline to 114-117 million mt.
- Soy futures are charging to the upside on China demand. China interior soymeal prices started the year with solid gains amid tightening supplies. US wheat values are the cheapest in the world and we doubt that either EU or Black Sea prices will retreat very much during Q1 amid shrinking supplies. The big question is whether the Brazilian dryness in a summer weather pattern that could impact their winter corn crop. US President Trump and Chinese President Xi want to do a trade deal, the question is whether the hawks in the Trump Administration will allow it. Our considered opinion at this time is for some further Chicago upside.