- There have been bullish macro financial tailwinds from the US stock market (DOW that’s up 620 points) and parched Brazilian weather has lifted Chicago values at midday. Chicago continues to add risk premium into prices as private estimates for Brazilian corn/soy crops decline. Corn and wheat prices are following the soy rally as hope persists that China will return to secure US grain following a Beijing trade meeting that starts next week. Traders are hopeful that index fund rebalancing will produce a downdraft in prices (purchase opportunity). It would take rainfall for Brazilian crops and a breakdown in the US/China talks for Chicago values to fall below last week’s low. A higher Chicago close is forecast
- Chicago brokers estimate that funds have bought 3,100 contracts of soybeans, 4,000 contracts of corn, and 1,800 contracts of wheat. In soy products, funds have bought 1,800 contracts of soyoil and 2,200 contracts of soymeal.
- The US Employment Report showed that the US added 312,000 jobs during December, nearly double what was expected. The average hourly pay improved by 3.2% and offered the potential for future wage inflation. The report confirmed that the odds of a US recession is low in 2019 and that the US FED could raise rates by 1 or 2 more times before a neutral plateau is reached. US economic slowing is likely in the last half of the year and again in 2020. But all signs are that the US economy remains strong into midyear. We note that the US$ is weaker at midday after reacting bullishly to the initial Jobs data. The inability of the US$ to rally to bullish US economic news should be closely monitored. As the US Central Bank reaches neutral bank lending level, we expect a rather protracted decline in the greenback amid large US debt levels. The Brazilian real is trading up at 3.7:1 vs US$, the Argentine peso at 37.4:1 and the Russian ruble at 67.5:1.
- The USDA announced that it will delay the January 11 US crop report until funding for the US Government is agreed to by Congress and US President Trump. There is no exact date or timing of when such funding will be agreed to, but it is hoped that a solution can be reached. A White House meeting between President Trump and Congressional leaders is underway at midday.
- The midday GFS S American weather forecast is similar to the overnight run with below normal rain for NC and NE Brazil into mid-January. A few showers develop early next week across Mato Grosso, Goias and MGDS, but most amounts will be less than 1.00”. Drier weather follows during the 6-10 day period. The best rain will drop across S Brazil. Temperatures average above normal through the next 10 days with heat centered on NE Brazil. Soaking rains of 6-10.00” impact the northern third of Argentina with flooding to become widespread. Below to much below normal temperatures will persist over the next 10 days amid considerable cloud cover. Unfortunately, the pattern shows no sign of change as a high-pressure ridge holds across NE Brazil and a deep trough across N Argentina.
- The hope for US/China trade progress and a stuck (adverse) S American weather pattern should keep Chicago well supported into the weekend. The wish that the US/China will score trade progress could produce additional US ag purchases in grains, and potentially US pork. The declining US$ is a bullish tailwind for ag markets. Trade and weather will likely drive Chicago prices next week in the first full week of 2019 trading.
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