Grains are mostly higher early with cattle mixed and hogs advancing.
Soybeans Make New Highs for the Move
Soybeans futures made new highs for the move on fund and technical buying and new contract highs in the soybean oil market. Darin Newsom, Senior market analyst with Barchart, Inc. says the algorithm traders have been chasing the headlines of the China story and buying into them buying another 8 MMT of old crop soybeans from the U.S.
Will China Buy 8 MMT of Old Crop Soybeans?
Newsom is skeptical about China buying another 8 MMT of old crop soybeans. He says there is no proof of that happening.
“We’ve got some social media posts that we see are released for a reason. We saw it last fall, October, November, same thing. Soybean market rallied. In that case, it was right around the time of an election, kind of a smaller amount of the election cycle. It didn’t really play that big of a role, but with all the grumbling about low U .S. soybean prices because of the trade war with China. So we get some social media posts this time around. It’s in February because, you know, not only there are a lot of domestic headlines coming out that are quite unfavorable to the administration, but also as we look ahead, the polling for this midterm election coming up this coming fall has also been going against the party in power at this point. So it’s no surprise, you know, so we start getting these social media posts about the U .S. President and China’s president being best of buddies, spending all this time together, all these phone calls and everything, just like college kids, or maybe high school kids. So it’s nonsense, but it’s getting the desired effect. I mean, it’s rallying the old crop market. We’ve seen funds triggered into buying huge amount, large amounts of contracts, and it’s driving it higher.”
Why Would China Buy 8 MMT from the U.S. Right Now?
Economically why would China be buying soybeans from the U.S. when Brazil’s crop is almost $40 per ton cheaper than the U.S.? Newsom says it’s all political.
“Yeah, number one, you know, they don’t have to buy because these quote unquote deals always include the caveat that, you know, that the world’s largest buyer is free to buy from the most economic or the most advantageous supplier. So, you know, and let’s let’s be honest. If China buys, it’s nothing more than the normal business that we see almost every year, uh, where it’s covering secondary supplies. And now that more of Brazil’s harvest is coming in, there’s less incentive. And I mean, total sales, which are total shipments plus open, unshipped sales, it’s 51 % behind just to China last year to year. I think that tells us more than social media tweets or posts.”
Bean Oil Makes New Contract Highs
Soybean oil contracts were making new contract highs early on Wednesday as well on the hopes of an announcement by EPA yet this week on higher blending levels for biomass based diesel in the RVOs. However, Newsom says the market is getting ahead of itself because that demand will take time to build. Plus, the NOPA crush report yesterday showed bean oil stocks were up 49% from last year at 1.9 billion pounds. He says that will eventually weigh on the market and soybean prices.
“I mean, we can go back to the mid -2000s. You know, the hope that U .S. biodiesel and renewable diesel and all of these things that was going to use bean oil, that was going to be the next big thing it was going to be huge it was going to save the market it was going to do this it was going to do that and it never materializes it was going to be the next ethanol never materialize. So, we’ve got a little bit of run up there’s all this talk about 45Z,” he says. we’re a lot more
Corn and Wheat See Short Covering?
Corn and wheat were also higher early Wednesday with wheat leading on short covering according to Newsom.
“I don’t think it’s weather right now because, I mean, wheat is built for this sort of thing. Now, the interesting thing is that we’ve had much above, much above normal temperatures over the last week or so across the plains, across the Midwest. And now we’re expected to get another cold blast. Now, there’s going to be all this chatter again about winter kill this, winter kill that. on winter wheat. Wheat is a cockroach. It takes forever to kill it. It takes a lot of, you know, a lot of attempts before it’s actually dead. And we won’t know that until actually until the combines start moving through the field. But there could be some, there could be some buying, again, coming from funds based on the idea that, oh, we’re going to kill the wheat crop again. But the reality is, I mean, these funds have been so short wheat. And there’s just no reason really to these with these with these trades because there’s there are a lot of other markets that are more attractive that are more interesting,” he explains.
Money Flow Influences Grain Trade
The outside markets are seeing a risk on day and so that is also adding to the early buying in grains as well as some movement in the softs markets. “Yeah, softs. I’m glad you brought that up. I mean, I always talk about how these markets at their heart are weather derivatives, and we can clearly see that in the softs sector. Over the last number of years, we’ve seen strong rallies, historic rallies, and many of the markets in that sector, due to adverse weather, be it in Brazil’s coffee growing areas or West African cocoa growing areas, pushed these markets higher because demand stayed strong and supplies were being cut down. Well, now Mother Nature has cooperated, productions back up. And so we see collapses going on in both coffee and cocoa. On the other hand, a little bit of a freeze across Florida over the last couple of weeks, and now we’ve got orange juice shooting up again. So, you know, these markets are weather derivatives. They show how weather derivatives tend to act, particularly in these thinner traded markets that don’t have the, they don’t have the trade volume or open interest that say corn and soybeans do.”
First Notice Day Liquidation
With option expiration on March contracts on Friday and first notice day next Friday will there be a mass liquidation by farmers ahead of delivery period like there was last year? Newsom is fearful of a repeat of the bloodbath, but not quite as bad. “I think we could. But in the case of corn, you know, when the legs got kicked out of the market with the January USDA nonsense, I think we saw a lot of that selling you know a lot of the pricing contracts and everything after that on panic on panic activity so we may not see the same sort of activity that we saw last year it’s certainly a possibility but you know if we look at what’s happened in the market where we broke it out of its previous sideways trend dropped it down to the next level and have been holding there I don’t know that there’s enough commercial pressure at this point, you know,as we look ahead to push it down to the next level. It’s a possibility. But I think a lot of the damage was done already,” he adds.
USDA Ag Outlook Forum
USDA will release their baseline figures for 10 years as well as acreage and ending stocks estimates as part of the USDA Ag Outlook Forum. Early guesses show an increase in soybean acres by nearly 4 million acres, pulled out of corn. Newsom says the market is already deciding what the acreage will be. “Let’s look at this logically. The U .S. has ample supplies of soybeans coming out of the previous marketing year. Brazil as a record crop that continues to get larger. The theory is the U .S. is going to plant more soybean acres, produce more soybeans at a time when demand just isn’t there. So, I mean, where’s the logic in any of this? Right now, there is still good demand for U.S. corn. Yes, we have ample supplies. Again, we’re not going to run out of corn anytime soon. But if we look at the Nov 26 soybean futures, Dec 26 corn future spread, again, going back to the beginning of February through the beginning of September through the end of February, it has been favoring buying
more corn acres until here just seasonally we see here the last couple weeks, you know, the soybeans start to gain. You know, what will the decision be? You know, the decisions have already been made.”
