6 January 2023

Posted on by
  • HEADLINES: Soybeans soar on drier Argentine weather forecast; Traders debate index fund roll next week: US jobs report strong.
  • Chicago ag futures are mixed at midday with the soybean market adding weather premium due to the overnight dry change in the Argentine weather forecast, while the grains struggle amid competitive world export markets. US corn and wheat sales continue to disappoint against cheaper offers from S America, Russia, and the Ukraine. We note that world cash grain trade is tepid, and holiday driven. It will likely be after Asia’s Lunar New Year before normality in volume returns. FOB price offers are holding in world wheat/corn, but Brazilian soybean premiums are in decline vs the US Gulf amid their expanding harvest. Early Brazilian soybean yields are impressively strong, and a record crop is in the making. However, traders would like to get past next week’s USDA January Crop Report before adding to net short positions.
  • The Argentine drought remains a market focal point but even with an Argy soy crop of 38-40 million mt, the world will produce a record soy crop during 2022/23. We maintain that it will be difficult for spot Chicago soybean futures to sustain rallies above $15.00 as the US’s window of export opportunity is closed by cheaper Brazilian price offers from February and beyond.
  • Chicago brokers estimate that funds have bought 6,900 contracts of soybeans, while being flat in corn and selling 1,400 contracts of wheat. In the products, funds have bought 4,900 contracts of soymeal and 2,200 contracts of soyoil. The volume has been in soymeal as funds add to their market length. We calculate that funds are close to a record net long position in soymeal.
  • Index fund rebalances have not had much of an impact on Chicago prices in recent years. We doubt that this year’s rebalance will have much price impact either. Calculations from the fund community has index funds selling 40,000 contracts of corn, 19,000 contracts of wheat, and 26,000 contracts of soybeans in a 5-day period. We hear of continued outflows, not inflows, into the commodity space. Few investors see a fundamental reason to be overly bullish of raw material markets as World Central Banks fight to lower inflation.
  • US weekly export sales were disappointing. For the holiday week ending December 29, the US sold 1.7 million bu of wheat, 12.6 million bu of corn, and 26.5 million bu of soybeans. For their respective crop years to date, US wheat sales stand at 550.0 million bu, a record low and 34 million bu less than last year. US corn sales are 856 million bu, down 758 million or 47% from last year, while soybean sales rest at 1,610 million bu (up 78 million or 5%). Ukraine continues to be a very aggressive exporter of corn to the EU, China, and the others.
  • The January US Employment report showed a gain of 223,000 workers which will likely keep the US Central Bank raising rates into the middle of 2023. US inflation appears to have peaked, but if the FED wants to get the rate down to 2%, it will have to keep raising rates into 2024. We fear that the US Central Bank lending rate may have to rise to 5.5-5.75% before there is a pause. The fight of the US Central Bank against inflation will be difficult.
  • The midday GFS weather forecast is consistent with hot/dry weather to impact Argentina and RGDS (Southern Brazil) for the next 10 days. We suspect that the models are too dry and rain will be added with time, but the GFS forecast at midday followed the overnight run and was equally as dry. The extended range 11–15-day forecast has a few showers, but rainfall amounts in the next few weeks would be running 40-60% of normal or 0.5-1.50”. A drier Northern Brazilian trend is forecast after January 20.
  • A bullish reaction of the macro financial markets to the US Jobs Report and drier Argentine weather is providing a lift to Chicago soybeans today. We believe that chasing March soybeans over $15.00 is ill advised. And Ukraine remains an active seller of corn with China seeking Brazilian corn for June onwards. A secondary top could be formed early next week if the Argentine forecast stays dry. Weather models maintain that they are struggling with the end of La Niña and movement of a MJO (Madden-Julian Oscillation) across the Equatorial Pacific.
To download our weekly update as a PDF file please click on the link below: