- HEADLINES: Argentine financial worry emboldens farmers to hold tight to crops: US weekly export sales slow; Ukraine grain corridor confusion.
- US weekly export sales were as slow as feared; CONAB raises 2023 Brazilian soybean and corn crops slightly to new records; Fear is growing that Argentina is in a financial “pickle” due to soaring inflation and a sharp decline in hard currency as Argentine farmers hold fast to this year’s harvest with the Soy Dollar Program yielding few cash sales; Traders convinced that USDA will release a bearish report on Friday based on slowing world demand; Any bullish surprises could be tied to US HRW wheat production and that demand does not fall as much as traders fear. Sub $5.10 December corn and sub $12.25/bu November soybeans have already built in considerable amount of demand bearishness. A N Hemisphere growing season is ahead and world ocean temperatures are record warm which adds to market volatility as a “supply” focus returns.
- Midday Chicago futures are mixed in preparation for what traders expect to be a bearish WASDE report on Friday. Corn, soybeans, and wheat gapped lower on fresh short selling. End users and closet bulls are waiting for the report to be released before taking a stab at ownership. By our count, fund managers have now liquidated most of their soybean ownership but are still holding a modest 16,000 contract long in soymeal. Speculators are heavily short Chicago wheat, corn, and soyoil. Commercial pricing underpinned July soybeans.
- News surrounding the Ukraine Grain Corridor is confusing, and maybe confusing with a cause to delay any decision until after the weekend Turkey Presidential election. Russia claims that the Istanbul talks have ended while the UN and Ukraine holds out hope for some sort of short-term extension. However, Russia holds fast its request that all of its demands be met by May 18, or the corridor will close. We believe that the US/EU are opposed to opening SWIFT to Russia and a host of other demands. Four-way technical talks may continue, but Russia appears unmovable following the Istanbul negotiations.
- We note that a significantly smaller Ukraine corn/wheat crop is expected due to the ongoing war and the negative margins that farmers are enduring. Diesel fuel is priced at $34/gallon while financing for operating farm loans is unavailable. Labour is tight and there is no indication that the war will end soon. Our point is the smaller corn/wheat/sunseed harvests can be pushed out through Eastern Europe at 2-2.5 million mt/month. Although the cost of transit may be higher, there are options for Ukraine to export crops out of country.
- US weekly export sales for the week ending May 4 were 1.0 million bu of old crop and 12.3 million bu of wheat, 10.1 million of old and 3.3 million bu new crop corn, and 2.3 million bu of old crop soybeans. The sales were as bad as feared.
- Argentine sources claim that the Government could be facing a dire liquidity crunch that will prevent them from supporting their Peso. A dramatic fall in the Peso could cause hyperinflation, today’s inflation seems hyper already at 104%. The risk for Argentine exporters and crushers is getting farmers to sell their new harvests. Yields are well below farmer expectations and amid the financial problems of the Government few have any desire to sell their only hedge, grain. We would argue that Argentina will be a significantly smaller exporter of soy products which is why the soymeal market has caught a bid.
- The GFS midday weather forecast is consistent with prior runs. A series of systems passes east in a zonally flowing jet stream to produce a combined 0.5-2.00” of Midwest rain into May 21. The heaviest rain targets Texas, the SE US and North Dakota with 2-4.00” totals. These areas will endure heavy bouts of rain that produce localised flooding. The only area of concern remains the Canadian Prairies.
- The USDA May Crop Report is tomorrow, and traders are adjusting their risk. Argentina lurks in the background as a financial market risk due to illiquidity and a possible run on the Peso. Buying new crop Argentine corn/soy will be extremely difficult into September, when farmers need funds to seed the next crop. After the USDA report, it is all about weather/crop assessments.