- HEADLINES: Chicago falls on speculative profit taking in post USDA report hangover; Cash basis firm as farmer selling hits the skids; Chicago low to form by early Tuesday?
- Chicago grain and soy futures are lower at midday on liquidation and technical selling following the lingering disappointment from Friday’s April USDA report. The USDA failed to raise China’s corn import estimate while trimming their annual 2020/21 crush rate by 2 million mt. The lack of confirmation of increased Chinese demand produced a cautious mood from traders to start the week.
- Moreover, a bearish mentality that was created in industrial metal markets by China’s Premier Li Leqiang when he stressed the need to strengthen market regulation to ease the cost pressures on enterprises amid rising global commodity prices. This sparked selling in copper and other metals which had a knock-on impact on the ag markets. If China wanted to cool domestic inflation it should be importing additional grain or food. Yet, the mindset of increased regulation from China was enough to spark profit taking from the faster moving fund managers on the fear that China would somehow force commodities lower.
- We have repeated the comment several times in recent months that bull markets always let you in. This morning’s break offers such an opportunity. US and S American farmers will not be selling on the break, with their sales already well above historical averages. A low should form by early Tuesday.
- The Chicago price pattern since January has been that a post USDA break provides the next buying opportunity with values forming a mid-month low followed by a rally into the delivery period on tightening supply. With cash soyoil offered 5.5 cents over May soyoil futures and Central IL corn trading $0.27/bu above May futures, We expect this “same” seasonal to be followed. Bull spreads and flat prices should gain following the end of the index roll on Wednesday.
- Chicago brokers estimate that funds have sold 5,800 contracts of corn, 7,200 contracts of soybeans and 3,500 contracts of Chicago wheat. In soy products, funds have sold 4,100 contracts of soyoil and 1,100 contracts of soymeal.
- For the week ending April 8, the US exported 62.3 million bu of corn, 12.0 million bu of soybeans, and 16.8 million bu of wheat. The corn and soybean exports were within trade expectations while wheat was better than forecast.
- For their respective crop years to date, the US has shipped out 1,479 million bu of corn (up 667 million or 82%), 2,013 million bu of soybeans (up 827 million or 70%) and 786.5 million bu of wheat (down 3.7 million or 1%). China continues to export some 15-20 million bu of US corn or 2-2.5 million mt/month. US exporters report that China will ramp up its corn export programs from early May into July.
- Brazilian soy basis bids have rallied on the Chicago break as exporters and crushers seek supply. There are also strong rumours that Brazil has purchased large amounts of Argentine corn to cool their soaring domestic feed market. The Brazilian corn demand is estimated at 500-700,000 mt which is a key reason why Argentine fob corn premiums have rallied. The structure of the world feed market is one of rising values and tightening supplies into September.
- The midday S American weather forecast follows the overnight GFS output with 0.8-1.50″ of rainfall for the winter corn areas of Brazil early next week. Limited rainfall is expected to drop through the weekend before a frontal pass sparks the shower activity. The GFS forecast has been too wet In prior weeks. Traders are waiting for the new Canadian/EU model runs for confirmation or denial of the GFS forecast. Our bet is that GFS rainfall totals should be cut in half with 10-day rainfall amounts of 0.2-0.8″ on coverage of 50%.
- Post USDA monthly reports, Chicago drops as fast moving fund managers bank profits on the fear of slowing demand or improving weather. Yet, the structure of the US/world grain market has not changed with tightening supplies and rising cash markets being its backbone. Selling May soyoil or May corn when the cash is trading at hefty premiums will not produce a financial reward in our opinion.