• HEADLINES: Soybeans rally on building S American weather concerns: Dec Chicago corn scores short term reversal; US dollar plunge adds to winter export potential: Wheat extends recovery; US dollar index key to direction.

• Chicago soybean futures gained 21-24 cents on Friday, leaving January soybeans up 32 cents for the week and above all major moving averages confirming a bullish trend.

• However, soyoil fell to a 6-month low under pressure from rising soymeal and oil share spreading. US soyoil offers have been unchanged for months at 6 cents over Chicago, while S American offers have rallied sharply to 7-8 cents under. The spread to the US Gulf has narrowed to 14-15 cents, or the tightest since June. With US vegoil consumption to exceed production by a record amount, the US market will be mindful of S American prices to ensure that the US does not become export competitive.

• Chicago soybeans are focused on Brazilian weather. In the north, planting has been slowed due to extreme dryness, while historic rains have fallen across Southern Brazil.

• Chicago has had a record large Brazilian crop dialled in, but weather is a concern, and Chicago is adding premium. A test of $14-14.25 January is now expected with even higher prices possible depending on Brazilian weather and crop production potential. Soy is a supply driven bull market with Nov/December weather being key.

• Chicago corn futures ended sharply higher amid soaring soybeans/meal price and as the US dollar index scored a key downward reversal. Index funds on Tuesday were net long only 237,000 contracts, vs. 344,000 in June, and key into late year is whether additional US dollar weakness attract institutional money into the ag space. Fundamentally, Dec corn below $4.70 is undervalued. A range of $4.70-5.10 is probable until more is known about S American crop potential.

• Midwest cash ethanol prices this week fell $0.05-0.30/gallon. However, margins are still profitable amid strength in the cash DDG market and as spot cash corn in IA/IL sits at $4.60-4.7/bu. US Gulf corn is the cheapest reliable origin into February. There is no need for the market to decline to encourage increased consumption, which is important.

• Brazilian weather is most important in the long run. Soybean seeding in Mato Grosso is now 83% complete, vs. 93% last year. However, soy replanting will be widespread and there are extensive reports of producers in Brazil planning to abandon safrinha production amid reduced margins and weather uncertainty.

• End users are recommended to secure cover on corrections lower. Positive seasonal trends stay in place through winter. March Chicago upside is pegged at $5.15 in the near term at $5.30-5.40 by Jan/Feb.

• Global wheat markets ended higher again amid moderate short covering. Concerning Brazilian weather is a threat to food markets as a whole, and unwanted rain in the south of Brazil will further harm wheat quality. Yet, most important was Friday’s reversal in the dollar. Currency movement early next week must be followed closely. Index funds hold the smallest net long position since records began in 2009. US dollar index weakness changes this trend as a new year begins. Managed funds on Tuesday were short 102,000 contracts in Chicago vs. 92,000 the previous week.

• Other news is lacking. Markets worldwide lack fresh input. Yet it is known that the drawdown in physical supplies lean supportive global cash markets into spring when new crop N Hemisphere yield potential can be better assessed. Chicago will continue to gain on KC. Quietly, lengthy dryness has returned to a vast swath of the US HRW Belt. French planting progress warrants close watching over the next 2-3 weeks.

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