7 February 2024

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  • HEADLINES: Chicago soymeal/corn sinks while wheat/soyoil rallies, spreading gains importance; Ukraine corn/Argentine soybeans to China, rumours abound; CONAB report starts Thursday.
  • Chicago ag markets are mixed at midday with corn/soybeans lower while the wheat market bounces. A bearish February USDA report is being built into price with needed showers to fall across Argentina crop areas in the next week. The Argentine rain will help stabilise their corn/soybean crops following just over 3 weeks of acute dryness and blazing heat. Wheat futures are higher on spreading, with wheat gaining on corn/soybeans as USDA/WASDE is not expected to make any statistical changes to the US balance sheet.
  • The USDA’S 100th Annual US Outlook Forum will update balance sheets from the November Baseline report. Traders are discussing that the forum will release a US 2024/25 corn end stock total between 2,500-2,700 million bu and soybean end stocks of 340-380 million bu. The USDA baseline report highlighted future bearish corn stocks, but if there is a bullish surprise it will be new crop US soybean end stocks. Outside of potential large renewable diesel demand for soyoil due to changes in California feedstock legislation and new plants coming online, it is hard to find a bullish fundamental story for soybeans, soymeal, or corn. Chicago futures have digested a large amount of bearish news, but there remains widespread uncertainty regarding S American crop sizes.
  • Chicago brokers estimate that funds have sold a net 3,500 contracts of corn and 3,800 contracts of soybeans, while buying 3,900 contracts of wheat. In the soy products, funds have sold 3,600 contracts of soymeal buying a net 1,400 contracts of soyoil.
  • US December Census Trade exports of US corn were 189 million bu, up 48 million from November, and up 46 million bu from last year. Soybean exports were 177 million bu, down 97 million from last year, and down 116 million bu from last year. US wheat exports at 55 million bu were up 13 million from November, and up 14 million bu from last year. The December US soybean export estimate was the disappointment relative to recent years which sparked the late month selling as rains started to return to Northern Brazil.
  • US weekly ethanol production continues to expand with 1,044 thousand barrels produced this week vs 991 the prior week. US ethanol production fell sharply due to the arctic blast of mid-January. US distillate stocks fell 3.2 million barrels vs 2.5 million expected.
  • The news seems to be following the market this morning. There are rumours that China is securing Ukraine corn at $169/mt though no one can pin down tonnages or shipment dates. And there are also rumours that China has bought 4-5 cargoes of Argentine soybeans for their reserve with the timing of shipment being June. Some suggest that since China is booking Argentine soybeans for June that they will cancel a like number of US soybeans. We cannot find any confirmation.
  • The midday GFS weather forecast is drier than the overnight run calling for scattered showers and a moderation in temperatures across Argentina. Additional heavy rainfall of 2-3.00” will fall across the southern half of Buenos Aries but totals further north look to range from 0.5-1.50” and locally heavier. This is down some 0.5-1.50” from overnight run across the northern half of Argentina and the southern third of Brazil. Near normal rain is forecast for the Northern third of Brazil with 10-day totals of 1.50-4.00”. Heat lingers across Argentina in the week 2 forecast which will push crop maturity. Argentine highs will hold in the mid 80’s to the mid 90’s as an upper-level high pressure ridge holds across Paraguay.
  • The return of Argentine rain is pressuring soymeal and corn to new lows while wheat is rallying on spreading against the row crops. The trade seems convinced that tomorrow’s CONAB and USDA reports will be bearish. Our view is one of caution with the reaction of the market more important than the data in the report itself. Bunge indicated that 1.4 billion gallons of new renewable diesel capacity would come online in the first half of 2024. Oil share spreads should continue to perform.

