Grains are higher early Wednesday with cattle and hogs lower. Crude oil futures are nearly flat.
Grains Rally on Fund Rebalancing
Grain futures are rallying on Wednesday after failing late in the session on Tuesday. Darin Newsom, senior market analyst with Barchart, says the grain complex may be some rebalancing by hedge and index fund traders to start a new year and with grains under valued. The soybean and wheat markets are also oversold after soybeans lost nearly $1.40 off the November highs and soft red winter wheat futures just hit contract lows last Friday. So these two markets were due for a corrective bounce. Wheat is also the most logical market to see fund buying and short covering asf funds are short in all three classes a combined over 100,000 contracts. He’s not sure, however, how much the funds will want to extend their already long position in soybeans and slightly long position in corn.
China Buying Soybeans?
Newsom says with the way the spreads are acting in the soybean market it looks like there is some commercial buying and of course that could be tied to Chinese purchases. There has been rumors of Sinograin buying 10 to 14 cargoes or 25 million bu for March-May delivery to start the week. At least a portion of that was confirmed by flash sales on Tuesday. USDA corrected the sale late in the afternoon to include 5.0 million bu. to China and the balance (7.6 million bu.) to unknown for a total of 12.6 million bu. Trade estimates put China’s total purchases at 10 MMT of the 12 MMT they agreed to.
Newsom says this is seasonally when China would buy some of its secondary needs from the U.S. to bridge to the harvest of the soybean crop in Brazil. “As soon as the combines start to roll in South America it is very likely this buying will dry up,” he says.
China Retaliation Coming??
Newsom points out that even though China’s purchases are getting close to 12 MMT that is only half of what they purchased last year. He is also concerned with the slow pace of shipments to China as he thinks it is possible they could cancel those soybean purchases as soon as they are sure they will have the needed supplies from South America. The other concern is whether or not China will eventually retaliate against the U.S. for intervening in Venezuela as that could come in the form of soybean cancellations as well.
U.S. to Sell Venezuelan Oil
Speaking of Venezuela the U.S. announced it will be selling from 30 to 50 million barrels of Venezuelan crude oil and splitting the proceeds between the two countries. Newsom sees this as a power play by the administration with long term implications for the crude oil market. He thinks this will add to the world oil glut and continue to pressure prices.
Cattle Futures See Profit Taking
Live and feeder cattle futures are lower on Wednesday after feeders made new highs for the move on Tuesday. Newsom says this is most likely profit taking as the market awaits cash trade for direction. He says the key will be whether or not cash can continue to pull the futures up to the record highs from October. Right now he sees no signals that isn’t possible.
