- US crude stocks have fallen now for eight consecutive weeks, and since the middle of November have declined 42 million barrels, or some 4%. Until the market confirms enlarged production, and there is a sign that stocks are building, we look for crude to trade in a range of $55-65/barrel. This is of course an input cost, but should also on the margin strengthen major exporter currencies and work to curtail acreage expansion outside the US.
- It has been another mixed session, with corn, wheat and beans all pretty much unchanged as the market digests CONAB’s latest report, another round of weak US export sales, and preparations for tomorrow’s stocks and seedings numbers. The soy complex has extracted premium from price amid ideas that the USDA will raise Brazilian production, lower US exports and find new land available for soybean seedings via reduced winter wheat acreage. The break from recent highs is understandable, but work suggests the market is fairly valued at $9.45-9.75, basis March, until more is known about S American production, particularly as Central and Northern Brazil will be drier in the second half of January.
- Through the week ending January 4, US exporters sold a net 17 million bu of corn, 3 million bu of wheat and 22 million bu of soybeans, all of which are considered disappointing. For their respective crop years to date the US has sold 1,067 million bu of corn, down 25% from last year; 1,523 million bu of soybeans, down 14%; and 715 million bu of wheat, down 8% from a year ago. Much better demand is needed to hit the USDA’s forecasts, and though late season corn/soy sales are a function of S American production, US exporters must now sell 700 million bu of beans from now until Aug 31, vs. 400 million a year ago.
- We would mention that there are suggestions that China still needs to cover its spring soybean needs, but does not seem to be in a rush to do so. Two cargoes were sold to unknown destinations this morning. Funds net short in soybeans has become rather large, and as of this morning we estimate managed funds’ short at a net 100,000 contracts. This is the shortest such position on record ahead of a S American growing season, and is just 18,000 shy of the all-time record posted last June. The US soybean balance sheet is no doubt comfortable, but the short side of the market is getting crowded.
- Soybeans in the last two weeks have digested incremental boosts in Brazilian soybean production estimates, as well as a string of disappointing US weekly export sales. Downside risk is viewed as limited ahead of pod fill in S America, which will take place over the next 2-5 weeks.