What Traders are Talking About:
* Brazil modestly raises crop estimates. Brazil is expected to produce a record soybean crop of 82.7 MMT, according to Conab, the Brazilian government's supply agency. That's up marginally from its December forecast of 82.6 MMT. Conab also modestly increased its corn production forecast to 72.2 MMT from 71.9 MMT previously. Pro Farmer South American consult Dr. Michael Cordonnier is at 80 MMT for his Brazilian soybean production forecast and 70 MMT for corn. Conab is also above most other private forecasters with its production estimates.
The long and short of it: Expectations for record South American soybean production, and the likelihood those soybeans will start to hit the global market in February, are weighing on soybean futures. The market needs fresh bullish news to put in a short-term low.
* Chinese soy appetite waning, but wheat demand perks up. Chinese soybean imports are expected to decline significantly this month, potentially to no more than 3.5 MMT amid waning processor demand, according to trade sources. And that number could drop even more in February as there is downtime for the Lunar New Year holiday. After the Lunar New Year celebration, some new-crop South American supplies should be in exportable position. So it wouldn't be surprising to see China cancel some additional purchases of U.S. soybeans. Meanwhile, Chinese demand for U.S. (and Canadian) wheat is building. Trade sources indicate China has purchased several cargoes of high-protein North American supplies in recent days as domestic prices are rising and global prices are declining.
The long and short of it: Declining Chinese demand for soybeans will make it harder for the market to attract fresh buying interest and means fund buying is all the more important in determining when a short-term low is in place. Unless Chinese demand for wheat is strong, it won't likely be enough to spark a recovery rally.
* South Korea continues to buy. South Korean end-users have been actively increasing coverage on the price break. While corn has been the most actively purchased commodity, South Korean feedmakers are also buying wheat and soymeal. Aside from South Korea, however, end-user buying has been relatively limited despite the sharp price breaks. That would suggest global end-users either have more coverage in place than most expected, and/or they sense additional price pressure is likely.
The long and short of it: Many global end-users may be waiting to see what price reaction there is to USDA's crop reports on Friday. If there's a bullish response, they would get more aggressive in booking coverage as it would signal a short-term low is in place. If there's a bearish reaction, it would signal to wait on extending coverage as more near-term price pressure would be likely.
Follow me on Twitter: @BGrete
Need a speaker for a seminar or special event? Contact me: firstname.lastname@example.org