- HEADLINES: Soybeans and wheat soar to new 7-year highs; midday GFS weather forecast slightly drier for Argy; China buying new crop.
- Chicago futures are sharply higher at midday with corn, soybeans and wheat posting double digit gains. Soybeans joined wheat in posting new contract highs, exceeding Monday’s rally peak. March corn rallied to $4.96 before profit taking and a modest increase in cash connected selling was noted.
- An inflow of fresh investment funds along with end user pricing has sparked the strong morning Chicago rally. Spot soybean futures reached $13.66/bu, the best price since July 2014 while wheat stays perched at a 6.5 year high. March corn is trading below the $5.00 psychological level with the next upside price target being $5.19, the May 2014 peak. The tone in Chicago is bullish with the expectation of additional investment funds to flow into the space late day.
- We note that it does not take much volume to spark a significant rally in Chicago. Soybean futures rallied 21 cents in 5 minutes on volume of over 11,000 contracts. US and Brazilian farmers have sold a large percentage of their crops, and the market lacks a natural seller. The volatility in Chicago is expected to stay elevated with order holes becoming more regular.
- Chicago reported that there was an EFR (Exchange for Related Positions) on Monday for 14,400 contracts in new crop soybeans. Such size is large with most commercial sources arguing that the buyer is China (interested in securing soybean futures and then converting them to a cash sale later). Research continues to hear rumours that China is seeking US August-October soybeans this morning and may have booked 2-3 cargoes for February. 14,400 contracts equates to around 2 million mt of US soybeans. Note how strong November soybean futures were in Monday’s trading session.
- Chicago brokers estimate that funds have bought 7,500 contracts of wheat, 9,700 contracts of corn, and 11,000 contracts of soybeans. In the products, funds have bought 7,000 contracts of soymeal and 6,000 contracts of soyoil. The fund buying has been active since the 8:30 opening. Big money seems to want to diversify some of their investment away from equity markets and into raw material markets. Notice that WTI crude oil futures are up $2.05 at $49.81.
- The cash demand for the initial 2021 Brazilian soybean harvest will be large, and unlike prior years, will not flow very easily to the export corridor of the north. Brazilian soybean stocks from 2020 are so depleted, that domestic crushers will be bidding the initial supply away from exporters. And the bulk of this year’s Mato Grosso soybean harvest won’t start for another month with weather over the next 2-3 weeks critical for yield. Mato Grosso farmers are pessimistic on this year’s crop amid the dry start and extreme variability of the weather patterns since mid-September.
- The S American GFS weather forecast at midday is slightly drier for E and C Argentina than the overnight run in the January 12-14 timeframe. Limited rainfall is offered for the next 6-7 days before a cold frontal passage occurs with a chance of rain. The midday GFS prints out rains of 0.4-1.25″ with locally heavier totals between January 12-14. The extended 11-15 day period offers the return of drier weather conditions with limited rains for Argentina/S Brazil. The January 12-14 rainfall is very important for Argentine crop yield potential. Research doubts that a S American weather pattern change is occurring. N Brazilian rainfall will be light or limited into the weekend before rain chances are forecast to increase next week. The dryness for sections of Mato Grosso and Goias in recent weeks has pulled Brazilian soy production lower. Much above normal rains will persist across Sao Paulo and Minas Gerias.
- Dynamic and volatile markets are forecast to continue through to the USDA January Crop Report next Tuesday. Any decline in US corn and soybean yield/production is unacceptable as US corn /soybean balance sheets tighten on strong demand. A “price shock” might be needed to start the demand rationing. We stay bullish with $14.00 March soybeans, $5.20 March corn and $6.80-7.00 March Chicago wheat our next targets.