- China is likely to step forward (at some future point) to secure US corn, soybeans, other small grains and wheat. Chicago futures will rally sharply on China demand confirmation. Chicago traders have been left wanting of China demand for weeks, ever since the Phase One Deal was signed on January 15. Market bulls are now frustrated. Coronavirus. the coming US election and debate on China’s adherence to the Phase One Deal create heightened market volatility Yet, its rising S American crop production and the expectation that US farmers will seed a good portion of the 19.6 million acres of Prevent Plant that was idled last year will determine long term price trends. A record large Brazilian soybean crop could be followed by a record large US crop in the next hemispheric growing season. China demand aside, the world has too much supply. China demand rallies create new grain/soy sales opportunities.
- Chicago soybean futures broke a long-running losing streak and closed 4 cents higher on Monday. After the close, NASS reported a December soybean crush rate of 185 million bu, 1 million bu more than a year ago, a record high December crush rate. Total soybean meal production in December increased by 207,000 tons, while soybean meal stocks fell by just over 84,000 tons. The end of month December stocks figure of 342,000 tons was also the smallest since 2015. The US export rate was strong in the Oct-Nov. December trade data will be released later this week and is expected to confirm hefty December exports. December soyoil stocks at 2,094 million lbs were up 11% from November and were 8% more a year ago. Slow biodiesel demand along with record December production lifted stocks to a seven month high. Better biodiesel demand is expected in early 2020 as margins rallied during January. Spot futures are now the most oversold since May with spot futures holding just above harvest lows. We would caution against staying bearish.
- Chicago corn futures ended slightly weaker. Global commodity markets followed weakness in Chinese stocks markets after the Lunar New Year Holiday. The EU, GFS and Canadian models maintain widespread and needed moisture in Argentina this week. US corn export shipments through the week ending Jan 30 totalled 22 million bu, down 4 million on the prior week and a full 22 million below the pace needed to meet the USDA’s annual forecast. Enlarged US export sales are expected into late February but improving yield potential in Argentina will exacerbate US export woes longer term. Argentine basis likely falls to negative levels by mid-summer with normal Brazilian weather into April. Big picture themes continue to include massive competition for world corn trade without supply dislocation in 2020. Yet, Dalian corn futures sit at a $100/mt above Gulf corn. Dalian’s premium has rallied $16/mt since late December. Recall there are open and active licenses available for Chinese importers to secure US corn. Confirmation of modest Chinese demand lingers in the background that could spark a 7-15 cent corn rally.
- Chicago wheat futures ended mixed. March ended fractionally higher and March’s premium to May remains firm at 1.5 cents. EU wheat futures ended weaker. Chicago futures in recent sessions have corrected sharply as nearby Chinese demand is debated. The spread of coronavirus won’t help with debate on China demand and its timing. USTR stated that China has not requested a push back on its Phase One pledges. Fundamentally, wheat rallies will be more laboured. A vast majority of world wheat trade will have executed by March. Research places Russian wheat stocks as of Feb 1 at 36 million mt vs. 33 million a year ago. Russian wheat is expensive at current prices ($226-228/mt). A slow/steady correction is forecast. Note also that heavy precipitation in Ukraine and Russia will go a long way in replenishing soil moisture. Increasingly, lasting Chicago rallies will require adverse weather as bullish fuel. The wheat market is likely to enter a deeper correction following the February 11 WASDE report.