• Chicago values are firm at midday as the market adds back weather premium and as funds are modest buyers of wheat/soybeans. Recent day price action has been choppy as neither the bulls or bears are being satisfied. And with the US Government closed and the next round of US/China trade talks not occurring until the closing days of January. We note that this was to be the day of the January USDA Crop Report, which is now on hold based on the US Government partial closure. Tomorrow it will be 22 days (a record) since the US Government has been closed (since Dec 28) and there is no hint of when it will reopen. As such, it will be S American weather and hope for Chinese demand that will continue to direct Chicago prices. This is the 4th day of the Index Fund rebalance and the rebalance will end on Monday. There has been selling at the close in the grains and buying in soyoil in recent trading sessions. We look for the same to occur again today.

• Chicago brokers estimate that funds have bought 4,000 contracts of wheat and 2,000 contracts of soybeans, while being flat in corn and soyoil. Funds have sold 2,200 contracts of soymeal. Soy crush margins have been pressured this morning amid the declining soymeal market.

• Rumours abound that Ukraine has halted the repayment of VAT taxes as the country struggles with cash flow. The exporter community has been hit before as Ukraine holds back on its VAT repayment commitments. No comment is available from the Government, but the talk will slow Ukraine grain exports as few want to take the risk of VAT defaults or slow repayments.

• Russian rumours are widespread with the Ag Ministry calling for another meeting to discuss the soft export commitment/restrictions of the country’s 20 largest exporters. Smaller exporters will not be issued phytosanitary certificates and will not be able to ship until new crop. The Ag Ministry confirmed that it will only allow 12 million mt of grain exports from January 1. There remains some debate if that soft tonnage limit ends at the end of June or the end of July. Most sources argue for the end of June. If Russia exports just 1 million mt of corn and 1 million mt of barley, this would limit their wheat exports to 10 million over the next 6 months, or 1.66 million mt of wheat/month. This would place Russian 2018/19 wheat exports at around 35- 35.5 MMTs, down 1-1.5 million mt from the USDA annual forecast. It seems that the Russian Ag Ministry became worried with interior wheat prices near record highs and exporters still selling a sizeable 415,000 mt to Egypt.

• The midday GFS S American weather forecast is slightly wetter from the overnight run with local areas seeing better rain across NC Brazil. However, the broad trend is below normal rainfall across NC Brazil while above normal rain across the northern third of Argentina. The overall pattern reflects “stagnation”. The areas that are dry will get drier while flooding becomes a worsening problem for NE Argentina. The midday forecast calls for 0.25-1.50” of rain across Mato Grosso, Goias and MGDS over the next 10 days (10-50% of normal). There are a few locally heavier amounts. A ridge of high pressure holds across NC Brazil stoking above normal temperatures with highs in the 90′s to lower 100′s. Flooding rains are projected for NE Argentina with totals of 4-8.00”. An estimated 20-30% of the Argentine crop areas are enduring saturated soils. The remainder is thriving.

• S American weather will key to Sunday’s Chicago price direction. We expects that when the US Government reopens, the trade will see it as positive amid expectations for smaller US corn/soybean yields and a US winter wheat seeding rate that is the lowest in 110 years. If the Government stays shut, look for more Chicago choppiness.

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

Weekend summary 11 January 2019

• We have taken the time to put together an estimate for US and Word 2018/19 corn, soybean and wheat supply and demand. This is not official or connected to USDA numbers just our guess. We are using this until the US government shutdown is over and USDA catches up on release of delayed data/reports. US 2018/19 soybean carryout is 904 mil bu, World 114.36 million mt; US 2018/19 corn carryout is 1,694 mil bu, World 307.32 million mt; US 2018/19 wheat carryout is 987 mil bu, World 268.22 million mt.

• Maize usage in UK compound feed and integrated poultry units for the 2018/19 season to date is at a record high level according to AHDB. July to November usage stood at 209,500mt, an increase of 72,800 mt over the same period last year. November saw a 2% reduction if wheat usage. Total UK cereal usage was a shade over 2.7 million mt, an 82,200 mt increase year on year.