6 February 2024

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  • HEADLINES: Chicago mostly higher at midday; Soy crush margins stabilise on rising oil market; Breaking news absent.
  • Chicago ag futures are steady/higher at midday with wheat consolidating following Monday’s break and soybeans adding modest premium amid stabilising crush margins in both the futures and cash markets. Meal has been unwilling to enter a new bearish phase as the arrival of physical Argentine supplies doesn’t occur until April, US meal export disappearance will be robust nearby, and as spot soyoil finds ample support at $0.45 per pound. A more two-sided, consolidative ag market landscape lies ahead until spring, when S American soy/first crop corn production is known, and US acreage intentions are revealed. Chart momentum stays negative, but large N Hemisphere crops are still needed to guarantee structural oversupply in crop year 2024/25. Many unknowns are present.
  • Macro markets have mostly reversed from Monday. The US dollar is down slightly. Spot WTI crude is up $0.90 per barrel at $73.65. The Dow at midday is up 77 points, with US equity indexes still perched near record highs.
  • International ag markets, too, are adding modest premium. World rapeseed/canola values have recovered from Monday’s multi-week lows. The world awaits changes to S American/global balance sheets from USDA, CONAB and Stats Canada on Thursday, and overall, it is just tough to be overly bullish or bearish at current prices and in early February. The short side of the marketplace is crowded. Whether recently placed short bets are rewarded will ultimately be determined by Mother Nature over the next 6-7 months.
  • US/Canadian temperatures stay 10-16 degrees above normal into Feb 15, and any return of cold is likely to be short-lived. Temperatures will be 10-19 degrees above normal in E Europe, Ukraine, and key areas of southern Russia’s winter wheat belt. This is not an issue today, but the extreme nature of weather patterns is acknowledged.
  • Most important in the near-term is the duration of Northern Brazil’s rainy season. Recall Mato Grosso alone produces 40% of Brazil’s safrinha crop, and planting there should reach 50% complete in the next 10 days. Normal/near normal rain has been recorded in Mato Grosso since Jan 1, but the intensity/speed of withdrawal will be monitored March 1 onward.
  • The midday GFS weather forecast is similar to the morning run in calling for scattered showers and a moderation in temperatures across Argentina beginning Friday. A pattern of regular rain continues in Argentina into Feb 15-16, with cumulative totals of 1-2” projected to the widespread. Heavy rain favours N Brazil into the coming weekend. The GFS forecast is drier than the EU model in Brazil thereafter, and while confidence in GFS forecast details beyond 5-7 days is low, rain is desired in Mato Grosso and Goias well into April. The S American forecast is absent of new threats currently.
  • Markets will be adrift into Thursday, and even February CONAB/USDA data is unlikely to provide much in the way of fireworks. New speculative investment will likely be funnelled into equity markets, rather than ag markets, until there is a clearer threat to exporter crop production.

