6 January 2022

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  • HEADLINES: Funds sell wheat to have something short against corn/soy; Midday S American forecast threatening.
  • Hawkish US economic statements from the US Central Bank have pressured Chicago futures at midday as fund flows are to the sell side of the book. Threatening S American weather has been cast aside with traders worried that rising US interest rates could end the reflation trade. We doubt that the reflation trade has ended as evidenced by the sharp daily gain in crude oil futures. However, following the Chicago rally in recent weeks, the Fed statement causes a pause with a USDA Monthly Crop Report on Wednesday.
  • Wheat has been the downside price leader on chart-based considerations with March Chicago following below the December low at $7.51. The chart breakdown has sparked fund selling and narrowed the wheat/corn premium to $1.45/bu Chicago wheat. US wheat is competitive in the world market based on this decline, with world importers expected to take a second look at US wheat for shipment from March-June. Fundamentally, nothing has changed in the US or world wheat market, and we argue that wheat futures are too cheap below $7.50 March Chicago or $7.80 KC March. There are still 5 months left in the old crop year.
  • Chicago Wheat/Corn Spread; Support at $1.30 wheat Premium:

Chart</p> <p>Description automatically generated” width=”367″ height=”259″ /></p> <ul> <li>Summer row crop prices have been resilient with threatening S American weather providing support. Heading into the USDA Crop Report next Wednesday, traders are aware that the USDA will be cautious with S American crop cuts in January. CONAB will update their Brazilian crop estimates on Tuesday, one day prior to USDA. Traders hope for a bearish USDA crop report to buy the dip on dry/hot 10-day Argentine/Southern Brazilian weather.</li> </ul> <ul> <li>US weekly export sales were disappointing with just 1.8 million bu of wheat, 10.1 million bu of corn, and 14.1 million bu of soybeans sold over the Christmas holiday week. For their respective crop years to date, the US has sold 584 million bu of wheat (down 180 million or 31%), 1,614 million bu of corn (down 116 million or 7%), with US soybean sales at 1,532 million bu, down 473 million or 31%. We do not look for USDA to raise or lower their 2021/22 US corn, soybean or wheat export estimate based on pace analysis on Wednesday. USDA will likely hold on US 2021/22 export forecasts, knowing that S American crop losses are growing.</li> </ul> <ul> <li>The US exported 391 million bu of soybeans in November, up 4 million bu from October,  but down 26 million bu from last year. US November corn exports were 182.3 million bu, up 32 million bu from October, and 32 million bu more than last year. US November wheat exports were 53 million bu, up 8 million bu from October, but down 16 million bu from last year. The US corn export pace will pick up in the weeks just ahead as China more aggressively loads out its prior purchases.</li> </ul> <ul> <li>Funds have sold 8,000 wheat, 3,400 corn and 5,300 contracts of soybeans. In the products, funds have sold 3,400 contracts of soyoil and 2,800 contracts of soymeal. We look for a rally to add weather premium on Friday.</li> </ul> <ul> <li>Brazilian soybean farmers can start planting seed on Sept 15 due to rust prevention. If you look at a rainfall percentage of normal map including the 9-day forecast, it reflects that drought has been building for months with soil moisture exhausted as corn/soy crops pushed into reproduction. Therefore, crop conditions/yield estimates have fallen off a cliff in the past few weeks. And the upcoming 10 days looks to be extremely stressful for RGDS/Argentine crops.</li> </ul> <ul> <li>This is a classic La Niña weather pattern that will likely produce a deepening Argentine/S Brazilian drought into March. There could be a few light showers in the 11-15 day period, but extreme heat/dryness will stress crops over the next 10 days. The midday solution offers a sizeable high-pressure ridge aloft across Argentina/S Brazil. Extreme heat in the mid 90’s to lower 100’s will persist next week with limited rainfall from RGDS through Argentine crop areas. Any showers in the 11-15 are low confidence and widely scattered.</li> </ul> <ul> <li>Fund traders report that they have sold wheat to have something short against their long corn/soy futures. This has punished wheat when fundamentals are still bullish. And the wheat decline has prevented corn from sustaining a rally. Soybeans/soyoil are the bullish leaders on growing S American crop losses. Stay with a bullish view as we believe this correction in wheat/corn has gone too far to the downside.</li> </ul> </div> </div> </div> </div><!-- .entry-content --> <footer class= This entry was posted in Daily Commentary by simon. Bookmark the permalink.