• Egypt’s GASC secured 415,000 mt of Russian wheat in their latest tender for late February/early March shipment. Despite Russian origin not being the cheapest offer on an FOB basis, freight differentials saw it cheaper on a C&F basis. Offers from a variety of origins ranged in price as follows: US, $239.00/mt; Russia, $248.00/mt; France, $251.93/mt; Ukraine, $253.75/mt; Romania, $255.50/mt.

• Sinking fob cash soy basis levels and the ending of the US/China Beijing Trade negotiations without any big announcement is pushing Chicago corn, soybean and wheat futures sharply lower this morning on sizeable fund selling. The decline is based on buy the rumour and sell the fact trading as the US/China push ahead in trade negotiations. And the Brazilian Jan 1 CONAB soy/corn crop estimates were not small enough to stoke fresh bullish enthusiasm. The US Government remains partially closed and the lack of US export sales data is causing market whipsaw. This is no place to be a seller in our opinion, and we expect some recovery in Chicago values heading into the close (and weekend).

• Chicago brokers estimate that funds have sold 6,200 contracts of wheat, 12,000 contracts of corn, and 7,200 contracts of soybeans. In soy products, funds have sold 5,100 contracts of soymeal and 4,500 contracts of soyoil.

• CONAB crop estimates plod and are adjusted up or down through May in terms of the soy crop. The most important time for Brazilian soy weather is from mid December into mid February. There is a good 4-5 weeks ahead of important Brazilian weather. We see the Brazilian crop between 116-117 million mt as of today, and it could slide to 111-113 million if the current adverse pattern were to persist into February 1. It is difficult to sustain anything more than a 1-2 day Chicago decline unless weather improves.

• Russia is slowly returning from the holiday, but domestic wheat prices are back to rising amid the increasing value of the Ruble and shortage of wheat close to export terminals. Domestic wheat values are either at or near record highs in European Russia. Cash wheat prices have also risen sharply in Siberia, but a Government program to subsidise wheat transport from Siberia to domestic users in the west has been dramatically cut in the latest Russian Government Budget proposal. This means that millers will strongly compete with exporters for limited wheat stocks in the western half of Russia. We look for the Russian cash wheat markets to overheat amid tight stocks/supplies.

• Traders will be looking to the next steps for US/China trade negotiations. It is expected that new details should emerge early next week with China to visit the US at a high ministerial level. The Lunar New Year starts on Feb 2 and China will be all but closed for some 10 days thereafter. Making progress before and after the Lunar New Year will be of paramount importance to extend the trade talks or come up to a conclusion with a binding agreement.

• The midday GFS S American weather forecast is little changed from the overnight run with below normal rain across NC Brazil while above normal rainfall persists across the northern third of Argentina. The pattern continues to reflect “stagnation”. The areas that are dry will get drier while flooding becomes a worsening problem for NE Argentina. The midday forecast calls for 0.25-1.50” of rain across Mato Grosso, Goias and MGDS over the next 10 days (10-50% of normal). A ridge of high pressure holds across NC Brazil stoking above normal temperatures as highs range from the 90′s to lower 100′s in NC Brazil. Flooding rains are projected for NE Argentina with totals of 6-10.00”. An estimated 20-30% of the Argentine crop areas are enduring excessive rainfall.

• The bulls needed to be fed (almost every day) and there just was not enough news to produce new buying today. A correction is underway in the complex which dragged down the grains. However, with world cash wheat prices scoring new 4-year highs this week amid tightening supplies, it is hard to be overly bearish of wheat. Corn is following soybeans awaiting fresh Chinese demand.

