- Chicago ag futures at midday are weaker as US ethanol production declined to a fresh low amid record large stocks while fund sell stops were triggered as Chicago July wheat fell below the 50-day moving average at $5.395. A close below the 50 day moving average will spark additional fund selling with seasonal price trends bearish into May. Soybeans have traded both sides of unchanged with meal bouncing after scoring fresh contract lows yesterday.
- US soymeal end users are extending forward coverage amid the fear of reduced DDG production as 45-50% of the US ethanol industry closes. The lack of DDG production will cause livestock producers to feed a growing combination of corn/soymeal in feed rations. Moreover, US soybean crush is starting to fade with margins in sharp decline. The falling crush pace will tighten future Central US soymeal availability.
- Research looks for a continued Chicago slide with limited demand interest to spark a rally. US exporters report that world trade demand is focused on Latin America for soybeans and for corn from June onward, while fresh curtailment of US ethanol production is ongoing. A weak Chicago close is expected.
- Chicago brokers estimate that funds have sold 5,900 contracts of wheat, 5,600 contracts of corn, and 2,400 contracts of soybeans. In soy products, funds have bought 2,300 contracts of meal while being sellers of 1,200 contracts of soyoil. Funds were active sellers of 4,300 contracts of soyoil early and bought an estimated 2,900 contracts back following the NOPA estimate.
- NOPA forecast that US soy processors crushed a record 181.4 million bu of soybeans as soymeal/margins rallied during March. The crush rate was well above the 166.3 million bu of February and 170.0 million bu last year. NOPA member soyoil stocks at 1,899 million pounds were less than the trade expected above 2,050 million pounds. The NOPA data sparked a bounce in Chicago soybean futures, but with plants dramatically slowing their April run rates, one must be careful in raising their annual US soybean crush forecast. US crush margins have declined sharply in the past 3 weeks with amid deeply red livestock feeding margins.
- EIA reported that a greater than expected decline in US ethanol weekly production of168 million gallons per week vs 198 million in the week prior. The precipitous production decline suggests that 45% of the US ethanol industry is off line with an additional 5% to come off line weeks to come. By the end of April some 50% of the US ethanol industry will be shuttered or just over 8 billion barrels of production. We would note that the annual mandate for US ethanol production is also being lower by the 40-45% reduction in miles driven. US ethanol stocks reached a new record high of 1,155 million gallons, up 21% from last year which is an estimated 90% of plant capacity.
- June Chicago ethanol futures have crawled back to at $.98/gallon amid plant shut downs which is aiding industry margins, but hurting blending margins with RBOB gasoline some $.44/gallon cheaper than ethanol. WTI crude oil futures are trading below $20/barrel on the economic demand destruction via Covid-19.
- The midday GFS weather forecast is like the overnight EU weather model run. Cold temperatures in the next few days will transition to much warmer readings on the weekend will rainfall being near to below normal for the Midwest. Snows are melting across IL/WI with the weekend starting a lengthy period of temperature moderation.
- New US export demand or a wet spring weather scare is needed to spark anything more than a modest Chicago bounce. Rain for key areas of the Black Sea will spark fund liquidation and a decline into early May. The nearby May corn downside price target sits at $3.00. Demand is being destroyed via Covid-19 and sliding world energy valuations. Next week Midwest farmers should become active in seeding corn/soybean/spring wheat.
- In the UK, wheat markets are staring at a deficit for the coming year, which leads to markets trading at import parity. Deficit regions of the country will likely face increased premiums depending upon local demand when compared to supplies. Subdued fuel demand due to the coronavirus lockdown has limited current demand driven premiums emanating from ethanol production (Ensus) although this is not a guaranteed situation going forward. Availability of alternative feed wheat substitutes (barley, maize) will also affect market prices in coming months. Monitoring imported grain prices will be extremely important going forward given the significant impact they will have on domestic grain values.