- The monthly chart of the CCI/CRB Index is turning upwards, and would confirm a bull market with a close above $443.00. A broad swathe of commodity markets are bottoming due to a falling US$, strong world demand, and stagnating supplies. By most measures, a longer term bottom in the broad commodity market is forming. However, this does not mean that a new lasting ag bull market is ready to emerge. Notice that the CRB Index peaked in 2011 and the ag markets peaked in 2012 amid a major Midwest drought. Our point is that its become late to be bearish of ag commodities.
- Reversing the trends of recent days, the grains (corn/wheat) have caught a bid with soybeans and soymeal weaker in moderate volume. Corn is once again bouncing off of $3.45 support as the market continues to build a base against ever rising open interest (likely new fund shorts). We estimate that funds are now short a record 235-240,000 contracts of corn. The soybean market has rallied sharply for several days, but an attempt to fill an open chart gap at $9.62 has occurred. Wheat futures appear to be caught in between the pull of corn and the push of soybeans this morning.
- Chicago brokers report that funds have bought 5,500 contracts of corn and 2,800 contracts of wheat, while selling 4,300 contracts of soybeans. In soy products, funds have sold 2,700 contracts of meal and 2,100 soyoil.
- US farmers indicate that they will look to plant more cotton, sorghum and barley based on current prices and the outlook for their future profitability. US cotton acres could rise by 800,000-1.0 million acres to 13.5 million acres, sorghum acres back to 6.3-6.6 million acres (up 600-700,000 acres), and barley to 3.1-3.3 million acres (up 500-700,000 acres). The point is that minor crop acres including cotton could expand by 1.9-2.4 million acres which will come out of corn/soybean seeding with total US cropped acres unlikely to expand. This may cause a 500,000 acre decline in 2018 US soybean acres and 1-1.5 million acre drop in corn. This compares to the November Baseline report forecasting 2018 US corn and soybean acres both expanding to 91.0 million acres.
- US corn futures are rising as traders ponder reduced 2018 US corn seedings and a tightening balance sheet assuming a trend yield of 173 bushels/acre. Soybean futures are weaker on spreading against the grains and the retesting of support in March soyoil futures below $.325. Our view is that soyoil values are near long term support with limited downside risk as demand for US biodiesel increases. Amid funds that are holding a record large net short grain position, we continue to advise against any substantial downside expectations.