- HEADLINES: March corn forges reversal up on arid S Brazilian/Argentine weather forecast; Massive meal/oil spreading by funds.
- Chicago futures are higher midday in a mini reversal of yesterday’s trade. Order flow and charts have been the driver of Chicago values with funds active in making new soymeal/corn purchases. Soyoil has declined on meal/oil spreading. We note that soymeal open interest has risen 14,000 and soyoil 13,000 contracts in the past 2 days which indicates that someone is putting on a large reverse crush position.
- Research argues that soyoil is well under fair value based on tightening world vegoil stocks and the coming Q1 increase in renewable diesel demand. Simply stated, soyoil sets up a longer-term purchase opportunity for end users. Corn/soybeans are reacting to drier/warmer Southern Brazil/Argentine midday weather forecasts. Most of Argentina and Southern Brazil is offered limited rain over the next 14 days under a high-pressure ridge.
- March corn has formed a bullish daily chart reversal with a close above $5.905 enticing new fund buying. As December corn futures expire, the lead contract becomes March which is breaking out to the upside. Corn will be the most responsive on the upside should an Argentine and Southern Brazilian drought deepen. Producers in RGDS in far Southern Brazil report that if rain does not fall in the next week, that yield losses of 40-50% will occur. Southern Brazilian farmers are contemplating tearing up their first corn crop to plant late season soybeans or waiting for rains to seed a second corn crop in January/February. Interior cash corn prices in Southern/Central Brazil have risen above $7.00/bu which is causing exporter woes in sourcing supply to export out of the Northern Arc. Weather is taking Brazil out of world corn trade with the winter harvest not starting until July.
- Chicago brokers report that funds have bought 5,400 contracts of corn, 7,300 contacts of soybeans, and 7,200 contracts of soymeal. Fund managers have sold 3,600 contracts of soyoil and a net 1,200 contracts of wheat.
- Cash rumours have China seeking US corn, but sales or tonnages are unavailable. The cash rumours developed on the opening break but have since been silenced by the rally. China appears to be under the marketplace in their trying to extend forward feedgrain coverage. China remains active in booking Ukraine corn and last week was a sizeable buyer of Australian feed wheat.
- The US will NOT gain any of the pending 1.5-1.7 million mt of world wheat tenders due to high world ocean freight rates. However, the EU has a good chance of securing the Algerian demand and its price must rise to limit future demand. EU corn imports are down 27% so it is the feed market that must be fulfilled.
- The midday GFS weather forecast is drier with limited meaningful rain for the crop areas of S Brazil and Argentina over the next 14 days. A ridge of high pressure sets up producing heat with high temperatures rising to the mid 80’s to the lower 100’s. And heavy rainfall of 3.50-8.00” will fall across the northern two thirds of Brazil with few breaks in the cloudiness over the next 2 weeks. The La Niña weather pattern is stable heading into yearend. Unfortunately, S American crop risks are rising with excessive rains in N Brazil and a deepening drought for S Brazil/N Argentina. This is not the way that S American grain farmers wanted 2021 to end.
- Fund demand for meal and their sales of soyoil is pushing the meal/oil margin spread out to levels that has not been witnessed since summer. December soymeal is expiring and its trade above $400/ton is the best spot price since June. The warming/arid S Brazilian/Argentine weather forecast could harm corn yield potential. It does not require much yield loss to justify $6.20-6.40 March corn or $13.00 March soybean futures. US corn export sales are likely to be 2.5-3.0 million mt on Thursday. Corn/wheat remain the Chicago bull leaders on world demand/SA weather.