- There was a large surge in Index Fund net long positions in US ag futures during the yearly rebalance period. The inflows are charted in the graphic below with the combined ag index fund position at its largest level since late 2014. The biggest index fund flows came into cattle, wheat and corn. The question is whether new funds will continue to be pushed into the ag futures markets in coming weeks? Our bet is that heading into a new N Hemisphere growing season, that fund managers will continue to see US ag futures as historically cheap.
- The overnight rally in Chicago was not sustained as the trade mulled over the US Presidential executive orders signing the Keystone and Dakota pipelines as a vote for oil as against biofuels. In addition there were concerns that retaliation could erupt against US ag exports on the back of President Trump’s America First Platform. Arguably he is not intending to harm ag exports and is indeed working to build demand but there remains potential for trade wars to develop in the wake of US domestic trade defence.
- It is estimated that US farmers have sold more than 75% of their soybean crop and 55% of corn. US and S American farmers are now seeming less willing to cash grains on price breaks, which is limiting downside in these crops at present. Bearishness and downward price trends are consequently difficult to establish despite non-bullish fundamentals.
- Argentine Ag Minster Buryaile discussed cutting Argentine soybean and soybean oil export taxes on Monday. However, our sources suggested that such discussed tax cuts are not expected to occur until early 2018 when soybean export taxes will be reduced .05% per month going forward. However, the talk of soybean and oil tax cuts is causing Argentine farmers to be an even tighter holder of old and new crop supplies, adding somewhat to support.
- We, and others, have not found riches by selling price breaks or buying into rallies as both have been short lived and not sustained. It is our view that the current break will be any different as cash selling is already thin on the ground. S American crop uncertainty remains and the “gap” on the soybean chart remains a strong support level. Today’s move appears “corrective” and that we will return to the range, which we would anticipate lasting into February.