- Chicago corn and wheat futures are higher at midday, while the soy complex trades on both sides of unchanged. Option volatility continues to expand in corn, wheat and soybeans amid the prospect of lower world supplies and next week’s key USDA May WASDE report. Weather woes in Australia, the US Central Plains, S America and the budding dryness in the key export area of the Black Sea are all underpinning valuations. Goldman Sachs reported that commodities were the best performer so far in 2018. This will help push additional investment into the raw material space as the world returns from the May Day Holiday. A higher Chicago close is expected paced by the grains.
- Chicago brokers report that funds have bought 7-10,000 contracts of Chicago wheat, 10-12,000 contracts of corn, and 3-4,000 contracts of soybeans. In soy products, funds have bought 3,100 contracts of meal while selling another 3,400 contracts of soyoil. Funds continue to pile into a larger net long corn and meal position, while covering Chicago wheat and nearing their biggest short in soyoil in several years.
- For now, Chicago lacks a “natural seller” as the US farmer is busy planting the 2018 crop, with adverse weather threatening crop production in S America, Australia, the Black Sea, and the US Plains. Any Chicago selling is based on profit taking by speculators. US, Russian, Brazilian and Argentine merchandisers are reported to be having difficulty securing cash grain from the farmer, which begs the question, “have they become bullish on weather and/or their local currency.”
- S American winter corn crop losses are growing with extremely limited rains for key production areas like Parana. Producers in Parana report that some fields will be “zeroed out” amid the drought that extends back to mid- March. We would estimate 2018 Brazilian corn production at 79-82 million mt, which combined with crop losses of 10-12 million mt in Argentina due to their dire drought, lowers S American corn supplies by 24-28 million mt. Low corn supplies has Brazilian livestock feeders looking to import feedstuffs in the world marketplace.
- US wheat futures are streaking to new 2018 highs as US and world production losses come into focus. Chicago wheat has exceeded the March high at $5.06 with the next upside price target being $5.53, the 2017 high set on July 5. Australian, Argentine, and US wheat production forecasts are being lowered via adverse weather. However, it is the emerging dryness in the Black Sea that is gathering importer attention. Russia has produced record large wheat harvests for consecutive years, and upon their return from the May Day Holidays, their ongoing dry weather forecast is likely to raise supply concern.
- The midday GFS weather model forecast is similar to the overnight run with rain totals of .5-1.50” with a frontal pass due from late today into Friday across the E Plains and Midwest. W Kansas and much of the S Plains will see just a few spits of moisture from this system with windy/warm weather. A few days of dry/cool weather follows on the weekend with the next chance of rain being mid next week. This system looks to produce .25-1.00” of rainfall with the coverage of rain being better across the W Plains. The 11-15 day forecast offers another moderate storm system, but our confidence that far out is low. We would anticipate some 32-36% of the US corn crop to be planted as of Sunday, below the historical average of around 50%
- Corn and wheat are confirming bullish trends amid fund demand and declining world stocks. Soybeans are a political marketplace which is worried by Chinese/US Trade negotiations. New money should be pushed at Chicago markets on Wednesday which limits any correction. We remain bullish of grain with soybeans to trade in a broad range. Black Sea weather forecasts will likely drive Chicago wheat valuations.