• Chicago values are mostly higher in midday trade with March soybeans pushing back near Monday’s high while the grains rally amid rising world fob values. The initial Chicago rally seems to have run out of gas, but there is no real fundamental impetus to be bearish. An easing of US/China trade tensions and promises of large US ag and energy demand to help reduce the US trade deficit which will keep traders from being aggressively short/bearish. No one wants to walk into a new day with China booking US wheat/corn or pork. The market response to such demand would be swift/dramatic to the upside. The US/China trade war acted as a price anchor on Chicago prices from June into Dec 1, when US President Trump and Chinese President Xi reached a handshake agreement. The bearish risks have become more minimal while the upside is determined on when/tonnages that China could take of US ag/energy.

• The USTR announced that China has pledged to purchase “a substantial amount” of US ag, energy and manufactured goods from the US. And that China and the US discussed issues related to IP protection and the need for an agreement that resolves differences and allows for implementation and ongoing verification/enforcement. It is expected that the next round of meetings will be held before the Lunar New Year that starts on February 2 in the US. Trade progress is likely to produce new rounds of US ag demand for US grains/meats.

• EU Trade Commissioner Malmstrom said that agriculture would not be included in this round. WTO reform is on the docket this week and the US is holding bilateral trade discussions with the EU and Japan. US agriculture has warmed the Trump Administration that they wanted ag included in any talks or deal. In Japan, the implementation of Trans Pacific Trade Agreement has caused US prices to be well above those other ag producers like Australia. Therefore it is important that the US reach a side deal with importers like Japan.

• Egypt’s GASC tender proved that world wheat prices are pushing to new multi-year highs on a fob basis. Russian and EU wheat supplies are reported to be exceptionally tight with domestic mill prices above their respective export markets. Russia has some wheat in export position that was moved during the holiday. However, once this wheat is sold the supply tightness will become somewhat more acute at port. The record wheat prices being paid by Russian millers makes the late month ag ministry/exporter meeting that much more interesting. Russian wheat fob prices are likely to keep rising without Government intervention.

• The midday GFS S American weather forecast is little changed from the overnight run with below normal rain across NC Brazil while above normal rainfall pounds the northern third of Argentina. The pattern continues to reflect “stagnation”. The areas that are dry will get drier while flooding becomes a worsening problem for NE Argentine crop areas. The midday forecast calls for 0.25-1.50” of rain across Mato Grosso, Goias and MGDS over the next 10 days (10-50% of normal). A ridge of high pressure holds across NC Brazil through the 10-day forecast with above normal temperatures. Highs range from the 90′s to lower 100′s. Soaking and flooding rains are projected for N Argentina with totals of 6-10.00”. An estimated 20-30% of the Argentine crop areas are enduring excessive rains. The remainder of Argentine crops are performing favourably.

• Hopes are high for a resolution of the US/China trade dispute and Chicago prices are “melting up” as a result. World wheat prices are scoring new highs with US SRW/HRW now the cheapest in their class. US corn is the cheapest in their fob world. Lastly, S American weather is concerning, and we see no evidence of a change.

• Soybean futures corrected a portion of their recent gains as traders pondered what would drive prices still higher in coming days. As previously mentioned, it appears that China has booked its 5 million mt of reserve soybeans from the US and kept its promise made to President Trump on December 1. China’s buying interest will now be focused on other US ag goods on their grocery list. The morning soybean decline has tugged corn/wheat values off their morning highs. Soybeans are suffering from a China buying hangover and correcting. We doubt that any Chicago decline will be limited until there is a S American weather pattern change.

• Chicago brokers estimate that funds have sold 5,400 contracts of soybeans, 3,500 contracts of soymeal and 3,400 contracts of soyoil. In the grains, funds have bought 2,200 contracts of wheat and sold 4,400 contracts of corn.