5 February 2024

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  • HEADLINES: Chicago bounces with soyoil holding chart support; Brazilian premiums rise on demand; Wheat falls on Russian cash sales aggression.
  • Chicago grains are mixed at midday with corn/soybeans recovering while wheat futures hold in the red due to sagging Russian/Black Sea price offers. Chicago March soyoil tested its prior contract low at $0.4449 and bounced. Strengthening cash basis bids and the rally in the Brazilian paper market offered early day support. Debate persists over S American crop sizes with Citibank pegging the 2024 Brazilian soybean crop at 148 million mt and 117 million on corn. Private soybean crop estimates are in retreat for Brazil in a massively large range of 135-157 million mt for soybeans. However, Argentine crop estimates are holding steady. The impact of the recent hot/dry weather is being assessed during the corn/soybean reproductive phase with at least another 10-15 days required to gauge if there are pollination issues.
  • A mixed Chicago close is expected with short covering to occur on breaks heading into Thursday’s data dump from Statistics Canada (December 31 Canadian grain stocks), CONAB (Brazilian crop and stocks update), and the USDA February Crop Report. The bears are looking to take some money off the table just in case the USDA/CONAB slashes Brazilian soybean/corn crop more than expected.
  • Chicago brokers report that the managed money has sold 3,400 contracts of wheat, and bought 1,300 contracts of corn and 2,700 contracts of soybeans. In the soy products, funds have bought 3,100 soymeal and 3,900 contracts of soyoil.
  • US export inspections for the week ending February 1 were 24.6 million bu of corn, 52.4 million bu of soybeans, and 9.7 million bu of soybeans. Last week’s corn exports were revised up to 36.5 million bu with soybeans at 33.6 million bu.
  • For their respective crop years to date, the US has exported 641.2 million bu of corn (up 142 million or 29%), 1,070 million bu of soybeans (down 330 million or 23%), and 414 million bu of wheat (down 93 million or 18%). WASDE can trim the US 2023/24 soybean export estimate by 15-25 million bu while holding wheat and corn exports steady on Thursday. We anticipate that WASDE will raise Ukraine corn exports by 2-3 million mt which could cause a future decline in US corn trade.
  • The USDA will be holding their Annual Outlook Meeting in Washington DC next week. It is the 100th anniversary of the USDA Ag Outlook Forum and will be well attended. As part of this meeting, WASDE will be releasing new balance sheets for the 2024/25 US crop year. Note that in November, the Baseline Report estimated 2024/25 US soybean end stocks at 300 million bu and corn at 2,616 million bu with US corn seeding pegged at 91.0 million acres and soybeans at 87.0 million acres. We expect that WASDE could raise 2024 US corn acres by 500,000 due to reduced SRW wheat seeding (January Report). This suggests that the WASDE 2024/25 US balance sheets will lean bearish of corn and neutral on soy/wheat.
  • The midday GFS weather forecast is wetter across Argentina crop areas with soaking rains of 1.50-3.00” for Buenos Aires, Santa Fe and Cordoba in the 6–10-day period. Showers are expected to fall across Southern Buenos Aires starting Thursday, with the GFS forecast being more generous with rainfall for the rest of the country next week. Any dryness will be centred on Southern and South-Central Brazil where rain totals look to average less than 1.25” into February 15. Another 3-4 days of acute heat and dryness occurs across Argentine before rain chances improve. High temperatures reach the mid 90’s to the lower 100’s with moderation starting from south to north on Thursday.
  • The macro crowd points to the strength of the US dollar (today) as a reason why the morning commodity rally will stumble. An early Chicago break could not gain any momentum to the downside which sparked the recovery. The coming CONAB/USDA reports on Thursday look to produce the next directional price move. Seasonal price trends offer a bottom in mid-February and a rally into spring. Flagging Russian wheat offered prices are deemed as bearish for US wheat futures. Look for choppiness into Thursday’s reports.

