Morning Commentary - 01/16/2019

Markets Recover; Brazil Trends Drier

6:30 AM CBOT Futures: Mar soybeans are up 4.25 cents at $8.975, Mar corn is up 2.75 cents at $3.74 while Mar Chi wheat is up 4.25 cents at $5.1525.

Good Morning! Corn, wheat and soybeans have partially recovered Tuesday’s losses on drier forecasts in Brazil and suspected large US grain export demand.

So far this week we estimate that funds have sold a net 18,000 contracts of corn, 12,000 contracts of beans and 8,000 contracts of CME wheat. CFTC data hasn’t been released since late Dec, but our work indicates managed funds this AM are long a net 80,000 contracts of corn, down from 128,000 on Dec 18. Funds are short an estimated 15,000 contracts of wheat in Chicago and short a net 18,000 contracts of soybeans. The question now is whether funds expand short soy and wheat positions amid adverse dryness in Brazil and ahead of late Jan’s meeting between US and Chinese talks on Jan 30?

Tuesday’s news from US Trade Representatives reflected a reversal from previous sentiment, but we wonder is a sort of good cop-bad cop strategy is being deployed. Our contacts are still optimistic on an eventual deal.

Major exporter currencies have been generally isolated from Brexit volatility. On Tuesday PM May’s Brexit deal collapsed, leaving UK-EU trade policy uncertain moving forward. The US dollar this morning is slightly higher, as are currencies in Russia and Brazil.

The major forecasting models are at odds on the two-week South American forecast. There’s general agreement that better rains in the 6-10 day period will not be the beginning of a pattern change. Brazilian dryness and too much rain in Argentina is a structural climate phenomenon, and it longer term guidance pushes any lasting change out to the early/middle part of February. And the EU model this AM is much drier than previous runs, with only very lite/scattered showers offered to the driest areas of Brazil next week. Additional rainfall of 2-4” is expected in Argentina in the next 48 hours. Accumulation in North/Northeast Argentina since Jan 1 rests at 9-14”, or some 550-675% of normal.

The Central US forecast is favorably warmer than prior runs. A more seasonal temp profile is still expected beginning this weekend, but extreme cold is not forecast is morning EU/GFS solutions. Concern over winterkill will be eased. Heavy snow is still offered to the Central and Eastern Midwest this weekend and during the middle part of next week.

EIA energy & ethanol data is scheduled to be released this AM. A seasonal recovery in US ethanol production is expected.

A lack of trade conviction will continue amid the lack of USDA data.

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