• Beijing US/China Trade talks are going well with the Wall Street Journal reporting that trade differences are narrowing. The talks will continue Wednesday which argues that both sides want to keep the momentum going. No specifics on US energy or agricultural purchases have been reached, but such dollar amounts are likely on the agenda on Wednesday. Now that China has booked its 5 million mt of soybeans, other US ag goods such as grain, cotton, pork and dairy products could be secured in coming days/weeks. Rumours abound that high-level US/China meetings will now be held in late January or early February, likely in the US. This meeting could allow for a trade deal to be signed in late February or early March. We note that China has booked 5 million mt of US soybeans for its reserve, so total US soybean exports and world soybean exports will rise in the 2018/19 crop year in the USDA January WASDE report (when the Government is reopened). Our point is that total US and world demand has increased based on the beans being bought for the China Government reserve. If the soybeans were released into their domestic cash market, it would displace soybeans bought by private crushers. However, the US soybean sales pace analysis argues that any increase in US soybean exports will be largely muted of the business lost to date. Brazilian fob soybean prices are below US offers and should China end their tariffs on US goods, crushers will be seeking S American soybeans, not the US. This means that any further rally in Chicago soybean prices has to be based on adverse weather, not US/China trade deal optimism.

• The midday GFS S American weather forecast is slightly wetter than the overnight run for NC Brazil with totals of 0.25-1.50” (about 0.25” wetter than the overnight). Showers develop early next week across Mato Grosso, Goias and MGDS with drier weather until then. Drier weather follows for the last half of next week. A ridge of high pressure holds across NC Brazil through the 10-day forecast. Soaking and flooding rains are projected for N Argentina with totals of 6-10.00”. An estimated 20-30% of the Argentine crop areas are enduring excessive rains while other crop areas are dry or have adequate soil moisture. The pattern shows little sign of change and adverse weather conditions are fully expected across NC Brazil.

• US wheat futures are higher as the market hears that it may do a portion of the Algerian tender as non-US exporter prices rise. US soy futures are in retreat as traders sell the fact that China has booked its 5 million mt of US soybeans for their reserve. S American weather is the dominant fundamental for the complex. Index fund rebalancing starts on the close tonight, but the reaction could be muted as its fully expected by traders.

• It has been a mixed morning in Chicago with traders positioning for the coming index fund re-balance/roll that starts tomorrow. The roll is expected to cause the selling in corn/wheat and modest buying in soybeans. Traders expect that the rebalance will pressure the grains, and are positioning accordingly. Soybeans are holding on threatening S American weather. However, in the background is talk of considerable progress being scored in the US/China trade talks in Beijing. Rumours have the US/China reaching some sort of an agreement on the protection of intellectual/industrial property, and that the easy part of cutting the US/China trade deficit to be on Tuesday’s agenda. If the US/China can agree on the dollar amounts to be cut in the deficit (opening of Chinese markets to US goods), the stage could be set for higher level talks of the US/Chinese Government to reach a deal. Both sides seem to be working to reaching a trade deal to be inked by March 1.

• China is said to be checking US corn/soybean fob offers this morning. No corn has traded, but commercial traders report that the US could sell 15-20 cargoes of US soybeans to COFCO or SinoGrain (900,000-1.1 million mt). Like last week, we hear that cash sales are occurring, but that confirmation will be lacking from the USDA with the Government partially closed (no USDA reporting). We maintain that China is near done working to book 5.0 million mt of US soybeans for their Government reserve. What is different today is that China is rumoured to be checking prices for US FOB corn. Rumours abound in corn, cotton and other US grains, but we cannot confirm any sale. Traders will be watching to see if China books a US grain other than soybeans this week.

• US export inspections for the week ending January 3 were; 19.7 million bu of corn, 24.7 million bu of soybeans, and 9.6 million bu of wheat. US corn/wheat shipments were less than expected, while soybeans were near trade hopes. We note that China did ship out 2.7 million bu of US soybeans last week with new vessels showing up in the vessel line-up nearly daily. US exporters report that US corn and wheat shipments will pick up in the post-holiday period.

