- HEADLINES: Key chart support is tested in corn/soyoil; March soybeans below $12.50 support; Index funds start rebalancing on the close.
- Chicago grains are sharply lower at midday with corn, soybeans, soymeal and soyoil scoring new lows for the decline. March corn futures are targeting $4.50, the delivery low of December futures, while March soybeans fell easily below $12.50 chart-based support amid ongoing fund selling. China remains absent as a cash buyer of Brazilian soybeans and the market is pushing lower as traders return from holiday with bearish trends intact.
- Chicago corn open interest has risen 63,000 contracts in the first 4 trading sessions of 2024 on renewed selling by managed money. We note that the index fund roll/rebalance will start at the close today which could produce some fireworks, but due to TAS (trading at settlement), the fireworks will be controlled. We calculate that index funds will secure 80-83,000 contracts of Chicago grain contracts through Friday. Look forward to closing Chicago support coming from Index funds.
- Chicago brokers estimate that managed money has sold 17,400 contracts of corn, 5,700 contracts of soybeans, and 6,300 contracts of wheat. In the products, money managers have sold 3,500 contracts of soyoil and 1,600 contracts of soymeal. The fund selling was active in the first 30 minutes of the day.
- There were cash connected rumours on Friday that China was asking for offers to another batch of US SRW wheat, which we cannot confirm. On today’s break today, there are rumours that China is washing out of US wheat purchases and shifting the sale to France. Once again, cash connected wheat traders say, “not me” and there is no confirmation. We are doubtful of this rumour also.
- However, there is Asian talk that China may be preparing to start auctioning off reserve soybeans to rotate stocks. Tonnages have not been offered, but Sinograin is said to be a cash seller of reserve soybean stocks which may be the reason why they are not securing Brazilian soybeans on the break. New US exporter demand is needed to form a Chicago soybean/soymeal bottom. US soymeal is getting cheap enough that it may entice a new round of world demand. Note that world soymeal demand is strong, it is just that with normal Argentine weather, the competition for world soymeal trade will be acute. Argentine soymeal exports are not expected to seasonally ramp up until April.
- US export inspections for the week ending January 4 were 33.7 million bu of corn, 24.7 million bu of soybeans, and 18.0 million bu of wheat. For their respective crop years to date, the US has shipped out 504 million bu of corn (up 111 million or 28%), 372 million bu of wheat (down 72 million or 16%), and 879 million bu of soybeans (down 232 million or 21%).
- Based on a 2024 record US corn yield of 179 bushels/acre and late December fertiliser, seed and equipment and fuel costs, we calculate that the breakeven cost for a Midwest corn farmer at $4.73/bu to produce a bushel of corn. December 2024 corn futures are priced at $4.88/bu or some $0.15/bu above breakeven. If the market wants to pare back corn seedings in 2024, it will have to drop below this breakeven price during February, the insurance revenue determination month. This will cause new stress for US ag bankers.
- The midday GFS weather forecast is wetter in the week 2 forecast compared to what was offered overnight for South Central Brazil, MGDS, Parana and Sao Paulo. Needed rain is centred on Northern Brazil with totals of 1.5-3.50” amounts with heavy rain focused on far NE Argentina and SW Brazil where forecasted amounts reach upwards of 6.00”. The remainder of S America sees near normal rain with any extreme heat focused on Paraguay and South-Central Brazil where high temperatures reach into the 90’s to the lower 100’s.
- Soyoil has been able to recover from the opening lows as cash soyoil prices are below yellow grease (used cooking oil) for the first time since 2017. Tallow prices are also starting to rise. Soyoil is bottoming against the May lows at $0.45/pound. March corn is bottoming against $4.50 support with key support offered $5.80-5.90 in March Chicago wheat. CONAB and the January USDA report will determine price direction with the markets closed next Monday for Martin Luther King Day.