Grain and soy futures are under pressure amid late year cash grain and chart based selling. The US farmer has witnessed another hit to his/her balance sheet and is selling some stored grain to raise cash. It has been a 4 year slide in US farm income and bankers are beginning to fret about future profitability.
Charts have also played a bearish role at the CBOT this AM with soybeans back down testing the lows set prior to Christmas, with the grains in tow.
Corn and wheat futures are still higher on the holiday shortened week to date, but there is no desire to chase rallies from end users or speculators with a new tax year ahead. ARC would note that hedge funds have a bullish commodity view on rising inflationary trends, but are waiting to place such bets in early 2018 – as they trim some long equity positions and re position in raw materials. That investment shift could provide levity to the CBOT grain markets in January. Funds are sitting on a record grain short.
CBOT brokers estimate that funds have sold; 3,100 contracts of corn, 1,200 contracts of wheat, and 4,200 contracts of soybeans. In soy products, funds have sold 2,100 soyoil and 1,700 contracts of soymeal.
The big question that all should be asking is how much additional downside price risk prevails in corn, soy and wheat markets as the calendar turns to a New Year? March corn could return back to $3.30-3.40 long term support, March Chi wheat to $4.10-4.15 and March soybeans to $9.30-9.40. There is downside price risk, but its not sizeable. And most importantly, the heart of the South American growing season occurs in January and February – and remember that this year’s Argentine and Brazilian soy and corn seeding was delayed due to unusually dry springs. It’s premature to argue in favor of above trend yields at this early date.
ARC estimates US weekly grain sales for the week ending December 21st in a range of; 900,000-1.2 MMTs of soybeans, 850,000-1.2 MMTs of corn, and 550-700,000 MTs of wheat. In soy products, the US is estimated to have sold 10-20,000 MTs of soyoil and 145-185,000 MTs of soymeal.
US copper prices have soared in the past few weeks on strong Chinese building demand. ARC commented a few weeks ago that the Chinese Gov’t would continue their borrowing ways to stimulate their economy. The US, Chinese and emerging market economies are exceptionally strong at this point and that strength should translate into additional raw material demand.
Russia’s Rosstat (USDA NASS equivalent) has raised their estimate of the 2017 Russian wheat crop to a record large 85.8 MMTs. This is up 2.8 MMTs from the WASDE Dec forecast. Russian wheat exports are expected to rise to 35 MMTs.
Midday GFS Weather Forecast Discussion: The forecast is slightly drier than the overnight solution for the next 6-7 days across SC Brazil and C Argentina. A frontal pass on the weekend is expected to produce just .1-.7” of rain with any 1.00” totals extremely localized. This drier weather trend then extends northward into SC Brazil. Soil moisture levels will continue to decline. Warm to hot temperatures will occur this week with highs in the 90’s/lower 100s. Heat /dryness returns in the week following like warmth. The GFS offers better rain chances in 12-15 days, but its accuracy that far out is extremely low.
AgResource Market Comment: Emotionally, the CBOT has an “I give up” feel ahead of January 1st notice day on Friday. Funds are sitting on a record short grain position and are now estimated to be short some 65,000 soybeans. This is no place to hit the sell button with S American weather concern rising in Argentina!