• Algeria is tendering for optional origin wheat for 50,000 mt of milling wheat (but is likely to secure 400-600,000 mt) for late February and March shipment. The results of the tender will be Jan 8 with offers good into Jan 9. US, French and Argentine wheat are in contention for the Algerian demand with freight rates determining who will book the tender. We also expect that Egypt’s GASC could tender for wheat in the next week for late February needs.

• The midday GFS S American weather forecast is similar to the overnight run with below normal rain for NC and NE Brazil. A few showers develop early next week across Mato Grosso, Goias and MGDS, but most amounts will be less than 1.00”. Drier weather follows next week. The best rains will drop across S Brazil/northern third of Argentina. Soaking rains of 6-10.00” impact the northern third of Argentina with flooding to become widespread. Below to much below normal temperatures will persist across Argentina amid considerable cloud cover. Temperatures average above normal through the next 10 days with heat centered on NE Brazil with highs in the 90’s to the lower 100’s. There is no indication of a lasting pattern shift.

• Sell the rumour trading is occurring in US soybean futures as cash traders discuss the sale of another 1.0 million mt of US soybeans to China. And grains are weak on selling ahead of index fund re-balancing which starts on Tuesday. However, US wheat prices are not expected to drop too far amid strong world prices and rising demand (Algeria/Ethiopia). If China purchases US corn/wheat it would be a big deal. S American weather is supportive with a lower soy/corn estimates due out of CONAB on Thursday.

• There have been bullish macro financial tailwinds from the US stock market (DOW that’s up 620 points) and parched Brazilian weather has lifted Chicago values at midday. Chicago continues to add risk premium into prices as private estimates for Brazilian corn/soy crops decline. Corn and wheat prices are following the soy rally as hope persists that China will return to secure US grain following a Beijing trade meeting that starts next week. Traders are hopeful that index fund rebalancing will produce a downdraft in prices (purchase opportunity). It would take rainfall for Brazilian crops and a breakdown in the US/China talks for Chicago values to fall below last week’s low. A higher Chicago close is forecast

• Chicago brokers estimate that funds have bought 3,100 contracts of soybeans, 4,000 contracts of corn, and 1,800 contracts of wheat. In soy products, funds have bought 1,800 contracts of soyoil and 2,200 contracts of soymeal.

• The US Employment Report showed that the US added 312,000 jobs during December, nearly double what was expected. The average hourly pay improved by 3.2% and offered the potential for future wage inflation. The report confirmed that the odds of a US recession is low in 2019 and that the US FED could raise rates by 1 or 2 more times before a neutral plateau is reached. US economic slowing is likely in the last half of the year and again in 2020. But all signs are that the US economy remains strong into midyear. We note that the US$ is weaker at midday after reacting bullishly to the initial Jobs data. The inability of the US$ to rally to bullish US economic news should be closely monitored. As the US Central Bank reaches neutral bank lending level, we expect a rather protracted decline in the greenback amid large US debt levels. The Brazilian real is trading up at 3.7:1 vs US$, the Argentine peso at 37.4:1 and the Russian ruble at 67.5:1.

• The USDA announced that it will delay the January 11 US crop report until funding for the US Government is agreed to by Congress and US President Trump. There is no exact date or timing of when such funding will be agreed to, but it is hoped that a solution can be reached. A White House meeting between President Trump and Congressional leaders is underway at midday.

• The midday GFS S American weather forecast is similar to the overnight run with below normal rain for NC and NE Brazil into mid-January. A few showers develop early next week across Mato Grosso, Goias and MGDS, but most amounts will be less than 1.00”. Drier weather follows during the 6-10 day period. The best rain will drop across S Brazil. Temperatures average above normal through the next 10 days with heat centered on NE Brazil. Soaking rains of 6-10.00” impact the northern third of Argentina with flooding to become widespread. Below to much below normal temperatures will persist over the next 10 days amid considerable cloud cover. Unfortunately, the pattern shows no sign of change as a high-pressure ridge holds across NE Brazil and a deep trough across N Argentina.