30 January 2024

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  • HEADLINES: Chicago reverses as traders ponder S American crop sizes; GFS weather forecast drier in the 15-day period; Key soy crush data out Wednesday/Thursday.
  • Midday Chicago grains are higher with buying noted from the morning reopening.  A turnaround Tuesday is forming with traders suggesting that the IMF’s suggestion of a stronger Q2 world economic outlook is helpful for raw material markets. Energy futures have rallied all morning with April crude targeting resistance at $78-80.00 amid rising Mideast tensions and an expected US response to the weekend drone attack that killed three American servicemen in Jordan. Traders are also lamenting that China is a price buyer and with imported soybeans at a two and a half year low, their demand for Brazilian soybeans will be increasing. 5-6 cargoes of Brazilian soybeans were sold to China this morning. Moreover, US cash soymeal has a bid as export demand is fulfilled and crush operations won’t expand until late May or June. The message is that $11.75-12.00 March is cheap enough (for now) until S American crop sizes are better known. The harvest is moving swiftly across Parana and N Brazil with yield reports disappointing. It is important that soaking rain falls across Argentina to preserve their potential large corn/soy crops.
  • Chicago brokers report that the managed money has bought 3,100 contracts of wheat, 6,100 contracts of corn, and 6,400 contracts of soybeans. In the products, funds have bought 3,200 contracts of soymeal and 1,200 contracts of oil. The Chicago rally has not sparked selling from the producer in either the US or Brazil as of now. Farmers are holding out for higher prices.
  • EIA will release their bio/renewable diesel feedstock report on Wednesday with Census releasing its December Fats and Oils report on Thursday. Based on the NOPA December crush data, the average estimate for US December soybean crush was a record 206.1 million bu, up 18.7 million from last year, and better than the 200.1 million bu that was processed in November. US soyoil stocks are estimated at 1,750 million pounds, well below the 2,306 million pounds last January. Although US soyoil stocks are seasonally increasing, the drawdown period starts in April and with large new renewable diesel capacity coming online, end user pricing of vegoils has become active in recent days to lock down margin.
  • Deral estimated that Parana’s soybean harvest reached 19% completed as of Sunday, the second fastest pace on record. And winter corn seeding has occurred on 22% of the intended area, just behind the record set in 2019 at 25%. We note that with cash bids below $3.00/bu, farmers are not investing in crop inputs besides seed and herbicides. Brazilian farmers will take the chance on a second corn crop, but they will cut their risk by dialling down fertilisers. This could have a marked impact on production should adverse weather strike. Soybeans planted in November/December will not be doubled cropped with corn.
  • The midday GFS weather forecast is consistent with prior forecast runs. Hot/dry weather will prevail across Argentina with a few widely scattered showers in on February 8 according to the GFS model. The models keep pushing the rain backwards with heat/dryness prevailing in the days leading up to the potential showers. Argentine high temperatures will range from the mid 90’s to the lower 100’s with locales enduring heat of 102-105 degrees.
  • Brazilian weather calls for near to below normal rainfall across the southern half of the nation and near normal rainfall across the north. Outside of RGDS, no extreme heat is noted with high temperatures ranging from the 80’s to the mid 90’s. Rains are needed across S Brazil with February key for soybean yield determination.
  • March soyoil has bounced from the May lows of $0.45 while corn is forming a second reversal to the upside. Funds are holding a record Chicago January short grain position (crowded trade) during less than favourable Argentine/S Brazilian weather. And Chicago values reflect a large amount of bearish data/news ahead of a new Northern Hemisphere growing season. And N Brazilian farmers are struggling with low prices with spot cash soybean bids at $8.65 with June/July corn bids at $2.90. Look for a period of Chicago consolidation.

