- HEADLINES: Wheat price drops on chart selling and corn/wheat spread unwinding; KC wheat nears $7.75 support; Soyoil to new rally highs.
- Chicago futures are mixed at midday with parched Argentine/S Brazilian weather, the index fund rebalance and USDA January Crop Report all in focus. Chicago has rallied sharply in recent weeks and traders are trying to decide how much weather premium is enough in the summer row crop futures. Crop size estimates are in decline which is limiting any active selling of corn/soy. Argentine crop conditions and yield prospects are said to be in sharp decline which on top of Brazilian losses is adding to the longer-term Chicago bullishness. Chicago values may chop for a while as traders try to understand if $14.00 is producing any meaningful soybean demand rationing. The July/November soybean spread above $1.00/bu confirms that weather premium has been built into valuations. Wheat prices are sliding on chart considerations and a slowing of spot export demand.
- Brokers estimate that funds have sold 6,600 contracts of corn, 5,900 contracts of wheat and 1,600 contracts of soybeans. In soy products, the managed money has bought 3,400 contracts of soyoil and sold 2,900 contracts of meal. Buying the oil share has been a popular trade of recent days.
- The latest updates for Monday’s index fund rebalance pegs corn buying at 5,100 contracts, Chicago wheat buying 2,500 contracts and 21,000 contracts of soybeans. In the products, the rebalance has funds buying 24,000 contracts of soymeal and selling 6,300 contracts of soyoil. The rebalance occurs over 5 business days starting next Monday. The rebalance will be adding to the volatility with the USDA January Crop Report out on Wednesday.
- Plain’s producers are trying to decide if it pays to top-dress winter wheat with nitrogen based on its record high price and the generally poor condition of the crop with the weather forecasts arguing for additional dryness. Although the final decision can still be made in several weeks, producers report that they will likely pass on winter fertilisation programs amid the extreme cost. The reduced or lack of top-dressing wheat could lead to well below trendline yields should spring wheat weather become adverse.
- Tunisia booked 125,000 mt of soft wheat, 75,000 mt of durum and 75,000 mt of feed in a tender that closed today. The durum wheat was sold at price of nearly $700/mt. The soft wheat is expected to come from the EU, while durum could be sourced from Canada. The shipping period is from Feb 1–March 25.
- Chicago market volatility is going to stay extreme for most of 2022 due to tightening world exporter stock/use ratios of corn, soybeans and wheat and the importance of weather/yield in directional trades. The old saying that bull markets always let you in should work well following the USDA January Report.
- The midday GFS weather update offers dry weather conditions for Argentina/RGDS in Southern Brazil for next 10 days with extreme heat in the 5-10 day period with mid 90s/lower 100s. NE Brazil stays wet with rainfall of 5-12.00”. No extreme heat will impact N Brazilian with highs in the 80’s/90’s.
- The forecast hints at drier weather conditions for N Brazil in the 11–15-day period, but it is a low confidence forecast with an existing trend in place. We see no real change in the S American weather pattern except the widely scattered showers reach into MGDS and the northern portion of Parana.
- Two steps forward and one step back has been the theme of early 2022 Chicago trading. Tightening world vegoil supplies and the onset of new renewable diesel production will rapidly draw down US cash soyoil stocks. Soyoil will be the bull leader due to US renewable diesel production doubling by over 1 billion gallons in 2022. S American crop sizes are in retreat, and a bullish Chicago outlook is maintained. We argue that corn would be up 2-5 cents if not for the chart liquidation in wheat. We continue to doubt that wheat has scored its seasonal high with the break providing another buying opportunity. This is no place for new sales with bull trends intact.