** Fund short covering was the theme of recent days as CBOT values bumped up against the top end of a range. However, fund liquidation is pressuring values this morning as the bulls adjust their positions (down) ahead of Friday’s USDA February Crop Report amid bearish news on US/China trade negotiations.
Funds/small traders are long of corn, Chi wheat and soyoil. Selling in wheat/corn paced the decline with soybeans in tow. FAS did not announce any new US soybean sales to China, suggesting that China has finished pricing 5.0 MMTs of US soybeans. This leaves the CBOT nervously bearish with traders doubting that the USDA February crop report would start a new bull phase.
More important to the marketplace is the US/China trade negotiations and whether China is willing to drop their retaliatory 25% tariffs on US ag goods this winter or spring? A structural agreement or breakdown in negotiations in US/China ag trade are the biggest fundamentals that will sustain a CBOT price trend.
** About US/China trade, Trump Economic Adviser Kudlow indicated that the US/China had a sizable distance to go to reach a deal. This tough talk was different from late last week and suggests that a considerable amount of work yet needs to be completed. Yet, ARC would caution about reading too much into US Administration comments – which are always hawkish heading into each new round of US/China negotiations.
** A Trump official is also stating that it’s unlikely that US President Trump and Chinese President Xi will meet before March 1st. This does not mean that US tariffs will double, just that the best that the market can expect is a continuation of the current 25% tariffs.
** CBOT brokers estimate that funds have sold 4,400 contracts of soybeans, 3,500 contracts of corn and 4,000 contracts of wheat. In soy products, funds have bought 1,900 contracts soyoil while selling 2,200 contracts of soymeal.
** US weekly export sales for the week ending Dec 27th were; 21.8 Mil Bu of wheat, 19.8 Mil Bu of corn, and 38.6 Mil Bu of soybeans. Roughly half of the US wheat sales were HRW, with HRS and SWW accounting for the remainder. US SRW wheat sales were just 900,000 bushels. US soymeal sales were just 40,600 MTs with soyoil sales of 16,000 MTs. The meal sales were a marketing year low, down 91% from the week prior, and disappointing with South America starting to ramp up its new crop crush. Brazil and Argentina are offering fob soymeal $13-20/MT below the US Gulf thru June – the US soy crush rate should decline.
** Private Argentine corn crop estimates are rising with producer sources arguing that this year’s harvest could be like Ukraine during 2018! WASDE pegged the Argy crop at 42.5 MMTs in their December report, with private sources putting the crop today at 45-47 MMTs. With normal weather, some hint that the ’19 Argy corn crop could reach 49 MMTs! Last year, Argentina cut a drought reduced corn crop of just 32.0 MMTs.
** Midday GFS South American Weather Discussion: The midday GFS is little changed from the overnight run. Northern Brazil has 10-day rain totals of 3-7.00”. The solid rains will finish off the soy crop and aid winter corn establishment. A slightly wetter forecast is offered for Argentina which is helpful to soybeans. Argentine corn is filling and the sunny/cool weather aids yield. The overall forecast is favorable and leans bearish in the marketplace.
** AgResource Market Analysis: US/China trade remains the big fundamental for CBOT prices and negative comments from US political leaders is pressuring CBOT prices at midday. Delays in a US/China trade deal would allow South America will pick increasing amounts of world soy/corn export demand as 25% tariffs against US goods remain in place. The USDA February report is 24 hours off , which is taking a backseat to negative US/China political talk.