29 January 2024

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  • HEADLINES: Chicago falls hard on new managed money selling; Cash Brazilian basis sags on the advancing soybean harvest: GFS midday weather forecast slight drier for Argentina.
  • Chicago grains are weaker at midday with soybeans, soyoil and soymeal forging new lows for their respective declines. Soymeal has been able to recover on active oil share spread unwinding while corn/wheat futures are just off their mid-morning lows. Worry about China’s property sector and future consumptive demand along with the ongoing decline in soybean basis in the Brazilian paper market (April/May) has sparked the Chicago selling. Chicago soyoil appears like it wants to test the spring low at just under $0.45/pound before trying to bounce.
  • We suspect that this may be “opposite week” with Chicago values down on Monday and then bouncing later in the week. Sub $12.00 March soybeans and sub $4.40 March corn are not levels to establish new net short positions.
  • Chicago brokers report that the managed money has sold 3,400 contracts of wheat, 6,300 contracts of corn, and 6,600 contracts of soybeans. In the products, funds have bought 4,200 contracts of soymeal and sold 4,600 contracts of oil. Managed money is adding to an already large net short position.
  • There are rumours that Purdue Poultry off the US East Coast will import 2-3 cargoes of Brazilian soybeans to crush. The falling Brazilian cash basis bids have produced the opportunity for import. Last year, there were 420,000 mt of Brazilian soybeans imported into the Eastern US Coast for crush. We look for like import totals this year. There is no interest in importing Brazilian soybeans to the US Gulf as US crushers do not want to segregate the soyoil so that domestic production stays eligible for biofuel credits.
  • There is talk that President Milei is having trouble with his proposal to raise Argentine soy product and grain export taxes amid Congressional resistance. The Argentine Congress does not want to grant approval due to flagging world grain/oilseed prices. If the Argentine Congress does not approve the 2-3% tax increase they will stay at the prior levels at 12% for wheat/corn, 33% for soybeans and 31% for soybean products.
  • US export inspections for the week ending January 25 were 35.5 million bu of corn, 32.7 million bu of soybeans, and 9.8 million bu of wheat. Crop year to date exports stand at 1,016 million bu of soybeans (down 314 million or 24%), 615 million bu of corn (up 141 million or 29%), and wheat at 403 million bu (down 82 million or down 17%). The US export pace has been routine since the start of 2024.
  • Brazil is considering a new expansion of its blend of soyoil in their domestic diesel supply to aid crush margins and cut greenhouse gas emissions. Hope is building that Brazil could blend 25% of diesel supply with soyoil by 2027.
  • China’s SinoGrain is rumoured to have rolled 3-5 cargoes of US soybeans for February/March forward to April on surging freight costs.  The switch to the PNW will save logistical cost. We note that Sino is not cancelling the business, just rolling the sale forward.
  • The midday GFS weather forecast is consistent with hot/dry weather forecast for Argentina and far Southern Brazil through February 8 when the chance of better rain returns to Buenos Aires and the southern half of Cordoba. North Central Argentina and Southern Brazil hold in a drier pattern with extreme heat noted this week. High temperatures will range from the mid 90’s to the lower 100’s with locales enduring heat of 102-105 degrees.
  • Brazilian weather calls for near to below normal rainfall across the southern half of the nation and near normal rainfall across the north. Outside of RGDS, no extreme heat is noted with high temperatures ranging from the 80’s to the mid 90’s. It is Southern Brazil where better rainfall, and less heat is desired.
  • The bears are out in force due to sagging Brazilian soy export premiums which some argue hints at a larger Brazilian harvest. Independents will release their crop tour estimates on Tuesday morning of the Brazilian soybean crop. The HOBO spread (heating oil vs soyoil) is back to positive for the first time in years suggesting that profit margin exists for bio/renewable diesel producers, regardless of the sagging on D4/D6 RIN values. The US importing 2-3 cargoes of Brazilian soybeans into the Eastern US Coast is not a surprise and does not alter balance sheets. The Chicago bearishness can be cut with a knife today…..

 

26 January 2024

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  • HEADLINES: Soybeans turn down on Argentine rain potential, soymeal to new lows: Chicago corn correction on hope for improved Argentine rain in mid-February: Wheat ends lower as spot EU futures tests contract low.
  • Soybean futures closed lower on Friday to give back all the early week gains. Market news remains limited, and the focus remains on S American weather with rain in the forecast for Argentina after February 10.
  • The Commitment of Traders report showed for the week ending Jan 23, that funds had sold just over 15,000 contracts, extending the net short position to 92,000 contracts, the most since February 2020. Funds were net sellers of close to 15,000 contracts in meal to take the recent net short position to 19,000 contracts. Funds covered 2,300 contracts of the net short position in soyoil, trimming the position to a net short 44,700 contracts.
  • The CoT report shows that soyoil is now the most oversold in 5 years, soybeans the most in 4 years, and meal the most in 3 years. Chicago ag markets are oversold, and prices are cheap (relative to years beyond 2020), all while energy prices continue to move higher. Upcoming Argentine heat/ dryness is a concern, while harvest results from Brazil point to a smaller harvest. March should hold $12.00 support.
  • March Chicago corn ended 5 cents lower. Spot corn in Brazil fell 12 cents to $5.66/bu. Spot corn in Europe remains perched near contract lows equivalent to $5.14/bu. Chicago corn’s failure to trade through initial chart-based resistance this week has allowed selling to resume.
  • There are hints of improved rainfall in Argentina late in the 11–15-day period, but soaking rain is unlikely prior to Feb 10. The evolution of the mid-Feb Argentine forecast over the weekend is key, and supply premium will be added if dryness is extended into the second half of the month. Overall, S American weather drives daily/weekly price discovery into early spring.
  • Managed funds on Tuesday were short a net 265,000 contracts, up 5,000 from the prior week, a surprise. Funds’ current short is the twelfth largest since record keeping began in 2006. A fundamental spark is needed to pry the spec community from this short position, but covering will be violent if S American yield loss is confirmed. Supply risk remain in place as a vast majority of S American corn enters its reproductive phase in Feb, March and April.
  • World wheat markets ended lower following China’s adding of Argentine supply to its list of acceptable origins. Other breaking news was absent, and the longer-term outlook remains a battle of abundance in Europe and the Black Sea against rising new crop supply risks. Europe’s market continues to probe for enlarged export demand. Spot Russian fob is offered at $240/mt, vs. $245 last week. Competition for old crop world trade is elevated.
  • Yet, work maintains fair value lies between $5.80-6.60, spot Chicago and cover is advised at the lower end of this range.
  • The N African drought is becoming historic in nature, which is important to the trade in crop year 2024/25. Record N African imports are all but assured. The rapid development of La Niña in summer also poses risks to Argentine production next autumn. The list of forward supply unknowns is lengthy. Managed funds in Chicago on Tuesday were short a net 65,000 contracts, vs. 69,000 the previous week. Wheat futures are basing awaiting Northern Hemisphere weather conditions.
  • Sagging Brazilian soy fob premiums will restrict US export demand in spring, while the longer-term soy outlook still hinges on actual S American production, which ultimately determines the duration of Brazil’s 2024 export program. An already dire drought in N Africa worsens into mid-Feb, which is important to wheat, but short-term bullish news is lacking today.

