- Chicago corn and wheat have traded to solid daily gains while the soybean market trades both sides of unchanged. The volume of Chicago trade has expanded on the rally and the sharply lower US$ is providing a bullish backdrop. Corn is catching a bid on declining Argentine and S African production along with the pop above key resistance at $3.55 basis March. The charts are turning bullish of corn with spot futures trading above the 50 and 100 day moving averages, and soybeans look to test their weekly downtrend line at $9.95 basis March. A close above this level would fuel additional fund short covering. We estimate that funds are still sitting on a record large net short corn and wheat position, while being net short 80,000 contracts of soybeans. Chicago floor brokers estimate that funds are net buyers of 7,300 contracts of corn, 3,800 contracts of wheat, and sellers of 2,000 contracts of soybeans. In soy products, funds have bought 1,200 soymeal and 2,000 soyoil.
- Former Brazilian President Lula was convicted of corruption and appears to be going to jail. Supporters are still arguing that a pardon could free him to run for the 2018 presidential election. The news caused the Brazilian Real to rally to 3.18;1 which sparked the Chicago soybean rally as farmers halt sales. The Real could push higher vs. the US$ now that the Lula trial has passed.
- Argentine corn and soybean crop estimates are in decline amid warm and dry weather, and the forecast of additional dryness. We have lowered our Argentine corn crop estimate to 36.5 million mt (compared to USDA estimate of 42.0 MMTs) with a soy crop estimate now at 52 million mt. There are private estimates in Argentina of a soy crop of 48-50 million mt (due to an even farther fall in yield and planted area). Argentina is the world’s largest soymeal exporter with annual crush rate at just under 45.0 million mt. If the Argentine crush rate is confined by a smaller crop, that export demand would likely be pushed to the US. This is the reason for the ongoing rise in US and world soybean crush margins.
- Argentine soybeans have reached 5,000 Pesos/mt today, which has not produced much increase in cash related selling. Spot Argentine corn has reached 3,000 pesos/mt, a new historic high. Argentine farmers are becoming bullish on ongoing hot/dry weather and inflation that is running at over 30%.
- A falling US$ along with fresh fund short covering is lifting Chicago corn, soybean and wheat futures. Key is the weekly downtrend line at $9.95 basis March futures. A close above $3.55 March corn should push values up to $3.65-3.70. The US wheat rally will be constrained by slowing US wheat export demand. We hold to a short term bullish outlook.