- HEADLINES: New money enters ag space on sharp fall of the US Dollar; USDA confirms China wheat purchase; Northern Brazilian rain forecast for Dec 21-24.
- Chicago grain values are higher at midday with corn, soybean and wheat seeing fresh fund inflows (near the opening). The ongoing sharp fall in the US dollar has several key fund managers looking at commodities again. Fund managers loved commodities until World Central Banks started raising interest rates in May of 2022. That set off an exodus from the ag space which prevented rallies from being able to persist for more than a few days. Traders must monitor money flow into the commodity space now that the US Central Bank has hit the pause button with over $6 trillion dollars in money market accounts that will be searching for opportunities as rates/returns decline. Traditional fund managers are sitting in a sizeable, short position in corn, wheat and soyoil futures. The macro flow of capital has become much more important to raw material valuations, a trend that we expect will be exacerbated as AI works with managers to correctly allocate to different asset classes. Following the money will be key for commodity investors in 2024.
- Chicago brokers report that funds have bought a net 2,600 contracts of corn, 2,600 contracts of Chicago wheat, and 2,100 contracts of soybeans. In soy products, funds have sold 2,500 contracts of soymeal and bought 2,900 contracts of soyoil. The 50-day moving average crosses at $51.30 basis March soyoil which could start coverage of fund short positions.
- The USDA reported the sale of 400,000 mt of US soybeans to an unknown destination in the 2023/24 crop year. The buyer is likely China. We estimate that China has now booked 19 million mt on a known basis with 2.5 million being held in the unknown destination category. This takes China’s purchases of US soybeans for the crop year to date at 21.5 million mt. We estimate that China will book 23.5-24.5 million mt of US soybeans for 2023/24 which is why we argue that US soybean exports will struggle to fall below 1,725 million bu amid the delays in Brazilian soybean seeding/harvest.
- USDA/FAS reported that for the week ending Dec 7, the US sold 54.8 million bu of wheat, 55.8 million bu of corn, and 39.8 million bu of soybeans. The wheat sales were larger than expected with China having secured 2.2 million mt (81 million bu) in 2023/24. We estimate that China will book 2.5 million mt of US wheat in 2023/24. US SRW wheat export sales are 92% of the annual forecast with just over half of the crop year remaining with China the big buyer. The US has sold 534 million bu of wheat this crop year, up 16 million or 3%. USDA is forecasting that US wheat exports will be down 20 million bu or 3%. Price did its job to stimulate US wheat export demand. US corn sales stand at 1,069 million bu (up 282 million or 36%) with soybean sales at 1,226 million bu (down 305 million or 20%).
- The GFS 7-day weather forecast is dry across Northern and Central Brazil with widespread 90’s/lower 100’s. However, the 8–10-day period offers rain of 1-2.50” for Mato Grosso, Goias, and Bahia. Confidence this far out is low based on the existing dry weather trend and lack of soil moisture, but the GFS forecast is consistent on breaking out rain starting on Dec 21. Our confidence in a rain event is growing, but the exact details of the storm system have yet to be fully worked out. Traders will watch to see if the EU model follows with improving rain in this timeframe. Argentina and S Brazilian rainfall are near to above normal which favours yield. Argentine planting is accelerating as soaking rain ends a 2-year drought.
- It has not paid to sell sharp breaks or buy sharp Chicago rallies in recent weeks. Yesterday Chicago values were sharply lower and today they are higher. Fund managers are seeking to expand risk which includes commodities as the US dollar craters. $33.6 trillion of US debt and falling rates (returns) does not engender US dollar confidence. This is why gold is up $60/oz and crude oil is up $2.50/barrel. Macro-economic trends must be watched for long term commodity price direction. Price breaks are risky with managed money heavily short heading into the end of the year.