- The fear of a bearish USDA January Crop report returned this morning with the report release being just four trading sessions away. The chant of a “big crop” always gets bigger could be heard across the Chicago trading floor as traders fear a new record yield in corn and a bump higher in US soybean yields. Funds came out of the box with new sales while end users are loath to take coverage unless prices are back near last week lows. Chicago continues to trade in a range. The big question for the bears is whether funds return with additional selling from Friday’s USDA data. Our leaning is not to join the record fund short position, but a bullish catalyst is certainly lacking at the moment to change direction in Chicago futures. Chicago floor brokers report that funds have sold 14,000 contracts of corn, 6,500 contracts of soybeans, and 500 contracts of wheat. In soy products, funds have sold 5,000 contracts of soyoil and 3,100 soymeal.
- The Index Fund roll/rebalance starts at the close today. Funds will be buyers of wheat which has helped that market partially recover.
- China has announced that it has cut its poor population by two thirds over the past five years. There were just 30 million of China’s population living below the poverty line in 2017, compared to 99 million in 2012 (according to the Chinese media release). China hopes to bring this total down under 20 million by 2020 and the Government eventually hopes to eradicate poverty. The Chinese expansion of income will boost demand for food and industrial metals. Aquaculture has exploded within China and now produces 2/3’s of the world’s farmed fish. The expansion of food demand is noteworthy and is one reason why the CRB index has turned upwards.
- The USDA January report is just four trading sessions away and fund managers appears intent on “piling on” in their growing net short position. Our concern is that if USDA does not offer any bearish surprises, who is going sell the market lower. Farmers in the US and S America are not willing to sell cash grain on a break.