- HEADLINES: Chicago rallies on strong Midwest cash basis; Fresh China purchase of US new crop corn; Drier central US weather forecast; Fall in Parana corn crop ratings
- Chicago grain/soy futures are sharply higher with old crop corn/soybeans pacing the gain. Traders are certain that the old crop summer row crops have a bullish story on the tightness of nearby cash supply. The USDA is not expected to raise or lower their 2020/21 soybean stocks estimate of 120 million bu, which is viewed as the bare minimum or pipeline. Old crop corn stocks are expected to fall due to rising export demand with USDA boosting China’s corn imports from the US as sold cargoes ship.
- Wheat and new crop corn/soybeans are following the strong gains in old crop summer row crop futures. November soybeans are back to challenging contract highs at $14.43 while May soybean futures have scored a new 8.5 year high at $16.48/bu. The discount of July futures (to May) will underpin old crop corn and soybean futures on breaks.
- We look for a higher close with the market risk to the upside on a cut in the 2021 Brazilian corn crop and boost in 2021/22 US corn exports. US 2021/22 soybean end stocks are forecast to be pipeline at 120 million bu. A sharp rally or a sharp break on Wednesday is likely to find traders that are willing to return to a large net long position or bank windfall profits amid the recent strong price rise. Fading the number will be a popular sport tomorrow.
- Chicago traders estimate that funds have bought 5,000 of wheat, 12,000 contracts of corn, and 9,900 contracts of soybeans. In the products, money managers have booked 4,300 contracts of soyoil and 3,900 contracts of soymeal.
- China appears to be clamping down on grain and crush information flow to the world. COFEED, a China ag statistical provider, has suspended release of its ag information. Chinese soybean crush rates have been expanding and have correlated well with monthly and annual totals. The COFEED shut down makes estimating China soybean imports even more difficult. The Chinese Government appears to be increasinly sensitive to domestic prices and trade. We note that Chinese domestic corn prices are reaching levels close to the early winter price highs.
- FAS announced the sale of another 680,000 mt of US corn to China in a new crop position. This takes China’s known US corn purchase commitments to 3.0 million mt, a record large amount with the start of the crop year still 3.5 months away. We hear that China is still bidding for US and Ukraine corn on breaks. It will be interesting to watch if China is a buyer on any bearish reaction to the May USDA report.
- Parana’s DERAL corn crop rating this week fell to 30% poor to very poor, with 45% of the crop rated average and just 25% of the crop rated good. Last week, 28% of the corn crop was rated good. On April 6, 92% of the Parana corn crop was rated good, which has declined sharply due to acute dryness. Further falls in ratings are forecast with rains absent in the forecast into late May at the earliest.
- The midday GFS weather forecast is slightly drier than the overnight run across the Northern US Plains, Canada, and the N Midwest. The prospect of rain is pushed further south into S Iowa, Northern Illinois, and N Indiana. Moreover, excessive wet weather is further west into C Texas and out of the key cropping areas of E Texas and Louisiana. The dryness across the N Plains, Canadian Prairies and N Midwest follows a weather trend that extends back into mid-winter. The GFS forecast maintains a cool to cold temperature trend for the eastern half of the US into May 24. The relative cool will slow emergence and further hamper crop development. The cool temperatures are starting to worry corn producers as the crop is slow to emerge and set a root structure.
- Monday’s Chicago decline was a mere “speed bump” in an overall bull market. The structure of the 2021 grain bull market is little changed with the Brazilian corn crop in decline, US cash basis bids remain strong for nearby delivery, and China continues bidding for US new crop corn. The only difference is that traders are wanting to take risk off the table amid the unpredictability of the upcoming USDA report. We expect that any sharp Chicago decline (should the report be bearish) would uncover end user pricing.