- Friday’s COT report showed that funds had increased their position in Chicago wheat to a record net short of some 152,453 contracts whilst reducing their corn position to a more modest178,054 net short and increasing their soybean position to 72,198 net long. The divergence in the grains’ positions raised a few eyebrows as they tend, in the main, to move in concert. However, today has seen short covering in Chicago wheat, which has led the market higher as corn and soybeans followed. Interestingly both Paris and London wheat markets were only marginally higher at the close reflecting a weakening global wheat marketplace. Clearly we have an unsatisfactory position where Chicago is not reflecting the fundamental outlook for US and world wheat, the rally is driven by funds being too short in the key gut slot of the growing season.
- US weekly export inspections revealed that the crop year totals to date for wheat are 13% lower on last year, soybeans are 7% down and corn also 13% down year on year. The USDA has forecast wheat exports for the full season to be 9% down year on year and we would therefore anticipate a further adjustment in their figures before long.
- Latest weather outlooks suggest a drier period for Argentina, benefitting harvest, and some welcome rain for Brazil’s winter corn in Parana and Mato Grosso Du Sul. Argentine dryness is suggested to last into the first week of May, which would open up a big, and welcome, harvest window.
- Many are trying to gauge the Brazilian winter corn loss due to three weeks of hot/dry weather. However, what many are forgetting is that the biggest fundamental in world feedgrains is not Brazil, but China’s allowing their corn price to freely float which is having a sizeable impact on future imports. China was the world’s largest feedgrain importer of 31 million mt in 2014/15. This means that 1 out of every 5 million mt of feed grain trade was headed to China. Before one decides on where the loss of 5-10 million mt of lost Brazilian corn trade can go, they must subtract China’s absence for 12-18 million mt of total feed grain imports. Additionally, we should not not forget that Ukraine, Russia and Europe will have substantially larger corn harvests on the cards for 2016/17.
- Price charts are showing higher levels and fund managers are exiting their short positions in US wheat yet world FOB wheat prices are (at best) sagging. The Chicago rally has very little to do with the global marketplace and both corn and soybeans are following. A closing price that is lower would likely signal or offer caution of a seasonal price top. Beware!