NEAR-TERM MARKET FUNDAMENTALS: Ideas that China is in an economic recovery and a lack of rain in the forecast for Argentina with more heat neat week helped drive soybeans sharply higher overnight despite a lack of help from gold, the dollar or energy. Soybeans rallied sharply yesterday along with meal and oil. Soybeans and meal topped the day off with a new high just prior to the close in the March contracts. Traders said that the buying came from a mixture of weather concerns in Argentina and an inflationary surge in buying across the commodities sector. Funds were strong buyers in soybeans throughout the day. Prices were higher again overnight with traders saying that the latest price increases have not brought a significant increase in farmer selling just yet. Trade sources in India report that buying in palm oil has dropped to less than half the normal total for that country in the last week. Other Asian markets are just starting to rev up their buying in vegetable oils after the Lunar New Year, and overall demand there is said to be soft. The USDA will issue its latest Supply/Demand and Crop Production reports next Tuesday, and traders are looking for a moderate decline in US ending stocks for 2008/09. The USDA released its latest Export Sales Report yesterday. The totals were in line with expectations for meal and oil, but below expectations for soybeans. Net sales for soybeans were 336,700 tonnes for the current marketing year and 2,300 for next year for a total of 339,000. As of January 29, cumulative soybean sales stand at 81.6% of the USDA forecast for 2008/2009 versus a 5 year average of 79.5%. Sales of 179,000 tonnes are needed each week to reach the USDA forecast. Net meal sales were 184,000 tonnes, all for the current marketing year. Cumulative soybean meal sales stand at 49.8% of the USDA forecast for 2008/2009 versus a 5 year average of 53.9%. Sales of 110,000 tonnes are needed each week to reach the USDA forecast. Net oil sales were 10,100 tonnes, all for the current marketing year. Cumulative soybean oil sales stand at 33.8% of the USDA forecast for 2008/2009 versus a 5 year average of 64.1%. Sales of 15,000 tonnes are needed each week to reach the USDA forecast. US Census oil stocks for December were also out yesterday at 2.660 billion pounds versus 2.535 in November, and Statistics Canada released its stocks estimates as of December 31st. Canola was pegged at a record 9.1 million tonnes versus 7.4 million a year earlier. Egypt bought 35,000 tonnes of soy oil on a tender for up to 25,000 yesterday and they also bought 12,000 tonnes of sunflower oil on a tender for up to 9,000.
CASH NEWS AND TENDERS: Egypt bought 35,000 tonnes of soy oil yesterday on a tender for up to 25,000. They also bought 12,000 tonnes of sunflower oil on a tender for up to 9,000.
WEATHER: Argentina saw scattered showers and thunderstorms in the northern soybean belt and NW corn belt overnight with other areas mainly dry. Mostly dry conditions are expected today and Saturday with scattered showers on Sunday. Hot temperatures are expected to return next week. Brazil continues to see scattered showers and thunderstorms with more in the 2-day forecast.
TODAY’S GUIDANCE: Weather in Argentina is an on-again-off-again factor in the market, but the recent production estimate by the US agricultural attache there put the soybean crop at 42.5 million tonnes. This confirms that a great deal of damage has already been done. This may have also cleared the field for the bulls with impressive price gains seen yesterday that seemed to have nothing to do with anything other than a desire by traders of all stripes to cover their shorts and start thinking about developing cautious long position. Farmers will be the key as to whether the March soybean contract can get through the $10 level and stay there over the short run, but fund activity may be the deciding factor over the longer term. The index fund long position in soybeans is less than half of the early 2008 highs and trend-following funds are net long only about 25,000 contracts which is less than 1/5 of their early 2008 net long position. We would not suggest that either of these groups will be returning to last year’s highs in their net long positions, but there is a great deal of room on the upside in terms of a simple recovery “rally” to a more balanced historical position.