- HEADLINES: Interior Russian wheat market offsets rising export tax; Soybeans slip lower in late week trade; CBOT corn ends firm but lacks bullish enthusiasm; Momentum stays absent nearby; Wheat ends weak on surge in US dollar.
- There is no indication that Russian wheat exports will slow meaningful. Egypt confirmed that it had purchased a sizable 535,000 mt of Russian origin for late Feb/March delivery at below replacement prices that included costs and freight. Relative warmth and a lack of heavy snowfall in Southern Russia will prevent major logistical issues at ports during the first half of February.
- Russia’s nearby wheat export tax has pushed up to $62-63/mt vs $45-48 in December. However, the rise in tax costs has been partially offset by falling interior values.
- The Russian Ruble scored a newer three-week low on Friday, with spot wheat in Southern Russia pegged at $183/mt, vs. $200 in mid-December. Russian exporters are receiving adequate supplies, while also face decently sized margins at current fob offers, which are $20-80/mt below EU/US origins. It is tough to be bullish of US/EU exports into early spring on the Russian wheat export aggression.
- Chicago soybean futures were down 2-3 cents to end the week, caught between a strong rally to new contract highs in the soybean meal market and a drop to a 7-week low in the soybean oil market.
- The USDA announced new crop soybean export sales to unknown destinations of 4.9 million bu. There has not been an old crop sales announcement in over a week, and we expect that daily announcements will be few and far between in the coming months as world demand is re-routed to Brazil.
- The Commitment of Traders report has been delayed due to reporting issues and is expected to be released next week. Chicago soybean open interest has been rising on seasonal considerations ahead of the March expiration. However, total market open interest is well below both last year and the 5-year average for early February. With a record large Brazilian crop on the way, speculative Chicago interest is reduced.
- The February WASDE will be released Wednesday. A further decline in the US export forecast and an increase in the Brazilian crop size are expected. The trade is anxious for Argentine crop and global S&D updates. Our market outlook is bearish on rallies.
- Chicago corn futures ended just fractionally higher. March has been unable to close below initial chart-based support at $6.75 but has been equally unwilling to add risk premium at/above $6.85. We expect a range of $6.60-6.85 to continue into planting, but it is imperative to use near-term strength to position for a more significant correction in mid/late spring.
- The market through February must contend with the return of warmth and dryness in Argentina, which is forecast into at least Feb 12. Brazil’s market has been somewhat firm, with March and May contracts there rising to $7.45-7.50/bu this week. Safrinha corn seeding in Mato Grosso is just 16% complete, vs. 32% on average. An acceleration in planting progress lies ahead, but ideally the crop there is fully in the ground by March 5. S American weather remains a priority.
- US domestic use will be challenged by weak ethanol profit margins and low cattle numbers. Falling crude oil prices are noteworthy. The market lacks the fear of shortages seen a year ago, and new supply dislocation is needed to test $6.90-7.00 basis spot.
- US wheat futures ended slightly lower on Friday amid renewed buying of the US dollar, which rallied 1.1%, and an otherwise lack of breaking news. US job growth of 517,000 in January has triggered fears of yet more benchmark interest rate hikes throughout 2023. The dollar appears to be forming a rounding bottom, and it is clear money has flowed quickly from the euro and other currencies to the dollar, which on balance harms US export demand.
- We doubt a lasing bear trend can be sustained until trend/above trend yields can be confirmed across the Northern Hemisphere this spring. But Russian wheat remains cheap. India’s cash market has turned lower for the first time since September. Harvests begin in North Africa, the Mid-East and India in April, and rallies will struggle mightily as global trade limps into the spring and summer.
- The risk of moderate fund short covering remains present.