- Chicago soybeans have scored new contract highs while corn follows. Worrisome S American weather along with the lack of demand rationing has summer row crop prices pushing upwards. US wheat is the laggard (again) as world prices hold stable and Australia stays aggressive in offering its new harvest into SE Asia. Fund managers are selling wheat as a hedge against long soy/corn.
- The soy/wheat spread has moved considerably during the past 10 days. The next rally in soybean futures will depend on whether meal or soyoil futures are able to push above their 2016 highs. Our view is that it will be soyoil based on strengthening cash basis and ongoing export demand. We look for a mixed Chicago close with the soy complex continuing its push to ration demand.
- Chicago brokers estimate that funds have bought; 7,500 contracts of corn, 11,900 contracts of soybeans, while selling 2,100 contracts of wheat. In soy products, funds are flat in soyoil while buying 3,100 contracts soymeal. The funds are adding to their long soybean and corn net market length.
- FAS reported a daily sale of 195,000 mt of US corn to Mexico. The Chinese are rumoured to be asking for US corn offers, but a sales confirmation is lacking.
- It is worth noting that overnight volume was huge in Chicago January soybeans at nearly 50,000 contracts. China was an early buyer of Chicago futures as their financial markets opened followed by London hedge funds. The London fund buying is noteworthy as the overnight Chicago price action sets the tone for the day session. London funds are becoming active and a daily feature in overnight Chicago trade.
- US farm (cash) corn/soybean selling has been active from mid-September into early November. Following the November USDA Crop report, it is estimated that cash corn sales may have equalled over 600 million bushels. The point is that with Brazilian farmers having sold 55-60% of their new crop and US farmers aggressively selling their recent harvest, the selling above the market is limited which will likely cause Chicago values to streak upwards at times. Any selling going forward must come from bulls that desire to bank profits.
- Australian wheat exporters following 3 years of drought are cutting fob prices and being active securing SE Asian wheat markets. The selling has capped a rally in world fob wheat prices with Russian values holding at $255/mt. The big question is whether Russian exporters will have to drop their fob offers to compete against the Australians. For now, Russia appears to be catching enough demand to hold its fob price offer steady. However, in coming weeks the Russians may have to follow the cheaper Aussie wheat price offer to be competitive. If there is any bearishness in world wheat pricing, it is due to competitive Australian pricing and its potential stealing of Black Sea demand.
- The midday GFS weather model is like the overnight forecast and drier than desired for Argentina and much of Central and Southern Brazil. The rain forecast for RGDS arrives on November 27 and our confidence this far out stays low. Nonetheless, amid weeks of well below normal rainfall, Southern Brazilian farmers will take any moisture that falls.
- The best chance of rain across N Brazil is in the next 3-4 days. Thereafter, arid weather returns with rising temperatures. High temperatures next week will range from the 90′s to the lower 100′s. Poor rain and rising temperatures raises crop yield worries as seedlings struggle to be established.
- The midday forecast for Argentina offers limited rain for the next 10 days with just a few showers for Buenos Aires. The remainder of Argentina’s crop area stays dry. This arid trend lasts into early December.
- Soybean futures have pushed to new rally highs at $11.78/bu with the next upside price target being $12 January. Soyoil futures retreated from the 2016 high at just above $0.38 cents, while meal futures test key resistance at $400/ton. There is no statistical evidence of demand rationing of US soybean or corn demand. The market needs to see rationing and improved S American weather to decline. For now, wheat remains the favourite short leg against long summer row longs.