• The hope for US/China trade progress and a stuck (adverse) S American weather pattern should keep Chicago well supported into the weekend. The wish that the US/China will score trade progress could produce additional US ag purchases in grains, and potentially US pork. The declining US$ is a bullish tailwind for ag markets. Trade and weather will likely drive Chicago prices next week in the first full week of 2019 trading.

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

Weekend summary 4 January 2019

• Soybeans extended weekly gains and finished 5-6 cents higher. With daily/weekly USDA sales data being withheld via the USDA’s partial closure, the trade is reacting to drier conditions in Brazil for price guidance. Rain across the key growing regions of Brazil has largely been behind normal for the last several weeks, and the forecast does not show a significant pattern change. The Buenos Aires Grain Exchange estimated that as of Jan 2, Argentine soybean planting progress had advanced to 90% complete versus 88% last year and the 5-year average of 93%. Additionally, the Exchange reported that 41% of the soybean crop was rated as good/excellent versus 51% a year ago. Too much rain held back condition ratings. Just 7% of Argentine soil moisture was rated as dry/poor versus 26% a year ago. The problem this year is excessive soil moisture. March soybeans are aiming for the 200-day moving average near $9.30. If the forecasts remain dry in Brazil and wet in Argentina, March soybeans could rise to $9.50-9.75 for a seasonal top.

• March corn settled 4 cents higher has recovered half of its losses of late December. A higher close Friday foreshadows a range of; $3.80-3.95. Spot corn continues to follow its normal seasonal trends, which are positive heading into late winter. The EIA is scheduled to release its weekly energy report Friday morning. Ethanol margins have recovered from their lows but remain weak. US ethanol production through the week ending Dec 28 should total 305-308 million gallons, near unchanged on the prior week. Weekly ethanol stocks and stocks/use are expected to decline. Otherwise, there is a dearth of fresh news. But world cash basis remains firm. EU corn futures are back testing 4-month highs at €180/mt ($5.60/bu) on the need for any greater imports. There is a decent correlation between Dec-Jan dryness in S Brazil and first-crop corn yield, and it is unlikely Brazil’s pattern flips before late January.

• US and EU futures rallied amid firm global cash markets and general concern about S American row crops. The world oilseed balance sheet will stay well supplied, but importers demand a record/near record Brazilian corn crop. Gulf wheat is competitive despite the rally. Focus in the near term will remain on interior Russian wheat and flour prices and the US$ performance. We have previously highlighted that the rally in other world wheat markets has outpaced the US. Even lesser-followed markets such as Indian wheat have found new multi-year highs. The Indian cash market’s premium to spot CME futures rests at $130/mt, vs. $115 a year ago. Cash markets are better accounting for this year’s collapse in world exporter production/stocks. Pakistan is looking to export 100,000 million mt of subsidised supply. But other wheat input remains bullish. A close above March KC’s 50-day moving average at $5.08 turns the charts bullish.

• Chicago soy prices are sharply higher to start 2019. Rumours abound in the cash market that China is back asking for offers and purchasing US soybeans. There are no cash rumours on China buying US grain, but cash connected sources expect that once China finishes their buying of 5 million mt of soybeans, their attention could shift to US grains, including corn, wheat and rice. The problem is that no FAS/USDA confirmation will be offered with the Government shuttered via President Trump’s and incoming Democratic leadership dispute over the US/Mexico border wall. Hope is that the US political leadership can find a solution to reopen Government and return needed US ag sales data. Amid the firm close and rising price of soybeans/soymeal within China’s domestic marketplace, a higher Chicago close is expected with the most active March soybean contract to close above $9.00 prior resistance.

• Chicago brokers estimate that funds have bought 6,400 contracts of soybeans, 3,200 contracts of corn, and 2,100 contracts of wheat. In soy products, funds have bought 2,900 contracts of soyoil and 1,700 contracts of soymeal. Cash connected sources indicate that China has purchased another 20-30 cargoes of US soybeans (1.2-1.80 million mt of US soybeans by state buyer Sinograin) for their reserve. China has made soybean purchases on each Wednesday up until last week, they took off for the post-Christmas holiday, but returned today. The purchases are likely to take China close to their long rumoured 5.0 million mt of purchases. Any purchase amount above 5.0 million would be a bullish surprise.

