- HEADLINES: Soy futures rip to the upside on A American weather and falling yield potential; China short bought on forward soy needs; Argentine corn under stress.
- Chicago futures are sharply higher at midday with corn, soybeans and soyoil the upside leaders. Fund managers from New York and London returned to the New Year with active buying from the opening Chicago bell. S American crop loss discussions are ongoing with farmers in Parana and MGDS suggesting that future rain will not make much of a difference on their soy/corn yield potential. Although it is only early January in North Central Brazil, the maturation of the soy crop makes it like late August in the US with the harvest to accelerate over the next 2-3 weeks.
- A bullish tone prevails across Chicago with Brazilian soy crop losses of 10-15 million mt completely changing the longer-term outlook of the market. A sharply higher close is expected with any loss of 2021 US corn/soybean yield in the January crop report accelerating the rally late next week. Remember that Brazil comes into the harvest with limited old crop stocks, such that any production loss must be shifted to another world exporter, namely the US and Argentina.
- Chicago brokers report huge volume into midday. Managed money has bought 15-17,000 contracts of corn, 10-12,000 contracts of soybeans, and 2,600 contracts of wheat. In the products, managed money has secured 3,200 contracts of soymeal and 4,200 contracts of soyoil.
- We note strong demand for the oil share trade with soyoil’s contribution to crush margin falling to 40%. Oil share is at value near or below 40% with US renewable diesel demand ramping up at the end of the first quarter as new plants start production. That production total will grow to over 12 new renewable diesel plants by midyear. The key question for US soyoil supplies is whether new US crush capacity can come online fast enough to service the growing feedstock use by the renewable diesel industry. Soyoil should become a bull leader of the soy complex into June/July.
- November/December weather was record dry across the southern third of Brazil with it being the fourth wettest on record across Northern Brazil. The acute dryness and budding heat took a huge toll on Parana corn/soy yield potential. Deral estimated a sharp fall in conditions with just 29% of their soybean crop rated good/excellent. Yield losses of 40-45% in soybeans and over 50% in corn appear reasonable.
- Iraq tendered for January/February wheat. Iraq is looking at securing Australian/US/Canadian wheat as defined by their tender terms. US cash exporters report that US HRW wheat sales to Iraq have a good chance based on their demand for credit terms, and that Australia will have trouble meeting the gluten demand of the tender. Some EU cash traders argue that a cargo of Romanian wheat may be included. Traders report that Iraq is trying to secure 1.0 million mt of world wheat based on need from February into May. US wheat futures could be surprised by a US wheat sale of size to Iraq.
- The midday GFS weather update is like the overnight run with dry weather conditions for Argentina for next 10 days with extreme heat with another 10-12 days of 90s/lower 100s. NE Brazil will stay wet with rains of 5-12.00”. The early Brazilian soy harvest will be slowed by near daily rainfall. The S American weather pattern is static, except for a modest southward shift that allows for 0.5-1.50” of rain across Parana and MGDS late week.
- The loss of 12-15 million mt of Brazilian soy with stressful weather persisting across RGDS/Santa Caterina/Argentina shifts soy into a bullish demand rationing phase. China is short bought soy and missed the Brazilian weather woes. Crushers and the Government need to extend their forward coverage before the early February Lunar New Year Holiday. We stay bullish with the first upside target being $13.95-14.15 Mar beans and $6.20-6.40 Mar corn. Much higher prices are possible depending on Argentine/Southern Brazilian weather in the last half of January.