CBOT Gains as China Securing 2-2.5 MMTs of Cash Soybeans; Wheat Paces Gain on Fund Short Covering

Feb 1, 12:36 pm | Mid-day Commentary | Share this:

** US/China trade optimism has pushed CBOT soybeans to new rally highs with March futures exceeding the December spot top at $9.28. Cash sources indicate that China has booked 2-2.5 MMTs of US soybeans this AM. This shows that they want to make sure they are good on their word. The soybeans are being sold for March thru June with 50% out of the Gulf and 50% the PNW. rumors persist that China will secure US grain and the bearish veil of US/China trade dispute is being lifted from the CBOT. The dispute has acted to cap rallies for the past 7 months. The question many farmers/traders are pondering is how far can CBOT prices rally? The USDA Feb Crop Report will hold a few answers, but the point is that traders are now interested in securing breaks – not selling rallies.

 ** CBOT brokers estimate that funds have bought 4,400 contracts of corn, 6,100 contracts of soybeans, and 4,000 contracts of wheat

** ARC notes that the 50-day moving average crosses at $5.0275 in Mar KC and $5.175 in Mar Chi wheat. The wheat charts appear to be turning up, but funds will want to see a close above $5.03 March KC to issue clear buy signal. 

 ** Commercial traders are questioning as to how many soybeans can China store in its reserve? It was estimated that China’s soybean reserve was 7-9 MMTs this summer and that 2 MMTs have been sold since taking current stocks down to 5-7 MMTs. ARC doubts that the China Gov’t has enough storage to take on an additional 10 MMTs of soybeans. We are told that COFCO will be taking the latest US soybean imports for crush – such that the Chinese Govt could replacing those soybeans with cheaper South American supplies this summer. The point is that although China talks about securing the US soybeans for their reserve, it’s likely that a good portion of the soybean will be commercially used which will displace China’s Latin American demand. Pressure on Brazilian soybean fob basis levels is expected to deepen as the harvest advances.

 ** Ethiopia received tender offers for 400,000 MTs of hard wheat, which will likely include some US HRW according to US exporters. A low-ball CIF offer from a new local Ethiopian trade company could get passed, but this leave established offers around $299-308/MT CIF. Amid the collapse in world freight rates, this allows US HRW to have a shot at the sale. Normally, this business would be filled by the EU or Black Sea. March Russian fob wheat closed the week at $255/MT on tightening domestic supplies. A top in the Russian domestic market is not expected until spring with normal weather for the new crop.  

** Midday GFS South American Weather Discussion: The midday GFS is a tad wetter with better rain chances across Brazil. Even Mato Grosso Do Sul has better rain chances in the 7-10 day period with rain chances of .5-1.25”. The new rain should help finish off the Brazilian soy crop and aid winter corn seeding. And a drier forecast is offered for Argentina and S Brazil with trend or above trend yield prospects offered. No extreme Argentine heat is foreseen, and the crop prospects here are vastly improved from last year’s dire drought. Confidence on a 55 MMTs plus Argentine soy crop is increasing.  


** AgResource Market Analysis: China has secured some 2-2.50 MMTs of US soybeans (this AM) with the remainder of the promised 5 MTs to be taken early next week. China wants to look good on its US political promises. China may not need US corn/wheat, but here too it wants to keep a promise made in Argentina. China’s demand for Brazilian soybeans will be exceptionally soft leading to new basis pressure as the harvest advances. Finding an interior bid for new crop Brazilian beans is difficult today. ARC holds to a bearish soy/bull grain outlook into March