** Several days of gains are being unwound at the CBOT as corn, soybeans and wheat futures sag this AM. Traders are debating sluggish US corn, soybean and wheat exports against the prospect of 2018 South American corn and soybean production will not reach last year’s levels?
WASDE estimated the 2018 Brazilian soybean crop at 108 MMTs and Argentina at 57 MMTs in December. Most see the Brazilian soybean crop up 2-3 MMTs at 110-111 MMTs with the Argentine soybean crop down 1-2 MMTs at 55-56 MMTs. \
The net result is a combined soy harvest of 166-167 MMTs, which is still below last year’s 172 MMTs harvest. Amid enlarged world demand, such a crop would produce support below $9.50 basis spot CBOT soybean futures.
And in corn, the downward crop argument is even louder with the Argentine crop seen at 39-40 MMTs (down 2-3 MMTs from WASDE) with most private sources doubtful that Brazil’s corn harvest will surpass 92.0 MMTs. The combined corn production would reach 129-131 MMTs, off 8-10 MMTs from last year. The point is that WASDE does not normally adjust US soybean, corn or wheat exports dramatically lower in January (biggest US soybean export drop was 70 Mil Bu) with so much uncertainty surrounding ’18 South American production.
** CBOT brokers estimate that funds have sold 4,500 contracts of corn, 4,100 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.
** Mark your calendars for Jan 23-28th which will be the 6th round of NAFTA negotiations to be held in Canada. The previous rounds have not produced progress, and it will be key that this round produce a breakthrough. The Trump Administration is becoming impatient and wants to see real gains to keep his campaign promise. Trump will get an earful as he attends the Farm Bureau Annual Meeting about NAFTAs importance to agriculture.
** The Dow has crashed through 25,000 as equity gains continue to mount. US crude oil prices are likely to test the 2015 highs at some point in coming days at $62.58 basis March futures. The US Jobs Report on Friday is likely to maintain strong job growth during December which along with the Trump Tax reduction is fueling inflationary expectations. Hedge fund managers see CBOT grains as a cheap play and they could become larger investors following the Jan 12TH USDA Crop Report. The macros are bullish for raw material prices!
** The Baltic’s main ocean freight index surged 6.25% today to $1,341.00. World freight rates/indexes has been rising amid strong demand for raw materials from emerging nations. The trend is likely to persist into Q2.
** Midday GFS Weather Forecast Discussion: There just is not much rain in the Argentine and the S Brazilian weather forecast for the next 10 days. The forecast is slightly drier than the overnight solution (which was dry already) with just a few lite showers overnight. Mostly hot/dry weather is offered for the weekend and much of next week with high temps ranging from the 90’s to lower 100’s. The next chance of showers is next weekend with a frontal pass across Buenos Aries which could see .2-.8” of rainfall with limited amounts elsewhere. The coverage of rain looks to be around 40% of the crop areas.
Regular rains look to drop across the northern 2/3’s of Brazil with seasonal temps. Our confidence in any Argy rains beyond 10 days remains low.
** AgResource Market Comment: The macro trends are bullish for the ag markets with the CRB/CCI index pushing to new highs. But with the grain chart sideways & a USDA report ahead, market choppiness may continue into next week.
