- The morning has been mixed in Chicago with corn, soybean and wheat futures trading either side of unchanged in holiday reduced volume. An early morning Chicago rally tried to follow the sharp gains in US equity markets, but the rally failed as US stock values gave back 40% of Wednesday’s gain. The Chicago grain markets are consolidating their recent losses amid a lack of fresh demand news. Traders are closing their books on 2018. The political uncertainty of Washington is likely to keep traders cautious in the New Year. There can be days of modest rallies, but large and looming Brazilian corn/soybean harvests are likely to cap rallies. Bullish traders will be sidelined until is clear that the US Government is reopening (export sales and CoT data flows return) and news the US/China are closer to a trade deal. Soybean traders are disappointed that China has not purchased the last 2 million mt of an expected 5 million purchase. The market has a heavy feel at midday based on bearish chart considerations.
- Chicago brokers estimate that funds have bought 1,900 contracts of soybeans, 2,100 contracts of corn, while being flat in wheat. In soy products, funds have bought 1,100 contracts of soymeal and 900 contracts of soyoil.
- There are just 63 days for the US and China to bridge their trade and IP/IT differences. If one assumes that China will take off some 10 days for their Lunar New Year holiday and 3 days are used up for the New Year’s holiday, this leaves just 50 days for the US/China to hash out a complex trade and industrial protection deal. Most agree that although progress is being made, a considerable amount of additional time is needed to complete a doable deal. A US Trade Delegation will be heading to China during the week of January 7. The delegation will NOT include high level US Government officials which underscores the fact that both sides are still working on the grit of the details, including that it will take China years to enact laws to establish intellectual IT/IP property protection. Whether this much time is acceptable to USTR is unknown but it is a sizeable risk for a March 1 deal. Amid a US soybean export and sales pace that is substantially behind prior years, if the US were to raise tariffs to 25% and broaden the goods impacted, Chicago soybeans would likely drop to new contract lows and retest the summer lows at $8.00.
- Russia’s Rosstat raised their Russian wheat crop forecast to 72.0 million mt on a clean/dried basis. There was a 483,000 mt increase in the Siberian crop and 407,000 mt in the Volga wheat crops. The USDA pegs the Russian wheat crop at 70 million mt and it will be interesting if they follow Rosstat’s increase.
- The midday GFS S American weather forecast is like the overnight run with improved rain chances across much of N and C Brazil into mid-January. Paraguay and N Argentina will hold in a drier profile with soaking rains of 3-8.00” for C and S Argentina. Some areas of C Argentina will endure flooding rains of 6-10.00”. The rain will cause a washout of newly planted soybeans and quality risks for unharvested wheat. No extreme heat is forecast for Argentina amid the persistent cloud cover. A few warm days of mid 90’s to lower 100’s is forecast for SC Brazil with seasonal temperatures returning next week. The weather forecast for Brazil is improving.
- Soybeans bounced off a chart uptrend line at $8.68 basis Jan futures. However, the recovery has been modest amid a lack of fresh export interest. Traders are not willing to chase rallies unless China is buying US soybeans. The Trump Administration has been talking hawkish of China IT firms and the time is limited for a trade deal by March 1. Amid the slowing world economic landscape and sliding equity markets, any hint that the US/China trade is hitting a political speed bump would likely drop spot Chicago futures back to $8.00.