4 February 2022

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  • HEADLINES: Chicago trades both sides in consolidation; S American average crop estimates surprisingly high; US economy rocks.
  • It has been a mixed morning in Chicago with the grains firmer while profit taking (amid high prices) causes a two-sided trade in the soy complex. Meal/oil spreading is noted, but without much vigour. The bullish demand outlook stays intact for world vegoils, but the meal bull story is based entirely on S American crop losses and the US export opportunity. Following the recent Chicago rally, the market is pausing and correcting from the heady weekly gains. We look for a mixed Chicago close with next week’s market determined by the USDA report on Wednesday, S American weather forecasts and China’s return from their weeklong Lunar New Year holiday. Bull trends continue, it is just that following the recent strong rally, a pause is needed.
  • Chicago brokers report that funds have sold 3,400 contracts of corn, 2,200 contracts of soybeans, and a net 1,200 contracts of soybeans. In soy products funds have sold 1,200 contracts of soyoil and bought 2,300 contracts of soymeal. Some bulls desire to bank windfall profits and see what next week brings in terms of the February USDA Crop Report.
  • The USDA reported that the US sold 295,000 mt of soybeans to an unknown buyer that was mostly old crop (43,000 mt new crop). We believe that China is bidding for US soybeans for March/April again today. China has been buying US soybeans with this week’s tonnage estimated at 1.5 million mt. We are told that the buyer is the Government that is buying soybeans for their reserve.
  • The outlook for the US economy continued to improve with net revisions of over 700,000 jobs in November/December and large job gains of 467,000 in January. The US unemployment rate held at 4% with the average hourly earnings improving by 0.7% and 5.7% year on year. The strong US economic outlook will likely cause the US Central Bank to raise rates in March with several economists now discussing a 0.5% interest rate hike. Yet, demand trend for a host of US commodities is strong into June. And WTI crude oil has pushed above $92/ barrel. US inflation rates will stay elevated amid the ongoing Chicago rally.
  • The average trade estimate for the 2022 Brazilian corn crop is 113.6 million mt and 133.6 million mt for soybeans. Although USDA tends to be conservative, the data suggests that the industry is not trading a Brazilian soybean crop less than 130 million mt or a corn crop less than 112 million mt.  We see Wednesday’s surprise to the upside as early yield reports confirms the drought damage of November/December.
  • The average estimate for the Argentine soybean crop is 44 million mt with corn at 51 million mt. The industry will be betting on smaller crops in March and will see post report weakness as a new purchase opportunity.
  • The midday GFS weather forecast is like the overnight run. Light/widely scattered showers impact Argentina through Saturday with totals of 0.1-6” favouring La Pampa/Buenos Aires. Thereafter, widespread dryness blankets all of Argentina into Feb 18. Temperatures in Argentina will be variable for the next 5 days with warming occurring thereafter. The GFS forecast increases the risk of 90s/low 100s after February 9. A high-pressure ridge holds across Argentina in the extended range which will produce an arid trend. At risk in the podding soy crop and pollinating second corn crop. The initial Argentine corn harvest is starting with reported yields that are 30-50% below trend. The S American weather forecast is too dry for Southern Brazil and Argentina.
  • Consolidation is the thesis today with the market trying to better understand S American crop losses and the shift of demand to the US following this week’s push above $15.50 March soybeans. Gulf corn is the cheapest in the world and will uncover fresh demand on weakness. US Gulf soyoil gains demand on the huge premium of palmoil to soyoil. China will become more active in securing US soybeans/corn.
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