• Amid the lack of USDA information, traders have been focused on the coming index fund roll which starts on the 5th business day of January (Tuesday Jan 8). Estimates by commodity vary amid the amount of money leaving or coming into the commodity space. Yet, based on the sharp fall in crude oil, it is expected that index funds will sell some; 42-46,000 contracts of corn, 26-28,000 contracts of wheat, and will be buyers of 7-9,000 contracts of soybeans. And index funds could buy 30-32,000 contracts of soyoil and 8-10,000 contracts of soymeal. There are larger estimates of sales of US corn and wheat, but we suspect that funds coming into the commodity market is smaller. US President Trump stated that he expected the stock markets to recover once the US inks trade deals. The statement indicates the focus of the President is on reaching a trade deal and its importance to investors.

• The midday GFS S American weather forecast is like the overnight run with below normal rain chances across NC and NE Brazil into late January. Soaking rain of 3-8.00” impact N Argentina with drier weather across BA. The weather forecast for Brazil offers too little rain and crop sizes will continue to decline. And a growing worry would be Argentina where low-lying flooding could damage wheat quality loss and wash out some newly planted soybeans. If the NC Brazilian dryness continues through January, the crop may decline to 114-117 million mt.

• Soy futures are charging to the upside on China demand. China interior soymeal prices started the year with solid gains amid tightening supplies. US wheat values are the cheapest in the world and we doubt that either EU or Black Sea prices will retreat very much during Q1 amid shrinking supplies. The big question is whether the Brazilian dryness in a summer weather pattern that could impact their winter corn crop. US President Trump and Chinese President Xi want to do a trade deal, the question is whether the hawks in the Trump Administration will allow it. Our considered opinion at this time is for some further Chicago upside.

• Following firm trade overnight, soybean futures rallied from the morning open to end 11-14 cents higher. News that China would allow imports of US rice for the first time stoked hope that additional US soybean sales are possible. Other news was limited and amid the government shutdown, the only data available in the coming week will be US weekly inspections. The weekly Commitments of Traders report from the CFTC has been delayed until the lapse in government funding has been solved. The last report from the CFTC showed that as of Dec 18 managed funds were net long 13,000 futures contracts. Through Monday, funds were estimated sellers of 17,000 contracts for a net short position around 4,000 contracts (estimated to have sold another 4,500 contracts this week). Given the size of the US soy stockpile, our fundamental view remains bearish on rallies with a spring price target of $8.00 or below. 

• Chicago corn futures ended a cent higher amid broadly supportive weekly ethanol data and concern over S America’s late Dec/early Jan weather pattern. Far too much rain will fall in Argentina; drier than normal weather returns to Brazil. US ethanol production last week totaled 306 million gallons, down slightly on the previous week and 4% below late Dec of 2017. However, stocks fell a sizeable 31 million gallons, with weekly stocks/use pegged at a 5-week low. Domestic blend use has improved. Production margins remain negative but will improve as ethanol invenstockstories erode. Black Sea fob basis rallied 10 cents this week. EU corn futures settled at 4-month highs. EU corn’s premium to Chicago has rallied to $60/mt, vs. $40/mt a year ago. The EU market demands record imports of 22.5-23.0 million mt, vs. the USDA’s projected 21. This will add to already record large global corn trade. A neutral outlook is maintained. Close attention will be paid to short term adverse weather in Argentina.

