- HEADLINES: Chicago corn/soybeans strongly recover on China purchase talk; Russia stays the aggressor in the Black Sea; Brazilian cash corn firms.
- Russian troops are moving closer to Kiev by moving into Belorussia which threatens the region’s stability. Russian President Putin is showing no willingness to back down on his NATO demands with UK foreign offices being told that they could be placed in crisis mode in short notice. Any Russian/Ukraine skirmish would be exceptionally bullish grain with Russian ag exports embargoed in economic sanctions. Russia is the world’s largest grain exporter.
- Chicago grain futures are sharply higher at midday with corn, soy oil and wheat leaping above important chart-based resistance. Russian/Ukraine geopolitical concern and falling S American crop yield potential has the attention of investment managers that desire more exposure to the commodity space. Large investors worried about inflation see commodities as a partial hedge. The large spec position in Chicago corn has held at a relatively high level throughout the past 9 months as these fund managers just hold long corn futures positions. The more important question is whether they will expand their length into other grains including wheat. Trading funds are holding a sizeable net short Chicago wheat position. We look for a sharply higher close with selling limited above the market. US/S American farmers are not using the rally to part with a large share of their crop supplies. This is adding to the upside velocity of Chicago.
- Chicago brokers estimate that funds have bought 9,000 contracts of corn, 5,800 contracts of wheat, and 6,200 contracts of soybeans. In soy products, funds have bought 3,200 contracts of soyoil and 4,500 contracts of soymeal.
- The Phase One of the US/China Phase One agreement expired on Saturday (Jan 15). We hear that the USTR/China are holding frequent discussions on a new pact, but the trade details have yet to be fully worked out. The US and China see grain/trade as a bridge to narrow widening political differences. And the Biden Administration would like to lower US inflation. One way would be to drop tariffs on $265 billion of Chinese goods that enter the US annually. The new trade negotiations would benefit US ag and US consumers, while providing China with a chance to deescalate US political tensions that are historically high.
- Cash rumours abound that China has purchased 1.5 million mt of new crop soybeans and corn (each) as a show of good faith in fulfilling the prior trade pact and to keep current discussions ongoing. The Biden Administration does not want to enter a new US/China Phase One agreement (Phase Two) without China adhering to the prior pact calling for $36.5 billion of US ag purchases. Traders will be watching to see if the USDA makes any daily sales announcements of US corn/soybeans in the coming days. So far, we cannot confirm the cash purchase rumours.
- European grain traders are fearful that Russia could make a push across the border into Ukraine to gauge the world’s response. Russia is the aggressor and the former Ukraine President’s return to Kiev to stand trial has many wondering of it is a ploy to get him back into power under Russian President Putin. World grain markets would rally sharply on the news of any Russian push into Ukraine based on it involving the world’s first and third largest wheat exporters, and the adverse impact on trade through western economic sanctions.
- Note that US export sales, ethanol and other US export data will be delayed by one day. The US weekly export sales report will be released on Friday.
- The midday GFS weather forecast is similar/consistent with the overnight run with any meaningful rain holding across Central/Southern Argentina with 1-3.00” totals over the next 10 days. Rains will be limited across the Southern 2/3’s of Brazil with 10-day totals of 0.25-1.00”. Soil moisture will decline into February and deepen the existing drought. Brazilian farmers are likely to slow their early seeding of the winter corn crop awaiting better rains and cooler temperatures in February. S American crop potential is in decline with the winter Brazilian corn crop highly important.
- A drop of 20 million mt of S American soybean and 20 million mt of S American corn production equates to 1,500 million bu of grain, the equivalent of the US 2021/22 corn carryover. This large amount of lost supply occurs at time when world exporter stock/use ratios are at or near record lows. Add on top the Black Sea geopolitical concern via Russia’s aggression on Ukraine, and you have grain that must rally into March to raise Northern Hemisphere planted acres. WE remain bullish on any corrections.