- Chicago values are higher at midday with soybean futures the early upside leader. Corn and wheat futures have been followers, but the tone of the market is more positive than recent days. Traders are looking to secure any intraday breaks.
- Tuesday’s final Chicago open interest data showed a decline of 25,601 contracts in soybeans reflecting that large fund managers have decided against rolling their long January positions forward (ahead of the looming end of the year). Chicago corn/wheat open interest were down only slightly, suggesting that Tuesday’s break was just “risk off” selling. Fund managers have enjoyed several months of broad trading profitability and do not want WASDE to “mess-up” a good year. There is only 1 full week of trading remaining in 2020.
- We look for a higher Chicago close with the third day of the index fund roll occurring at the close. After the USDA report, traders will have more confidence to again press the long side of Chicago amid threatening S American weather. The market risks are tilted to the upside.
- Chicago brokers report that funds have bought 3,200 contracts of corn, 4,500 contracts of soybeans, and a net 1,200 contracts of wheat. In the soy products, funds have bought 2,100 contracts of soymeal and sold 1,400 contracts of soyoil. Funds were sellers of wheat overnight and have now covered those sales and are net buyers on the day.
- The USDA/FAS indicated that Mexico booked 257,071 mt of corn overnight. We note that US fob Gulf corn for March is 0$.60/bu cheaper than Ukraine corn and $0.40/bu that Argentine corn including downriver loadout costings. It makes no sense to us why US Gulf corn has to be priced so aggressively in a world that is short feed grains. Based on price, the US will be picking up non-traditional corn export business to N Africa, the Mideast and Mediterranean.
- There are fresh rumours that China is booking US Gulf/PNW corn for May with Hong Kong Millers seeking US spring wheat for February/March. Last week there were like rumours that have not been confirmed by FAS daily sales reports. Thursday’s US Weekly Export Sales Report could hold some China buying clues.
- The US ethanol corn grind recovered to 291 million gallons vs 286 last week, and an average of 284 million to reach the USDA’s annual forecast. US ethanol stocks recovered to 928 million gallons, up 36 million. The US ethanol industry could be building up its stocks for enlarged export programs to both Brazil/China in early 2021. Rumours abound that China is seeking/booking US ethanol, but confirmation will have to wait until the December Census Trade Report that will be released in February. Brazilian ethanol prices are rising amid a smaller sugar crop due to the recent acute dryness across N Brazil.
- The 10-day weather forecast is like the overnight run for NW Brazil with rainfall chances into the weekend before a lengthy dry pattern returns. The best rain chances for the Mato Grosso and Goias are Friday/early Saturday with 10-12 days of hot/dry weather following. This will produce a new round of crop stress for soybeans/first crop corn. The Argentine forecast is dry with just a few showers over NE Argentina with highs in the 90′s into the weekend. The Argentine dryness is worrisome, but no extreme heat is forecast beyond Saturday. Our concern over S American weather stays elevated.
- USDA/CONAB will release their reports Thursday morning with neither expected to produce any fireworks. Research argues if there are surprises, it is WASDE raising its 2020/21 soy export estimate by 50-100 million bu on sales on the books and that US soy loadings will be massive into February. US corn export sales are building while traders await confirmation of Chinese buying. Stay bullish on Chicago breaks as the regular rains that S American crops demand is not developing and few will want to be bearish into the January USDA crop report.