- HEADLINES: Oil share spread unwinding continues; China relaxes Covid rules; South American weather better rains for RGDS.
- Corn, soy and wheat values are higher at midday with wheat the upside leader as hedge pressure related to the record large Australian crop has been filled. Corn and soybean futures are gaining on short covering heading into Friday’s USDA December WASDE report. Argentine dryness and their potential for soy and corn yield reductions due to drought remain supportive. Soymeal is a momentum trade with funds chasing the market to new highs, but the US cash market is weakening with Central IL soymeal basis now trading below spot futures. World importers/domestic feeders will not chase the soymeal rally. The gains in Brazilian and Paraguayan crops more than offsets the Argentine losses leading to 30 million mt plus production gains vs last year for the 2023 S American soybean crop. We doubt that spot Chicago futures can rise above $15.00.
- Chicago open interest showed a 4,582 contract increase in soymeal and a 6,497 contract increase in wheat, but a drop of 11,847 contracts in soybeans, 7,478 contracts in soyoil and 7,210 contracts in corn. Funds are sitting on their largest net short wheat position in several years which adds to the potential for a short covering rally should something adverse occur to Black Sea Grain exports due to the war/geopolitics.
- Chicago brokers estimate that the managed money has bought 4,600 contracts of soybeans, 3,900 contracts of soyoil and 2,300 contracts of soymeal. In the grains, funds have bought 4,100 contracts of wheat and 6,400 contracts of corn. Funds have been active buyers across Chicago.
- China continues to relax its strict Covid rules which is being cheered by the Chinese population. China is allowing infected people with mild symptoms to quarantine at home and dropping testing for people traveling domestically. This will allow the Chinese population to enjoy the Lunar New Year holiday in mid-January and travel to celebrate with relatives. The value of the Yuan has rallied, but it is still having its worst year since trade was allowed in 1994. However, infection rates are expected to soar ahead of and after the holiday with many Chinese not yet having immunity. This has set off a rush for over the counter medicines, just in case. However, Asian stocks fell on the news with the Hang Seng Index down 3.2%. Aside from China’s relaxed Covid rules, its economic outlook shows slowing consumer demand tied to falling real estate prices.
- The midday S American GFS weather forecast is slightly wetter across Southern Brazil and Northern Argentina as a seasonal high-pressure ridge builds which shoves tropical upper air humidity further south. The rains will help Southern Brazil and spotty showers of 0.25-1.50” are also forecast for the northern half of Argentina as soon as this weekend. The southern half of Argentina stays dry with warm to hot temperatures periodically. La Niña is in retreat, which should produce improved Argentine and S Brazilian rainfall with time. Northern and Central Brazilian rainfall is much improved which will aid the outlook for yield with the crop in the reproductive phase. Record large yields are possible in Mato Grosso.
- Argentine weather remains a concern, but the sheer size of the Brazilian soybean crop caps Chicago rallies. Oil/meal share spreads are being unwound which is rallying meal values. Key support for March soyoil rests below $0.58 cents. A major low in the soyoil looms as renewable diesel demand steps up. We remain bearish of corn/soybeans, while watching for signs of a top in soymeal. Wheat values are bottoming with world export demand increasing.