- HEADLINES: Chicago rallies on strong export sales and chart buying; Brazilian premiums fall; US cash sales uptick.
- Chicago futures are higher at midday with better than expected US weekly export sales offering bullish fodder while a record large Brazilian soybean crop and new rain chances for Argentina acting as a bearish drag. The volume has been better on the rally vs. the breaks this morning.
- The Chicago choppiness of late should persist. Grain values have been wildly swinging higher and lower this week with Argentine rain pressuring prices on Monday/Tuesday while the hope that China returns to the world raw material market with new buying following the Lunar New Year holiday rallying values late week.
- We maintain that with spot corn/soybean prices at their second best level on record for the month of January, buying rallies is difficult with funds already holding a sizeable long position, and the US/world economic outlook darkening on rising interest rates in the Central Bank’s battle against inflation. The demand outlook stays soft, but funds are adding to their net long position on bullish chart patterns.
- The USDA announced the sale of 106,000 mt of US soybeans to China for the new crop season, 2023/24. There are a modest 229,000 mt of new crop sales already on the books to China. Small to moderate sized Chinse crushers are starting to take some forward coverage, amid their ability to lock down margins with Dalian soymeal and oil sales.
- Chicago brokers estimate that funds have bought 6,200 contracts of wheat, 11,800 contracts of corn, and 6,900 contracts of soybeans. In the soy products, funds have bought 5,100 contracts of soymeal, while being flat in soyoil. The funds have come out with active buying this morning.
- US weekly export sales were better than expected. For the week ending January 19, the US sold 18.4 million bu of wheat, 35.8 million bu of corn, and 42.1 million bu of soybeans. For their respective crop years to date, the US has sold 589 million bu of wheat (down 43 million or 7% from last year), 784 million bu of corn (down 784 million or 45% from last year), and 1,710 million bu of soybeans (up 88 million or 5% from last year). We would argue that the USDA’s export estimate for soybeans is correct, while the US corn export forecast is overstated by 100-200 million bu. WASDE is likely to further adjust US corn export estimates lower in coming monthly reports. Feed wheat sales have undercut the opportunity for US corn to work into SE Asian feedstuffs.
- Brazilian soybean export premiums have declined on the Chicago rally by 4-7 cents. Brazilian farmers are anxious to make cash sales knowing that their yields are above expectations. Northern Brazilian soybean farmers report actual harvested yields coming in 3-6% above trend and are often record large. We expect Brazilian soy yields to hold at similar strong levels through Parana.
- The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. The EU model is outperforming the GFS and will be out with its 10-day rainfall solution before the close. Showers should start to become more numerous later today and Friday with a slow-moving storm system with rainfall amounts of 0.5-2.00”. A second system is offered for mid next week. A third system is offered for the 11–15-day period.
- These are not easy markets, don’t chase rallies or breaks is the best advice and keep risk small. A record large Brazilian soy harvest is underway which will pressure Chicago values as world demand switches to cheaper S American offers. Corn, soybean, and soymeal rallies will likely fail. And Mar Chicago wheat values are up against key resistance at $8.60-8.80. The US and world Central Banks will continue to fight inflation, including food inflation with higher rates. USDA adjusted upward their view on food inflation which is one reason why we suspect that rates will go higher for longer than many now expect. US farmers are rewarding the rally with old crop sales.