9 February 2024

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  • HEADLINES: Soyoil retreats following 50-day moving average test; GFS weather forecast midday slightly drier for SC Brazil; good rains for Argentina.
  • Chicago grain futures have traded both sides of unchanged with the grains rising while soy futures sag. The selling has come in soyoil as March futures tested its 50-day moving average. The early day rally failed with price in retreat on algo chart related selling. The soyoil price trend remains down and although the recent rally is creating a weekly reversal, the inability to rise above the 50-day moving average sparked renewed algo selling.
  • March corn tested key support at $4.30 which sparked a bounce while wheat futures are rising on short covering. All Chicago grains are at multi year lows and traders are loath to enlarge their bear position amid seasonal price trends that call for a bottom in mid to late February, and the arrival of a new Northern Hemisphere growing season. To make matters worse, farmers and traders are debating who is right on S American crop sizes, USDA or CONAB. There is a 60-cent premium from today’s $1.14 under offer to July, which Brazilian traders argue is suggesting that CONAB is the right crop estimate. Some maintain a 145.4 million mt Brazilian crop estimate, but it will take months, and potentially into 2025 before the debate is resolved. The bulls and bears both have talking points for today.
  • Chicago brokers estimate that funds have sold 2,200 contracts of soybeans, while buying 3,900 contracts of wheat and 3,200 contracts of corn. Managed money was early sellers of corn which they bought back on the rally. In soy products, funds have sold a net 800 contracts of soyoil while buying 1,100 contracts of soymeal. Midwest cash meal basis is rising on the Chicago decline as end users book forward needs and crushers work to fill record large US soymeal sales. Illinois soymeal on the rail is trading at $20/ton over this morning.
  • US core inflation held at 3.3% while the December CPI was revised downwards to 0.2% or an annualized rate of 2.4%. The rate of inflation is coming down, but the 4th quarter annualised rate is 2.7%. The US Central Bank is expected to start gradually easing in May or June meetings. Some believe that the US Central Bank will reduce rates 2-3 times before the end of the year and end quantitative tightening of the money supply. This should produce an easing of the US dollar. We expect that China will be more robust in fighting deflation with a broad stimulus pact and more aggressive rate cuts, which is why we doubt 4 US rate cuts as the market is forecasting.
  • Mato Grosso spot soybean and new crop corn bids continue their decline which is raising worry about Brazilian farm profitability and winter corn seeding. The cash bid today for spot Sorriso soybeans is $8.59/bu with the July bid for winter corn at $2.66. Both bids are below estimated farm breakeven costs. Farmers that plant winter corn will cut back on their fertilisation program to save costs. As such, March/April weather will have an oversized impact on yield.
  • Soyoil is priced below tropical oils in the world market which is boosting demand for Brazilian supply. And the Brazilian government is tendering for supply to boost their blend rate in diesel fuel as of March 1 to 14%. The combined demand is placing a bid under the domestic Brazilian soyoil market. And US soyoil is trading below imported Used Cooking oil into the West Coast.  There have been some big block trades in futures and options that traders associate with renewable diesel firms locking down margin and supplies into summer. NOPA next week is expected to show a modest rise in US soyoil stocks, but the arctic cold will curtail the crush rate.
  • The midday GFS weather run is slightly drier for South Central Brazil with limited rainfall for the next 7 days before totals arrive next weekend. Stress will be building on crops with high temperatures in the upper 80’s to the mid 90’s. Otherwise, rains will be above normal across Argentina and near normal across N Brazil. No extreme heat is evident.
  • There is limited fresh news to end the week. The market must get past next week’s USDA Outlook Forum for all the bearish news to be digested. The 2024/25 US corn balance sheet will be bearish with stocks of 2.5-2.70 billion bu with soybean stocks of 350-390 million bu. WASDE will not catch all the new US crush plants coming online in 2024/25. It has been a big week for oil share and soyoil with a weekly reversal forming. US renewable diesel feedstock supplies are tightening on new plant demand. It is soyoil that has a bullish demand story. The Index fund roll will be ongoing at the close.
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