Soy Complex
Both soybeans and soy meal gave back early weekly gains as wetter forecasts in the 6 to 10 day forecast in Argentina emerged. While persistent dryness accompanied by heat has been constant in the central and southern growing regions of the country, both bean and corn crop crops are only in the beginning stages of development. This leaves the potential for needed rains to enter the latter half of February which may or may not show up. What isn’t showing up is demand from China. Export sales for future shipment disappointed as the USDA reported only 359 K metric tons sold for future shipment on Thursdays report. this was a 17/18 marketing year low. Brazil has garnered 2/3 thirds of China’s bean exports in December of 2017 and aside from the a three-day buying spree in early January when bean prices were trading under 960 on the Board, China has been absent. When you combine weak demand and lack of a weather scare or premium being continuously built, prices fell late this week. Weather is the key in Argentina for me. Brazil’s weather has been ideal in most of their growing areas. Estimates are coming in at 110-112 million metric tons, while its short of last years bumper crop, it’s still a high level of production which could offset some potential Argentinean crop losses.
July/Nov 18 Beans: Spot beans (March) need to hold 977.2, should they fail here next stop is at 968 and then 9.62. Should we not hold support look to sell the July/Nov bean spread at above parity with a move to a 5 cent carry . Next level below that is 12 cents July under. However should rains not emerge in the 6 to 10 day in Argentina, look to buy this spread at parity with targets at 8 cents over then 14 cents July over November.
July/Dec Meal: Like beans, soy meal has been under assault as outright March meal has pulled back 19 handles from 348 to 331 with most of the pullback seen in the last three trading sessions. Unless we see a Sunday night higher open in the soy complex, I look for this spread to trade back down through parity with July eventually trading below December (carry). Watch the Sunday night open as it will offer initial clues if there’s any dramatic changes in the weather in South America. We have been advocating buying dips on both these spreads if there’s weather issues. If the weather is discounted these spreads will trade to a carry offering opportunity to sell.
Corn/Wheat:
Corn continued its grind higher putting in a weekly high of 362.4 which was the 200 day moving average basis March futures. We have rallied a whopping 17 cents in three weeks from low to high. Which leads to believe if new highs aren’t achieved soon, we could see back and fill soon and a move back down to the 353-54 area. Wheat broke out to the upside after Monday’s nights crop ratings which showed a very poor start so far for the winter wheat crop. Both KC and Chicago wheat gained on both corn and the Minneapolis wheat contract as aggresssive short covering along with spec buying fueled the rally amid persistent dryness winter wheat states Kansas, Oklahoma, and Texas. Like beans, weather will be the ultimate determinant for an extended rally or not. Both KC and Chicago contracts pulled back from recent highs as the week went on as the trade waits for new weather inputs before making its next move.
KC Wheat vs Chicago: This spread has pushed out to 18 cents KC over and settled today at 16 over. KC basis March needs to hold the 454-455 area. Should it not hold sell Kc vs Chicago and look for a move to 4 cents Kc over Chicago. However should it hold and Kc trades above 471 next week, I would be a buyer here and would not be surprised to see this spread work to 23 over and then 34 cents Kc over Chicago. I’m using these outright levels in spot contracts as cues here as domestic old crop carry-overs are ample in soy, corn, and wheat.
KC/Chicago Wheat vs Corn: KC over corn pushed out to 1.10 KC over but settled around 1.04 over. Should KC struggle next week as needed rains enter into the forecast, sell KC or Chicago wheat vs corn. I would lean towards KC, as I look for the spread to trade down from 1.04-05 to 85 cents, a twenty cent move.
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