- Chicago corn, soybean and KC wheat futures have been higher in opening week trade on US/China trade optimism, and the likely lowering of Chinese tariffs for US ag goods. Although naysayers remain, the US/China trade negotiations are in the final stages and traders are starting to ponder the impact of $50 billion of US ag demand annually. When China does end their ag import tariffs, we are certain that private Chinese buyers would be lining up for a host of US ag goods including grains, meats, dairy products and nuts. The $50 billion of US ag export demand ·from China would create the next “demand driver” for a US ag bull market. It has been a long time since a big buyer of US wheat, corn or livestock products has emerged which is likely to produce greater upside market volatility. The shorts will start to feel uncomfortable amid the uncertainty of knowing when a China buyer could secure US ag goods.
- Chicago brokers report that funds have bought 4,300 contracts of corn, 1,200 contracts of wheat, and 4,800 contacts of soybeans. Funds have also bought 3,100 contracts of soymeal while being flat in soyoil. The funds are heavily short in Chicago. Traders will be looking to this week’s CoT data for the sheer size of their short holdings heading into spring across the N Hemisphere.
- For the week ending February 28, the US exported 34.0 million bu of corn, 31.0 million bu of soybeans, and 16.2 million bu of wheat. For their respective crop years to date, the US has exported 1,015 billion bu of corn (up 268 million or 36%), 953.6 million bu of soybeans (down 471 million or 33%), and 623 million bu of wheat (down 49 million). China shipped out 12.3 million bu of US soybeans last week.
- Saudi Arabia secured 625,000 mt of wheat in a weekend tender at an average price of $248.16/mt. Europe is likely to supply most of the tender with Germany and the Baltic likely to be the suppliers between April and June. We note that rumours abound that private importers in Egypt secured two cargoes of US HRW wheat on the weekend. The wheat was cheaper than Russian fob offers which likely helps confirm that US wheat futures formed a seasonal low last Friday. There is still a long in the Russian cash wheat export market, but the supply offered is marginal. When this wheat is sold, we expect Russian fob wheat prices will again begin to rise reflecting tight domestic stocks and the higher interior prices.
- The midday GFS S American weather forecast is little changed from the overnight run. The forecast offers near to below normal rainfall for Brazil with near normal totals for Argentina. A ridge of high pressure will build eastward from the Atlantic into NC Brazil late next week. We do not see any S American crop concern today, but April is the big month for Brazilian rainfall for winter corn. Amid a building El Niño, our bet is for drier conditions in late March and April. The extremely heavy rains that were offered last Friday for Argentina have been reduced and the Argentine weather pattern appears favourable during the first half of March.
- A US/China trade deal is nearing the finish line and the big winners are US ags and energy. $30 billion of new US ag demand on top of pre-trade war totals ($50 billion of annual demand) will push for US ag exports to a record large total. And when China drops their ag tariffs in coming weeks, private buyers will turn to US grains, DDGs, meats and dairy for immediate purchases. Private Chinese buyers are starting to position to buy US ag goods. Our market bias is to the upside on China demand and wintry Midwest.