• Chicago wheat futures ended firm in low volume amid a lack of news. What news is available leans bullish. Heavy precipitation has been added to Argentina in the 6-15 day period, with no end in sight to the coming deluge. Harvest in Buenos Aires will be on pause over the next 2 weeks. Interior wheat and flour prices in Russia also continue to move higher. Russian interior wheat prices have hit new 2-year highs and have rallied 20- 50% since spring. Flour prices have followed and now sit near 2014’s record highs. Indian cash prices are also at multi-year highs, and so the world cash market still reflects this year’s collapse in exporter wheat stocks outside of China. US export sales, both daily and weekly, won’t be released until the US government reopens. Gulf fob offers are below Black Sea origin for three consecutive weeks. This indicates that demand for US wheat will likely be strong in 2019. Wheat still has a bullish story, which can only be solved via above trend Northern Hemisphere yields.

• The morning has been mixed in Chicago with corn, soybean and wheat futures trading either side of unchanged in holiday reduced volume. An early morning Chicago rally tried to follow the sharp gains in US equity markets, but the rally failed as US stock values gave back 40% of Wednesday’s gain. The Chicago grain markets are consolidating their recent losses amid a lack of fresh demand news. Traders are closing their books on 2018. The political uncertainty of Washington is likely to keep traders cautious in the New Year. There can be days of modest rallies, but large and looming Brazilian corn/soybean harvests are likely to cap rallies. Bullish traders will be sidelined until is clear that the US Government is reopening (export sales and CoT data flows return) and news the US/China are closer to a trade deal. Soybean traders are disappointed that China has not purchased the last 2 million mt of an expected 5 million purchase. The market has a heavy feel at midday based on bearish chart considerations.

• Chicago brokers estimate that funds have bought 1,900 contracts of soybeans, 2,100 contracts of corn, while being flat in wheat. In soy products, funds have bought 1,100 contracts of soymeal and 900 contracts of soyoil.

• There are just 63 days for the US and China to bridge their trade and IP/IT differences. If one assumes that China will take off some 10 days for their Lunar New Year holiday and 3 days are used up for the New Year’s holiday, this leaves just 50 days for the US/China to hash out a complex trade and industrial protection deal. Most agree that although progress is being made, a considerable amount of additional time is needed to complete a doable deal. A US Trade Delegation will be heading to China during the week of January 7. The delegation will NOT include high level US Government officials which underscores the fact that both sides are still working on the grit of the details, including that it will take China years to enact laws to establish intellectual IT/IP property protection. Whether this much time is acceptable to USTR is unknown but it is a sizeable risk for a March 1 deal. Amid a US soybean export and sales pace that is substantially behind prior years, if the US were to raise tariffs to 25% and broaden the goods impacted, Chicago soybeans would likely drop to new contract lows and retest the summer lows at $8.00.

• Russia’s Rosstat raised their Russian wheat crop forecast to 72.0 million mt on a clean/dried basis. There was a 483,000 mt increase in the Siberian crop and 407,000 mt in the Volga wheat crops. The USDA pegs the Russian wheat crop at 70 million mt and it will be interesting if they follow Rosstat’s increase.

• The midday GFS S American weather forecast is like the overnight run with improved rain chances across much of N and C Brazil into mid-January. Paraguay and N Argentina will hold in a drier profile with soaking rains of 3-8.00” for C and S Argentina. Some areas of C Argentina will endure flooding rains of 6-10.00”. The rain will cause a washout of newly planted soybeans and quality risks for unharvested wheat. No extreme heat is forecast for Argentina amid the persistent cloud cover. A few warm days of mid 90’s to lower 100’s is forecast for SC Brazil with seasonal temperatures returning next week. The weather forecast for Brazil is improving.

• Soybeans bounced off a chart uptrend line at $8.68 basis Jan futures. However, the recovery has been modest amid a lack of fresh export interest. Traders are not willing to chase rallies unless China is buying US soybeans. The Trump Administration has been talking hawkish of China IT firms and the time is limited for a trade deal by March 1. Amid the slowing world economic landscape and sliding equity markets, any hint that the US/China trade is hitting a political speed bump would likely drop spot Chicago futures back to $8.00.