- Currencies and energy markets have become major drivers of US and world grain prices. The US$ has plunged to new lows for the move, and overall we view strength in other major exporter currencies as fundamentally supportive. US energy stocks continue to erode, counter seasonally, and until there are signs of massive upticks in production we expect crude to range from $55-70/barrel, which will further support economic growth in places like Russia, Canada, the Middle East and N Africa. The macro landscape is much different this year compared with last year.
- It has been a strong morning in Chicago as the US$ falls, S American weather is concerning, and funds are covering a large net short position. Cash related selling is noted from US farmers, but S American farmers are not big sellers on the fall in the value of the Real and Peso. March soybeans have pushed above the weekly downtrend line at $9.95 while March corn is holding above $3.55. Traders are selling corn, soy and even wheat against the upside resistance, but amid the sharp fall in the value of the US$, we have concerns that funds will have to liquidate much of their net short position. It took weeks to get into net Chicago grain shorts and it will take weeks to get out. The longer term structural bearish outlook for Chicago has not changed, but that does not mean markets cannot enjoy a meaningful bounce.
- Chicago floor brokers estimate that funds are net buyers of 2,200 contracts of corn, 1,800 contracts of wheat, and 4,100 contracts of soybeans. In soy products, funds have bought 4,100 contracts of soymeal and 1,600 soyoil.
- Chicago prices are pulling back and correcting at midday on the slight increase in rainfall in the 9-15 day period for Argentina. Rainfall totals were bumped up 0.1-0.5” in this timeframe, but our confidence that far out is low. Temperatures are also 4-6 degrees cooler, still above normal, but cooler. The Chicago soybean market has had a nice rally and some profit taking against resistance is normal. However, we do not see any big change in the S American weather forecast, the value of the US$ or fund willingness to exit short positions. We doubt that this Chicago break can be sustained. US crush margins surged this morning to over $1.20/bu on the rally. This is causing US and S American crushers to seek additional soybean supply. The US farmer has been a willing seller on the rally, but S American farmers are not. Brazilian farmers have seen a rally in the Real from 3.30 to 3.13 at midday while Argentine farmers see a black market for the peso above 20.00:1. There is no compelling reason for S American farmers to sell with exceptionally wet weather to limit Brazilian soybean harvest and causing difficulty for transportation. Somehow Chicago will have to coax additional cash movement of soybeans in S America. US farmers historically have sold 70% of their prior harvest by the end of the January.
- A falling US$ along with funds being heavily short is likely to lift Chicago prices in coming weeks. The Argentine weather forecast is slightly wetter in the 9-15 day period (low confidence) which is causing the midday correction. There is not enough rain in the Argentine forecast to solve prior months of dryness.