- HEADLINES: Risk off trading dominates in Chicago; Crude oil nears long held low at $65; Brazilian bio-diesel blend rates confirmed.
- Chicago ag markets mixed with the theme of the morning being “risk reduction”. Several traders have claimed that it is risk aversion, but in either case, it is the exodus of existing positions that is moving markets today. On the other side, few traders are willing to put on new risk amid the unsettled landscape of US and EU banking following massive inflows of capital from the US and National Swiss Banks. The massive $350 billion plus inflows to key banks is causing worry that other financial shoes could be dropped.
- US wheat prices are rising as funds hold a net short position in Chicago of 100,000 contracts. Fund managers are buying their way out of their net short wheat. And soybean/soymeal futures are in decline as funds are net long over 150,000 contracts (each) as of March 7. Last week it was corn/soyoil length was liquidated. Risk reduction is moving Chicago prices and playing a leading role in the decline of CME meat markets. Price is reacting to the flow of orders which all depends on the position of managed money.
- Chicago brokers estimate that funds have bought 3,500 contracts of wheat while selling 3,100 contracts of corn, 15,500 contracts of soybeans and 8,200 contracts of soymeal. Funds are flat soyoil with overnight selling being balanced by midday buying. We note that May soybeans fell below key support offered by the 100-day moving average at $14.88 and the February low at $14.7775. The break of the chart-based support produced a drop to $14.70. The next downside target is $14.55 and then $14.30.
- Brazil will raise their bio diesel blending rate to 12% from 10% as of April 1. Thereafter, the blending mandate will increase 1% each year. B13 in 2024, B14 in 2025, with B15 occurring in 2026. The stair stepping blend rates will tug at S American soyoil supplies downwards. We note that with the US no longer a major exporter of soyoil, that the world must turn to S America for supply. And rising Brazilian blend rates will further tighten supplies. B12 was widely expected to be announced as of April 1, but the Brazilian farmer was hoping for a 13% blend rate. Remember that back in November President Bolsonaro was openly discussing raising the blend rate to 15% for 2023. This was dismissed by President Lula with today’s announcement now confirming future Brazilian diesel blend rates.
- Whether or not the Black Sea Grain Corridor Pact expires on Saturday is up to lawyers to debate. Russia has formally extended it for 60 days due to the Turkish Presidential elections and are unmoved by Ukraine or the UN demands. Ukraine objects to the half extension, yet, grain is continuing to flow. No one appears to be overly concerned about the corridor breaking down in its functionality. For now, exporters are rushing out shipments and Ukraine will likely drop fob price offers to encourage vessel nomination and loading.
- USDA confirmed that China booked another 197,000 mt of US old crop corn today taking their total known purchases to 2.1 million mt. Other purchases may be individually under the 100,000 mt reporting total, which will wait until next week’s US weekly sales report. It was an active week for China buying.
- Risk off has been the theme of the week which makes the CFTC CoT report more important as a measure of fund length. We see cash basis gains and the decline in the Argentine soy crop to 25 million mt as being bullish. Yet, it is the macro financial bank worry that is keeping these bullish fundamentals constrained. The most fundamentally bullish grains, soybeans and soymeal, are in decline on liquidation, while the most bearish grain, wheat, is rising. Until confidence is restored in the US/EU banking system, it is a touch early to be making new purchases.
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