- Soybean and meal futures spiked higher on the Tuesday opening, and then gave back some of the overnight gains on profit taking and increased farm selling. Market news for the day had export inspections seasonally declining, while weather forecasts for Argentina show limited rains across the soybean belt over the next 10 days.
- After holding at multi year lows for many months, soybean option volatility has spiked over the last several weeks. The Chicago soybean option volatility index on Monday was at 19.5%, well above the mid January low of 11%, and the 5 year average of 17% for late February.
- The market has unsurprisingly dialed in a smaller Argentine soybean crop, though industry estimates are in a wide range of 40-50 million mt versus the USDA’s Feb estimate of 54 million. The previous two droughts caused abandonment to spike to 6-8%, while yields were 16% and 30% below trend. Our best guess today is a crop of 41-45 million mt.
- Argentine farmers will be reluctant sellers of large old crop stocks in the face of dwindling new crop prospects.
- Corn futures fell 1-2 cents, though other than a further recovery in the US$ fresh input is lacking. It’s becoming increasingly probable that Argentina sees little/no rain through the next 30 days, after which only a small portion of the crop can be improved. US Gulf corn is still the world’s cheapest feedgrain through spring, and even sorghum basis in selected locations is recovering. Also, cotton futures rallied sharply today, and so it remains that US seedings this spring will be steady at best, and very likely down 1.0-1.5 million acres.
- Argentine drought aside, priority number one is the US’s position in the world market. The US Gulf’s price discount to S America and Ukraine rests at $.10-.30/bu, and similar discounts are noted into Asia when adding freight costs. It’s just tough to be bearish the world’s cheapest grain.
- Wheat futures corrected modestly amid a lack of any market-specific news, and as very light snow fell across Kansas over the weekend. However, overall the US Plains will be nearly completely dry into the opening days of March. We also mention that a major temperature pattern change is due in Europe and the Black Sea this week. Following abnormal warmth all season, overnight lows in the Central and Volga regions will fall to below zero. Snow cover in the next few days will be watched closely, but we do anticipated further logistical issues there.
- Egypt’s GASC is seeking optional origin supplies for late March delivery. Russian is still favoured in fob lineups, but at $203/mt (vs. $195 30 days ago) its discount to comparable origins is narrowing. Note too that interior US wheat basis is unchanged and still rather firm. It has been a sizeable rally and setbacks are assured. We caution against turning bearish until rain actually materialises in the Western Plains.