CBOT Mixed at Midday; Who Wants To Chase a Rally Amid Lack of US Export News (Govt Shutdown)

Dec 27, 11:23 am | Mid-day Commentary | Share this:

  The morning has been mixed at the CBOT with corn, soybean and wheat futures trading either side of unchanged in holiday reduced volume. An early morning CBOT rally tried to follow the sharp gains in US equity markets, but the rally failed as US stock values gave back 40% of Wednesday’s gain. The CBOT grain markets are consolidating their recent losses amid a lack of fresh demand news. Traders are closing their books on 2018! The political uncertainty of Washington is likely to keep traders cautious in the New Year. There can be days of modest rallies, but large and looming Brazilian corn/soybean harvests are likely to cap rallies. Bullish traders will be sidelined until is clear that the US Gov’t is reopening (export sales and CoT data flows return) and news the US/China are closer to a trade deal. Soybean traders are disappointed that China has not purchased the last 2 MMTs of an expected 5 MMTs purchase. The market has a heavy feel at midday based on bearish chart considerations.

** CBOT brokers estimate that funds have bought 1,900 contracts of soybeans, 2,100 contracts of corn, while being flat in wheat. In soy products, funds have bought 1,100 contracts of soymeal and 900 contracts of soyoil.  

 ** There are just 63 days for the US and China to bridge their trade and IP/IT differences. If one assumes that China will take off some 10 days for their Lunar New Year holiday and 3 days are used up for the New Year’s holiday, this leaves just 50 days for the US/China to hash out a complex trade and industrial protection deal. Most agree that although progress is being scored, a considerable amount of additional time is needed to complete a doable deal.

 A US Trade Delegation will be heading to China during the week of January 7th. The delegation will NOT include high level US Gov’t officials which underscores the fact that both sides are still working on the grit of the   details – including that it will take China years to enact laws to establish intellectual IT/IP property protection. Whether this much time is acceptable to USTR is unknown but it is a sizable risk for a March 1st deal. Amid a US soybean export and sales pace that is substantially behind prior years, if the US were to raise tariffs to 25% and broaden the goods impacted, CBOT soybeans would likely drop to new contract lows and retest the summer lows at $8.00.

 ** Russia’s Rosstat raised their Russian wheat crop forecast to 72.0 MMTs on a clean/dried basis. There was a 483,000 MTs increase in the Siberian crop and 407,000 MTs in the Volga wheat crops. The USDA pegs the Russian wheat crop at 70 MMTs and it will be interesting if they follow Rosstat’s increase?

** Midday GFS South American Weather Discussion: The midday GFS solution is like the overnight run with improved rain chances across much of N and C Brazil into mid-January. Paraguay and N Argentina will hold in a drier profile with soaking rains of 3-8.00” for C and S Argentina. Some areas of C Argentina will endure flooding rains of 6-10.00”. The rain will cause a washout of newly planted soybeans and quality risks for unharvested wheat. No extreme heat is forecast for Argentina amid the persistent cloud cover. A few warm days of mid 90’s to lower 100’s is forecast for SC Brazil with seasonal temps returning next week. The weather forecast for Brazil is improving.    


** AgResource Market Analysis: Soybeans bounced off an uptrend line at $8.68 basis Jan futures. However, the recovery has been modest amid a lack of fresh export interest. Traders are not willing to chase rallies unless China is buying US soybeans! The Trump Admin has been talking hawkish of China IT firms and the time is limited for a trade deal by March 1. Amid the slowing world economic landscape and sliding equity markets, any hint that the US/China trade is hitting a political speed bump would drop spot CBOT futures back to $8.00.