- Soybean futures corrected a portion of their recent gains as traders pondered what would drive prices still higher in coming days. As previously mentioned, it appears that China has booked its 5 million mt of reserve soybeans from the US and kept its promise made to President Trump on December 1. China’s buying interest will now be focused on other US ag goods on their grocery list. The morning soybean decline has tugged corn/wheat values off their morning highs. Soybeans are suffering from a China buying hangover and correcting. We doubt that any Chicago decline will be limited until there is a S American weather pattern change.
- Chicago brokers estimate that funds have sold 5,400 contracts of soybeans, 3,500 contracts of soymeal and 3,400 contracts of soyoil. In the grains, funds have bought 2,200 contracts of wheat and sold 4,400 contracts of corn.
- Beijing US/China Trade talks are going well with the Wall Street Journal reporting that trade differences are narrowing. The talks will continue Wednesday which argues that both sides want to keep the momentum going. No specifics on US energy or agricultural purchases have been reached, but such dollar amounts are likely on the agenda on Wednesday. Now that China has booked its 5 million mt of soybeans, other US ag goods such as grain, cotton, pork and dairy products could be secured in coming days/weeks. Rumours abound that high-level US/China meetings will now be held in late January or early February, likely in the US. This meeting could allow for a trade deal to be signed in late February or early March. We note that China has booked 5 million mt of US soybeans for its reserve, so total US soybean exports and world soybean exports will rise in the 2018/19 crop year in the USDA January WASDE report (when the Government is reopened). Our point is that total US and world demand has increased based on the beans being bought for the China Government reserve. If the soybeans were released into their domestic cash market, it would displace soybeans bought by private crushers. However, the US soybean sales pace analysis argues that any increase in US soybean exports will be largely muted of the business lost to date. Brazilian fob soybean prices are below US offers and should China end their tariffs on US goods, crushers will be seeking S American soybeans, not the US. This means that any further rally in Chicago soybean prices has to be based on adverse weather, not US/China trade deal optimism.
- The midday GFS S American weather forecast is slightly wetter than the overnight run for NC Brazil with totals of 0.25-1.50” (about 0.25” wetter than the overnight). Showers develop early next week across Mato Grosso, Goias and MGDS with drier weather until then. Drier weather follows for the last half of next week. A ridge of high pressure holds across NC Brazil through the 10-day forecast. 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 while other crop areas are dry or have adequate soil moisture. The pattern shows little sign of change and adverse weather conditions are fully expected across NC Brazil.
- US wheat futures are higher as the market hears that it may do a portion of the Algerian tender as non-US exporter prices rise. US soy futures are in retreat as traders sell the fact that China has booked its 5 million mt of US soybeans for their reserve. S American weather is the dominant fundamental for the complex. Index fund rebalancing starts on the close tonight, but the reaction could be muted as its fully expected by traders.