25 January 2024

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  • HEADLINES: Chicago soy sinks on falling Brazilian export premiums; Midday GFS weather forecast drier for Argentina/S Brazil; North African dryness supports wheat.
  • Chicago grains are mixed at midday with soy/corn lower with wheat futures posting modest gains. The selling accelerated in soybeans/soyoil on sagging Brazilian soybean export premiums and weaker D4/D6 RIN values as US renewable diesel capacity dramatically grows. The massive Philipps 66 Rodeo, CA plant will soon be fully operational which adds to the supply of D4/D6 RINs, but the plant also demands a massive new supply of feedstocks. Note that falling D4 RIN values harms industry profitability, but the soyoil market is caught between sagging margins and the massive new domestic demand. Sagging soyoil and rising carbon credits offer a profitable margin for renewable diesel producers. And the $1/gallon blenders credit is holding biodiesel margins in the green. The demand story for US green fuels is growing and a new SAF plant opened yesterday in Georgia.
  • Brazilian soybean premiums are down another 4-8 cents due to lacklustre demand and the growing harvest supply. The drop of Brazilian premiums suggests confidence that the 2024 Brazilian soybean crop is not under 140 million mt. Brazilian farmers are selling soybeans to crushers due to better bids.
  • Chicago brokers estimate that managed money has sold 6,900 contracts of soybeans, 4,300 contracts of soyoil, and 2,200 contracts of soymeal. In the grains, funds have sold 2,600 contracts of corn and bought 1,200 contracts of wheat.
  • The USDA reported that for the week ending January 18 the US sold 16.6 million bu of wheat, 37.6 million bu of corn, and 20.6 million bu of soybeans. The soybean sales were on the light side, but corn/wheat were at expectations. For their respective crop years to date, the US has sold 608 million bu of wheat (up 19 million or 3% from last year), 1,278 million bu of corn (up 333 million or 35% from last year), and 1,395 million bu of soybeans (down 312 million or 18%). The US shipped out 41.1 million bu of US soybeans last week. The US corn, soybean and wheat sales pace is on track to reach the WASDE forecast.
  • Parana’s DERAL dropped their state soybean crop forecast from 21.7 million mt to 19.2 million in a report released this morning. The prior DERAL crop forecast was offered at the end of December. And Mato Grosso soybean yields are also holding well below last year and are down 10-15% in even some of the better crop areas. Chicago has been trading a Brazilian soybean crop of 150 million mt, which may be a touch high. However, confidence is growing that January rains have helped late seeded soybeans and prevented a crop less than 140 million mt.
  • North African wheat dryness is worsening and underpinning world wheat values on potential demand. Chicago and Paris futures were higher at midday on the prospect that Morocco, Algeria, and Egypt could import record tonnages of EU/Russian wheat.
  • The midday GFS weather forecast is drier than the overnight forecast with limited rainfall for Argentina over the next 10-14 days. Temperatures are forecast to be hot in the 90’s/lower 100’s with searing heat forecast for much of next week. The heat/dryness is rapidly curtailing soil moisture across Argentina and far southern Brazil. Unfortunately, the extended range forecast offers limited rain into mid-February and concern for Argentine crop yields are likely grow. And remember that RGDS in Southern Brazil is also a significant soybean producer, and that has to be closely followed.
  • Daily showers will fall across Northern Brazil with 10-day totals of 4-9.00”.  Cool temperatures prevail across Northern and Eastern Brazil with highs in the mid 70’s to the mid 80’s.
  • Chicago choppiness prevails. Wheat is the first Chicago grain to bottom with a smaller N Africa and EU harvest ahead while corn is finding end user pricing on breaks.  March soybeans are closely following Brazilian export premiums and Argentine weather forecasts. Today the market is focused on falling Brazilian soy export basis as the harvest advances. Friday should feature a bounce on hot/dry Argentine/S Brazilian weather.

