** CBOT Midday Market Comment:
The AM has been slightly lower in thin volume at the CBOT. Fund managers may want to push their profit cause and protect their heady large net short positions with new CBOT sales into the close. Managed money is going to go into the New Year with their largest short CBOT position on record. This HUGE net short position creates upside market risks if adverse South American weather emerges in Q1 2018?
There is a growing economic view that US wage inflation is going to emerge in early 2018. Traders are debating if rising wages could ignite a push upwards in the US CPI? Inflation is a hot topic in hedge fund discussions.
World inflationary trends already exist and key commodities like crude oil, cotton and copper already in bull markets. These key commodities measure world emerging market demand – which is surging. The economic landscape for raw material prices is the best since 2007!
Hedge funds are looking to place early 2018 bets in commodities as the asset class is seen as undervalued, plowing back some gains from equities.
Crude oil, cotton, copper, barely, and sorghum are in bull markets. World stock/use ratios of the minor feedgrains of; barley, sorghum and oats are record low – and these markets need to secure additional acres in 2018.
US cotton acres will also gain, and our view remains that US farmers will plant for yield (not price or margin) with US corn acres to be up at the expense of soybeans. ARC would remind clients that USDA pegged 18/19 US soy end stocks at 376 Mil Bu with planted acres of a record 91 Mil! Old crop US soybean stocks are larger via reduced exports, but it’s premature to discuss 18/19 soybean end stocks above 450 Mil Bu. This places broad support under $9.50 basis November 2018 futures.
And finally, 2018 offers a bullish outlook for US soyoil demand based duties on Argentine and Indonesia biodiesel that look to be confirmed in early 2018 – and last for the next 5 years. There is a real story emerging for US vegoil demand to meet the biodiesel mandates. ARC argues that WASDE is still underestimating US soyoil use for biodiesel by 300-400 Mil pounds!
AgResource’s point is that unlike the past 4 years, we are not entering the New Year with an ultra-bearish CBOT stance. We are not an outright bull, but it’s just too late to be bearish amid dynamic world weather.
** US grain export sales for the week ending Dec 21st were; 17.6 Mil Bu of wheat, 49.0 Mil Bu of corn, 35.8 Mil Bu of soybeans, 288,300 MTs of soymeal and a crop year high of 44,200 MTs of soyoil. And US sorghum sales were 12.8 Mil Bu on the week. Sorghum and soymeal are the only CBOT commodities above last year’s export pace – with strong demand trends likely to persist.
** Midday GFS Weather Forecast Discussion: The forecast is slightly drier than the overnight solution for the next 6-7 days across C Brazil and much of Argentina. A frontal pass on the weekend is expected to produce .1-.75” of rainfall with a few localized totals exceeding 1.00” across Argy. The models have been trending warmer/drier in the forecast period to January 10th for the past few days. The drying trend includes Argentina & portions of C Brazil.
A cooling trend will be noted on the weekend with high temps retreating to the 80’s to lower 90’s. Warm temps return during the middle of next week with highs in the 90’s and few lower 100’s for Argy. The GFS offers better chances of rain in the 11-15 day period for Argentina and S Brazil, but its accuracy that far out is poor. The rain chances will have to be pulled forward/verified.
** 10-y GFS Rainfall Forecast and Change from Overnight Run:
** AgResource Market Comment: The CBOT will end the year mixed. This afternoons COT report and Tuesday’s South American weather forecast will drive price direction next week. Our message is not to underestimate the flow of investment funds into commodities in Q1 2018.
Happy New Year and thank you for your patronage, AgResource is looking forward to the opportunities of ’18!
