- Fund short covering has been the theme of recent days as Chicago values bumped up against the top end of a range. However, fund liquidation is pressuring values this morning as the bulls adjust their positions (down) ahead of Friday’s USDA February Crop Report. Funds/small traders are long of corn, Chicago wheat and soyoil. Selling in wheat/corn paced the decline with soybeans in tow. FAS did not announce any new US soybean sales to China, suggesting that China has finished pricing 5.0 million mt of US soybeans. This leaves the Chicago nervously bearish with traders doubting that the USDA February crop report would start a new bull phase. More important to the marketplace is the US/China trade negotiations and whether China is willing to drop their retaliatory 25% tariffs on US ag goods this winter or spring. A structural change in US/China ag trade is the biggest fundamental that will sustain a lasting Chicago price trend into spring.
- About US/China trade, Trump Economic Advisor Kudlow indicated that the US/China had a sizeable distance to go to reach a deal. This tough talk was different from late last week and suggests that a considerable amount of work yet needs to be completed. Yet, we would caution about reading too much into US Administration comments, which are (generally speaking) always hawkish heading into each new round of US/China negotiations. China is commenting that it is unlikely that US President Trump and Chinese President Xi will meet before March 1. This does not mean that US tariffs will double, just that the best that the market can expect is a continuation of the 25% tariffs that both sides are currently charging.
- Chicago brokers estimate that funds have sold 4,400 contracts of soybeans, 3,500 contracts of corn and 4,000 contracts of wheat. In soy products, funds have bought 1,900 contracts soyoil while selling 2,200 contracts of soymeal.
- US weekly export sales for the week ending Dec 27 were; 21.8 million bu of wheat, 19.8 million bu of corn, and 38.6 million bu of soybeans. Roughly half of the US wheat sales were HRW, with HRS and SWW accounting for the remainder. US SRW wheat sales were just 900,000 bushels. US soymeal sales were just 40,600 mt with soyoil sales of 16,000 mt. The meal sales were a marketing year low, down 91% from the week prior, and disappointing with S America starting to ramp up its new crop crush. Brazil and Argentina is offering fob soymeal $13-20/mt below the US Gulf through June, the US soy crush rate should decline.
- Private Argentine corn crop estimates are rising with producer sources arguing that this year’s harvest could be like Ukraine during 2018. WASDE pegged the Argentine crop at 42.5 million mt in their December report, with private sources putting the crop today at 45-47 million mt. With normal weather, some hint that the 2019 Argentine corn crop could reach 49 million mt. Last year, Argentina cut a drought reduced corn crop of just 32.0 million mt.
- The midday GFS S American weather forecast is little changed from the overnight run. Northern Brazil has 10-day rain totals of 3-7.00”. The solid rains will finish off the soy crop and aid winter corn establishment. A slightly wetter forecast is offered for Argentina which is helpful to soybeans. Argentine corn is filling and the sunny/cool weather aids yield. The overall forecast is favourable and leans bearish in the marketplace.
- US/China trade remains the big fundamental for Chicago prices and negative comments from political leaders is pressuring Chicago prices at midday. Delays in a US/China trade deal would allow S America to pick increasing amounts of world soy/corn demand as 25% tariffs against US goods remain. The USDA report is 24 hours off.