- HEADLINES: Morning weakness finds huge buying interest; corn, soy export sales larger than expected.
- Chicago futures are higher at midday with the grains pacing the advance. This is the last day of the Index Fund Rebalance, which has come and gone, without much of a bearish influence on Chicago. Active volume/selling has been noted during the past 4 days near the close, but bullish fundamentals and the after-effects of the USDA January crop report has lifted Chicago valuations.
- Also, the Index Fund rebalance showed that fresh money is coming into the raw material space which has moderated the rebalance selling. The flow of funds is into Chicago, and a host of other commodity markets. This will provide support on corrections. We look for a firm Chicago close with additional gains to be posted on Friday, ahead of a long 3-day US weekend with the Martin Luther King holiday being on Monday.
- Chicago brokers report that funds have bought 4,500 contracts of corn and 3,100 contracts of soybeans, while being flat in wheat (sellers overnight and buyers in the day session). Funds also sold 4,500 contracts of soyoil while buying 3,200 contracts of soymeal. We hear that there was active cash connected buying of soyoil on the morning dip. End users appear to be willing to use breaks to add to their cash market length across Chicago. Funds are holding sizeable longs in Chicago, but their sell stops are well below the market.
- Other than bouts of profit taking, we are unsure of what would push the heavily long funds to sell their Chicago market length. Key moving averages are well below the marketplace, and fund managers have been constantly rewarded with higher prices/expanding profit margins. Funds are likely to keep pushing the market higher until the cash/futures push back.
- The weekly US export sales report for the week ending January 7 showed new US sales of 8.2 million bu of wheat, 56.6 million bu of corn, and 33.4 million bu of soybeans. The corn/soybean sales were above market expectations.
- For their respective crop years to date, the US has sold 774 million bu of wheat, (up 54 million or 7.5%), 1,787 million bu of corn (up 1,027 million or 135%), and 2,046 million bu of US soybeans (up 929 million or 83%). In recent days, FAS announced new daily soybean sales amount to another 27 million bu which takes crop year sales to 2,073 million bu, 93% of the annual USDA forecast. Research maintains that WASDE is understating US soybean exports by 100-150 million bu. The problem is that the US does not have the soybeans to sell without demand rationing of the crush industry.
- According to the news agency Reuters, the EPA is going to propose on Friday that it further extend the deadlines for US energy refiners to prove that they have complied with the US’s biofuel laws. Refiners each year must hand in credits to EPA to prove they have complied. But the EPA has delayed this process by more than year which angers the US Biofuel industry.
- NOPA will release their December Member Crush Report on Friday. The report is expected to produce a record crush rate and decline in US soyoil stocks. The report will be released at 11 AM CT on Friday.
- The midday GFS weather forecast is drier in Buenos Aire but otherwise consistent with prior output. Meaningful precipitation in Argentina over the next 3-4 days will be mostly north of major crop producing areas. Complete dryness resumes in Argentina throughout the 5-10 day period. The GFS forecast maintains that temperatures in Argentina begin to reach into the low 90s in late Jan as soil moisture retreats.
- A more regular pattern of showers is forecast in Brazil. Close attention must be paid to whether this rain gets pulled into nearby period though.
- Market performance continues to show that even modest breaks only work to boost buying interest. This bull market is structural in nature as corn even at current prices remains the world’s cheapest feedgrain and as record world soybean demand is absorbing the US crop too quickly. Higher prices are needed to maintain adequate domestic stocks.