** As expected, the morning has been mixed with profit taking in wheat while the soymeal/soybean market paces the rally based on drier than desired Argentine and S Brazilian weather conditions. The volume of trade has been rather average to end the week. The warmer Central US weather forecast has the wheat bulls wanting to take profits on recent gains, while soybean bulls argue that larger Chinese demand is expected next week following a big cash meal trade there to end the week. ARC looks for soy to gain on the grains with limited downside price risk in March corn below $3.50.
** ARC has been discussing that the bearish/heavily short nature of the marketplace limits the downside price risk as US or South American farm selling is needed to maintain the trend. Our Latin American division – ARC Mercosul – argues that Argentine farmers will be loath to sell any stored old crop soybeans with their earning .5% a month via reduced taxes and another .75% on the forward curve of the peso. This offers a 15% return!
** CBOT brokers estimate that funds have sold 3,500 contracts of corn and contracts of soybeans, and 2,400 contracts of wheat. In soy products, funds have sold 3,000 contracts of soymeal and 2,200 contracts of soyoil.
** US export sales for the week ending December 28th were; 4.8 Mil Bu of wheat, 4.0 Mil Bu of corn, and 20.4 Mil Bu of soybeans. US soymeal sales were 109,000 tons with soyoil sales at 17,900 MTs. The soyoil sales total was supportive, but the remainder of the sales totals were disappointing – even for a holiday shortened week.
** For their respective crop year to date, the US has sold 715 Mil Bu of wheat (down 55 Mil Bu or 7.1% from last year), 1,050 Mil Bu of corn (down 356 Mil Bu or 25%) and 1,509 Mil Bu of soybeans (down 255 Mil Bu or 18%). USDA is likely to trim their US 2017/18 corn and soybean export estimates a week from today. ARC looks for 50 Mil Bu cut in corn and 25 Mil Bu in beans.
** Much warmer Central US temperatures are expected starting Sunday and persisting for the next 10-12 days. The warming temps will reduce concern for winterkill in wheat, and could spark a few showers across the Plains. The US cattle and wheat markets are reacting negatively to the news of warming temps. ARC notes that it will be spring before any determination can be made regarding US Plains winterkill damage. The warmer temps will reduce the need for packers to pay up in the cash cattle market.
** Midday GFS Weather Forecast Discussion: The forecast is little changed for Argentina and S Brazil, but drier for Central Brazil. A few week frontal passes will produce some lite rains across Argentina and S Brazil next weekend and early next week, but totals will be well below normal. And ahead of the showers, heat will be noted with a week of 90’s to lower 100’s forecast. Two chances of lite rain could produce cumulative totals of .25-1.25” across Argentina and S Brazil. Dry and hot weather is likely to follow.
Regular rains look to drop across the northern 1/3’s of Brazil with seasonal temps. The long range models are all in agreement that a drier trend lies in the offing for NE and C Brazil. Whether or not this drying trend emerges will be closely watched by traders. Our view is that a La Nina weather pattern will be maintained which will trim yield potential in the last half of the growing season.
** AgResource Market Comment: The USDA January report is a week away and traders and funds are heavily short. China also has a large share of their February and March soybean import needs to cover. It’s hard to be overly bearish following a long lived bear market and the world macro- economic demand trends strengthening. Our view remains on of trading the CBOT range.