- HEADLINES: Chicago values drop hard on macro-economic concern/crude oil price fall; Demand worry to be featured in Q1.
- Chicago ag futures opened mixed with the grains lower but soybean/meal futures higher following overnight trading trends. However, spot crude oil futures fell to another $3.00/barrel daily loss (down $6.00 in the past 2 days), and the selling accelerated across the raw material space. Crude/heating oil losses are pacing the market due to the fear of a future recession, both in the US and world economies.
- The freefall in energy prices has pushed fund managers to be sizeable sellers of Chicago grain/soybeans. The market appears willing to look past the Argentine dryness with Brazil set to harvest a record large soy crop. We note that the deepening Argentine drought will cause support on breaks but following the past few days and the coming USDA January crop report, few are willing to chase rallies. And fund managers are not seeing the commodity space as high on their investment list as the US Central Bank remains restrictive, inflows of new money into raw materials are not expected until China shows that it has won the battle against Covid. With the Lunar New Year ahead, China’s economic growth will contract further.
- Chicago brokers estimate that funds have sold 8,800 contracts of soybeans and 15,500 contracts of corn, and 8,400 contracts of wheat. In the soy products, funds have sold 4,900 contracts of soymeal while being flat in soyoil. End users are using the break below $0.63 in March soyoil to boost ownership.
- The USDA reported that it sold 124,000 mt of US soybeans to an unknown destination for the 2022/23 crop year. The buyer is said to be an EU crusher looking to secure nearby needs.
- Tunisia issued a tender for 100,000 mt of wheat and 75,000 mt of barley between January 10 and March 5 in consignments of 25,000 mt. It is expected that other North African buyers could step forward amid the recent price break. Russian wheat offers stay aggressive into early March.
- Ukraine is seeking to boost the inspection pace of its grain through Turkey to add to tonnage sales totals. Vessels have been stacking up which adds to the cost of demurrage and insurance. The next negotiations are likely to start in late February or March with the current pact to expire on March 19. It is interesting that Ukraine has not had difficulty in getting grain to port, it is the inspection by Turkey/Russia that has slowed down the shipping process.
- US ethanol margins have returned to the green with the recent sharp fall in natural gas and corn prices. For the past 6 weeks, US ethanol margins have struggled on high energy and corn costs, especially in the Plains. US ethanol producers are locking down margin by booking corn/natural gas on breaks. We look for corn booking to increase between $6.40-6.50 basis May futures. For now, we doubt that May corn can fall too far below $6.30 until more is known about S American weather and the coming USDA January report.
- The midday GFS weather forecast is consistent with hot/dry weather to impact Argentina and RGDS in Southern Brazil for the next 9-10 days. A lack of subsoil moisture collides with high temperatures in the 90’s and 100’s across Argentina late next week. The extended range 11-15 day forecast also reduced rainfall potential keeping Argentina in a drought threatening trend into January 20.
- The Brazilian forecast stays favourable with an abundance of rain and cooler than normal temperatures. We look for Brazilian soy crop estimates to grow, but for Argentina to decline.
- It has been an ugly start of 2023 for Chicago markets. We doubt that March Chicago wheat falls too far below $7.40 with support noted in March corn below $6.45. The fast onset of the Brazilian soybean harvest will pressure cash premiums.