- HEADLINES: Chicago declines continue with focus on macro financial markets and the potential of a record large Brazilian soybean crop.
- Chicago ag futures are lower at midday on continued chart based and macro market selling. Soybeans/wheat have paced the decline with corn/soyoil and soymeal being tagalongs. End user pricing has been noted on the break in wheat/corn/ soyoil with lows formed as Russian President Putin announced a short-term truce in the war for the troops to celebrate orthodox Christmas.
- We suspect that trading lows are forming ahead of next week’s USDA report. Macro financial market considerations have played a large role in Chicago valuations in the opening days of 2023. However, the market’s attention will shift back to next week’s January USDA Crop Report and S American crop sizes and weather.
- Chicago brokers estimate that funds have sold 4,900 contracts of wheat, 3,400 contracts of soybeans, and 6,000 contracts of corn. In the soy products, funds have sold 3,900 contracts of soyoil and 1,200 contracts of soymeal. Funds have come back and bought back some of their earlier soymeal sales. The funds are back to holding sizeable net short wheat and large net long soymeal position.
- The Index fund rebalance starts Monday and will feature net sales in soybeans, soymeal/corn, and net buying in wheat. We doubt that new money will flow into long only Index funds which will mute its influence on Chicago.
- US weekly ethanol production was a bearish feature with production falling to 844,000 barrels per day vs 963,000 last week. This was down 19% from last year due to the holidays and extreme cold that blanketed the Central US before and after Christmas. At the same time, US ethanol stocks rose to 1,026 million barrels, up 14% from last year. We maintain that WASDE needs to reduce its US annual corn grind by 50-75 million bu in upcoming monthly S&D reports. The good news is that the drop in corn and natural gas prices has returned margin to Central US ethanol producers. We look for the US corn grind to improve during the remainder of the winter.
- Tunisia booked 100,000 mt of wheat and 75,000 mt of barley with the wheat fob price estimated at $320/mt. This price would be above their last purchase and reflects that world wheat values have not changed much over the holidays. World cash wheat is holding stronger than US futures with Black Sea fob offers nominal due to the holiday. Russian fob wheat offers are steady.
- The midday GFS weather forecast is consistent with hot/dry weather to impact Argentina and RGDS (Southern Brazil) for the next 8-9 days with widely scattered showers returning from January 13-15. The extended range 11-15 day forecast also has a few showers, but rainfall amounts in the next few weeks would be running around 40-60% of normal or 0.5-1.50”.
- The Brazilian forecast stays favourable with an abundance of rain and cooler than normal temperatures for Northern and Central Brazil. Dryness issues do not look like they will get resolved in Argentina/S Brazil into late January.
- 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 with world soybean demand shifting entirely to Brazil. March soyoil futures below $0.62/pound is attractive again. We see wheat/soyoil as nearing bottoms while corn/soybeans and soymeal chop sideways ahead of next week’s USDA Crop Report.