• HEADLINES: Index funds start rebalancing 1 day early. Soymeal spreading/purchases large; Midday S American forecast further south with rain in Argentina.

• Chicago midday trade is mixed amid the sizeable statistical uncertainty that exists heading into the weekend and next week. On Tuesday, CONAB will release their January 1 Brazilian crop estimate. On Wednesday, the USDA is out with their first real measure of S American corn/soybean crops along with their final measure of the 2021 US corn/soybean crop, a new crop US winter wheat seeding forecast, and December 1 stocks estimates. The January reports are the most important of the winter season and carry an elevated market risk due to the quarterly stocks estimate surveys.

• Along with the Government statistical crop and stocks data, the weather forecasts are less than certain beyond the next 10 days of hot/dry weather for Argentina and Southern Brazil where crops have suffered this week due to drought.  The extended range 11-15 day S American weather forecast is hinting at a shift in the pattern to better rain across S Brazil/Argentina and drier conditions for Northern Brazil. Extended range forecasts carry reduced reliability (slightly better than a coin flip) but should the rains bust, the market will have the chore of adding considerable weather premium to price in a short period of time. The amounts/locations of the Jan 17-22 rain will be highly important with crops struggling with drought/extreme heat.

• The point is that key USDA/CONAB reports and less than certain weather will produce elevated market volatility. And at the same time, the index fund rebalance has started with large daily purchases of soymeal anticipated.

• The USDA announced the sale of 176,784 mt of US corn to Mexico and 120,000 mt of US soybeans to an unknown destination (said to be China). WE hear that China is stepping up their new crop US soybean purchases with S American crops in retreat. Already fob offers for September have jumped to $1.85 over with October at $1.20-1.40 over as world soy demand will be exclusively focused on the US as Brazil/Argentina run dry on soy stocks.

• We would raise our 2022/23 US soybean export estimate to 2,225-2,250 million bu (just below the 2020/21 record of 2,265 million) to account for the shift in world soybean trade. The additional export demand will drop 2022/23 US soybean end stocks to below 200 million bu assuming 89 million acres of seedings. The point is that soybeans are again a multiyear bull market, and the risk is to the upside.

• The Index Fund rebalance has started with massive purchases of soymeal noted. Fund buying has pushed soybean futures to new rally highs at $14.13 basis March. Chicago brokers estimate that funds have bought 3,200 contracts of wheat, 4,500 contracts of corn, 14,000 contracts of soybeans and 7,500 contracts of soymeal. The selling has been in soyoil is put at 3,000 contracts.

• The midday GFS weather forecast is little changed from the overnight run other than the 10–15-day rain that starts on January 17. This rain is further south across Cordoba/Buenos Aires. Otherwise, the midday GFS operational model argues in favour of a pattern shift. A sizeable high pressure ridge rests across Argentina/S Brazil which produces little rain/extreme heat with highs ranging from the mid 90’s to 100’s. Some regional areas may see highs of 99-112 degrees. The coming Argentine heat/dryness raises the stakes on late January rain.

• Index funds could not wait and started the rebalance today with massive meal purchases. Grains and soybeans followed. We cannot overemphasis the importance of the Jan 17-22 rain for S Brazilian/Argentine crop yields. Soaking rain is required, or much higher prices are required. Rest up this weekend, next week promises to be volatile.

To download our weekly update as a PDF file please click on the link below: