- Chicago values are mostly higher in midday trade with March soybeans pushing back near Monday’s high while the grains rally amid rising world fob values. The initial Chicago rally seems to have run out of gas, but there is no real fundamental impetus to be bearish. An easing of US/China trade tensions and promises of large US ag and energy demand to help reduce the US trade deficit which will keep traders from being aggressively short/bearish. No one wants to walk into a new day with China booking US wheat/corn or pork. The market response to such demand would be swift/dramatic to the upside. The US/China trade war acted as a price anchor on Chicago prices from June into Dec 1, when US President Trump and Chinese President Xi reached a handshake agreement. The bearish risks have become more minimal while the upside is determined on when/tonnages that China could take of US ag/energy.
- The USTR announced that China has pledged to purchase “a substantial amount” of US ag, energy and manufactured goods from the US. And that China and the US discussed issues related to IP protection and the need for an agreement that resolves differences and allows for implementation and ongoing verification/enforcement. It is expected that the next round of meetings will be held before the Lunar New Year that starts on February 2 in the US. Trade progress is likely to produce new rounds of US ag demand for US grains/meats.
- EU Trade Commissioner Malmstrom said that agriculture would not be included in this round. WTO reform is on the docket this week and the US is holding bilateral trade discussions with the EU and Japan. US agriculture has warmed the Trump Administration that they wanted ag included in any talks or deal. In Japan, the implementation of Trans Pacific Trade Agreement has caused US prices to be well above those other ag producers like Australia. Therefore it is important that the US reach a side deal with importers like Japan.
- Egypt’s GASC tender proved that world wheat prices are pushing to new multi-year highs on a fob basis. Russian and EU wheat supplies are reported to be exceptionally tight with domestic mill prices above their respective export markets. Russia has some wheat in export position that was moved during the holiday. However, once this wheat is sold the supply tightness will become somewhat more acute at port. The record wheat prices being paid by Russian millers makes the late month ag ministry/exporter meeting that much more interesting. Russian wheat fob prices are likely to keep rising without Government intervention.
- The midday GFS S American weather forecast is little changed from the overnight run with below normal rain across NC Brazil while above normal rainfall pounds the northern third of Argentina. The pattern continues to reflect “stagnation”. The areas that are dry will get drier while flooding becomes a worsening problem for NE Argentine crop areas. The midday forecast calls for 0.25-1.50” of rain across Mato Grosso, Goias and MGDS over the next 10 days (10-50% of normal). A ridge of high pressure holds across NC Brazil through the 10-day forecast with above normal temperatures. Highs range from the 90′s to lower 100′s. Soaking and flooding rains are projected for N Argentina with totals of 6-10.00”. An estimated 20-30% of the Argentine crop areas are enduring excessive rains. The remainder of Argentine crops are performing favourably.
- Hopes are high for a resolution of the US/China trade dispute and Chicago prices are “melting up” as a result. World wheat prices are scoring new highs with US SRW/HRW now the cheapest in their class. US corn is the cheapest in their fob world. Lastly, S American weather is concerning, and we see no evidence of a change.