23 January 2024

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  • HEADLINES: Choppy Chicago with midday volume in decline; Brazilian soy crop size importance; GFS weather forecast little changed with slight increase in Argentine rain after Feb 2.
  • Short covering has been featured in morning Chicago trade with corn, soybeans and wheat trading higher in moderate volume. The record short ownership position of managed money combined with stable/firm cash basis bids has sparked a bounce. We note that US and S American farmers are tight fisted with cash grain sales, but Brazilian farmers do not have much storage and will be rewarding rallies between $12.40-12.80. Mato Grosso farmers receive less than $9.00/bu and are unprofitable today. However, other than silo bags, there is not much option for storage of recently harvested soybeans. FOB offers from Brazil are leaking lower as the harvest advances due to rising world freight costs. As vessels stack up and demurrage costs grow, merchandisers are loath to bid up for recently cut crops. Rising interior and ocean freight costs are pressuring Brazilian farm profitability.
  • Chicago brokers estimate that managed money has bought 1,900 contracts of soyoil, 3,200 contracts of soybeans, and 2,200 contracts of soymeal. In the grains, managed money has bought 900 contracts of corn and 2,800 contracts of wheat.
  • We have been asked when will the Argentine dryness be reflected in lower yield potential. Currently, seasonal temperatures and adequate soil moisture is limiting Argentine crop stress and condition ratings are expected to be little changed on Thursday. However, it is next Thursday when ratings could fall and the need for rain will be immediately following next week’s heat/dryness during the opening days of February. It is Argentine weather during February that will be highly important for soybean/corn yields. As it was witnessed last year, February and March weather have become the 2 critical months for crop reproduction.
  • The USDA has pegged the 2024 Brazilian soybean crop at 157 million mt while others see the crop between 135-158 million. Never has such a crop size range been noted in late January. We would argue that since a N Brazilian drought is historically rare, few know how to adjust yield/crop size. However, using a soy crop of 146 million mt vs 157 million has big implications for US soy export demand in late summer and early autumn. Research shows that a Brazilian soy crop of 146 million mt would cut Brazilian crop year exports by 11 million mt, which would push 175-225 million bu into the 2024/25 US soybean balance sheets which would keep US 2024/25 soybean end stocks around 320 million bu. This shows why the final Brazilian soy crop size is so important.
  • The midday GFS weather forecast is little changed from the overnight forecast with limited rainfall for Argentina over the next 10 days. Temperatures will warm to the 90’s to lower 100’s (after Friday) with searing heat forecast for much of next week. However, the 11–15-day forecast has a few light showers, but nothing meaningful. Soil moisture loss will be acute making the need for Argentine rain important heading into mid-February.
  • Regular showers drop across Northern Brazil with 10-day totals of 4-9.00” forecast. Cool temperatures prevail across all of Northern and Eastern Brazil with highs in the mid 70’s to the mid 80’s. The Northern Brazilian rain is slowing harvest but is not yet creating any quality issues.
  • End user pricing and less than favourable S American weather has Chicago forming a base. The question for the market is how much of the bearish news has been digested. End users are well aware of erratic world weather patterns and are taking cover. However, the price trend is still down on the charts with key moving averages containing the rally. Choppiness looks to prevail this week with the extended Argentine forecast important thereafter.

