- Chicago ag futures are sharply lower at midday following a cascade of selling in commodity and equity markets. Traders are reducing their exposure across many markets as they are unable to handle the extreme day to day volatility.
- The unforecastable up-and-down profile of US equity markets has added to trader anxiety. Hedge fund risk managers are telling their traders to reduce exposure and overnight risk, which is causing a reduction in liquidity, exactly the opposite of what the US Central Bank is trying to prevent.
- Chicago trade volume was active on the reopen but has slowed at midday. Key going home is whether May corn/soybean futures can close above chart-based support at $3.60 May corn and $8.37 May soybeans. The US wheat market is a follower of the summer row crops with Russian fob offers slipping lower.
- The big difference in US financial markets is that Covid-19 is likely to be an economic drag on the US/world economy for months to come. Traders had hoped that US Covid-19 cases would peak in mid to late April with a 2-week assurance period needed that new infections are not occurring. This means the negative economic impact of Covid-19 on the US/world economy could continue into May. This is “weeks” longer than what was feared by traders on Friday.
- Chicago brokers estimate that funds have sold 3,000 contracts of wheat, 8,700 contracts of corn, and 5,100 contracts of soybeans. In soy products, funds have sold 5,400 contracts of soyoil while being flat in meal. Chicago brokers have moved upstairs with the trading floor closed. Friday’s CoT report indicated that fund managers had reduced their net positions, yet Chicago prices still declined. Our bet is that funds are now starting to add to net shorts.
- US Export Inspections for the week ending March 12 were; 38.5 million bu of corn, 16.0 million bu of soybeans, and 16.5 million bu of wheat. Corn inspections were larger than expected while wheat/soybeans were disappointing. The week’s big exporter wheat Egypt at 4.7 million bu. China did not ship out a cargo of US beans
- For their respective crop years to date, US corn exports rest at 627 million bu (down 452 million bu or 42%), while US soybean exports at 1,124 million bu (up 106 million or 10.5%), while US wheat exports at 725 million bu are up 63 million bu or 9%. Research argues that 2019/20 US corn exports are overstated by at least 100 million bu while soybeans are overstated by at least 250 million bu. The slowing export demand makes sustaining a short covering bounce difficult.
- US livestock futures have rallied sharply from extended limit losses to sharply higher trade at midday. The market had become extremely oversold and vulnerable to a rally with June cattle priced at $85.25, at $4.50 limit losses. The CME rally has no fresh news associated with it other than shorts wanting to collect windfall profits. The CME livestock rally has lifted grains
- The biggest impact on US grain prices longer term will be the ongoing drop in US energy prices. Crude oil values have fallen to $28.10 in WTI April futures, $2/barrel under last week’s low. The next downside price target rests at $26.00, the lows that were scored back in 2016. Biofuel margins are deep in the red.
- The forecast offers few changes from the overnight run with modest 0.5-1.50″ rains for Argentina and Southern Brazil with totals across Central and Northern Brazil of 3-5.00″. More rain is needed across Southern Brazil, but enough rain will drop for the immediate need of winter corn. Soybean harvest should remain active across much of Central and Southern Brazil for the next 2 weeks.
- US Covid-19 infections are likely to worsen as testing is expanded and the US medical system feels the impact of a worsening pandemic. The grain/ag markets are likely to form a bottom until the fear over the virus subsides, which is not expected until mid to late April. The next chance for a lasting Chicago rally is the March 31 stocks report and then North American weather/seeding progress.