22 January 2024

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  • HEADLINES: Soyoil rallies sharply on Philipps 66 plant opening potential in Rodeo CA; USDA weekly export inspections as expected; GFS weather forecast drier for Argentina in 11–15-day period.
  • The morning has been mixed in Chicago with values trading either side of unchanged. Soybeans and wheat futures are higher at midday while corn holds in the red. Soyoil has been able to rally strongly on the news that a massive Philipps 66 biofuel plant in Rodeo, California received environmental approval that would allow them to open in the weeks just ahead. The 50-day moving average in March soyoil futures crosses at $49.81 while the oil share spread is trading at 40%. Many in the industry expect that as new US renewable diesel firms come online that the oil share could push back out to 50-52%. The story in soyoil is tightening stocks into the spring and summer draw period that bumps soyoil higher at the expense of soymeal. Oil share is a position that is gaining confidence of cash traders.
  • Chicago brokers estimate that managed money has bought 4,300 contracts of soyoil, 1,200 contracts of soybeans, while selling 3,900 contracts of soymeal. In the grains, managed money has sold 3,500 contracts of corn and is flat in wheat.
  • FAS/USDA reported that for the week ending Jan 18, the US shipped 28.0 million bu of corn, 42.6 million bu of soybeans and 11.5 million bu of wheat. For their respective crop years to date, the US has exported 577 million bu of corn (104.6 million more), 982 million bu of soybeans (206 million less), and 393 million bu of US wheat (73.5 million less). The USDA did not announce any new daily sales.
  • Brazilian farmers are just depressed. In Northern Brazil yields are down 15-60% from last year, but cash prices due to basis losses and transportation costs are even worse. Mato Grosso farmers around Sorriso are seeing cash bids of just $8.77/bu for newly harvested soybeans with June/July winter corn bids at $3.71. Such prices are well below last year and causing many producers to consider whether they should take the financial risk and plant a winter corn crop. At least 30% of farmers surveyed will not take the risk on planting winter corn due to negative profit margins. The rally in the value of the Real has added to the bearish farm mentality. Current depressed cash prices are causing supply loss for the Northern Brazilian farmer.
  • Traders are trying to understand S American crop sizes. Private and public Brazilian soy crop estimates range from 135-159 million mt or a massive spread of 24 million mt with Brazilian corn crop estimates ranging from 112-127 million mt or 15 million. The price impact on Chicago valuations is massive depending on where the final crop ends up. And there is weather risk for Argentine and the Brazilian winter corn crops. Following the recent break, traders are going to be careful about selling in a hole or chasing a rally until there is crop size clarity.
  • The midday GFS weather forecast is little changed from the overnight forecast with limited rainfall for Argentina over the next 10 days. Temperatures will warm to the 90’s to lower 100’s (after Thursday) with searing heat forecast for much of next week. However, the 11-15 day forecast subtracted Argentine rain in an overall arid weather profile heading into February 5. Soil moisture loss will be acute making the need for rain important heading into mid-February to preserve trendline crop yields.
  • Regular showers drop across Northern Brazil with 10-day totals of 4-9.00” forecast. Bahia will endure totals in excess of 10.00” that will spark harvest delays. Cool temperatures prevail across all of Northern and Eastern Brazil with highs in the mid 70’s to the mid 80’s.
  • Has Chicago digested enough bearish news with China becoming a more active daily buyer in the Brazilian export market? Brazilian farmers are also hesitant sellers of cash soybeans, not wanting to lock in losses. Technically, soyoil is forging a bottom and forecast to at least test the 50-day moving average at $0.4982 basis March futures. Corn and wheat are following amid a lack of fresh news.