- HEADLINES: Markets recover from morning lows; NOPA crush in December record large.
- Chicago ag futures are mixed at midday, but wheat has extended its overnight rally in the US and Europe while corn and soy futures have recovered from morning lows. Breaking wheat-specific news is lacking, but European cash prices last week fell to sizable ($10-14/mt) discounts to comparable Russian origin. Current EU cash wheat prices will uncover spring importer demand. Additionally, we estimate that managed funds in Chicago on Friday evening were short a net 50,000 contracts, which is large relative to the last two years. Short covering, along with long corn/soy-short wheat spreads are being unwound. It is just difficult to bearish of wheat at $7.50, basis spot Chicago, given Black Sea cash prices will be steady/higher into early summer.
- Yield data in S America leans bullish. Producers in Parana have reported soy yields there of just 5-15 bushels/acre and we note that there will be very limited moisture relief in Paraguay and much of Southern Brazil in the next 10 days. In fact, max temperatures in Paraguay and RGDS in S Brazil will stay in the low 100s into the weekend, and salvaging soybean and summer corn yields there will be impossible amid early planting dates.
- Most important is that international cash markets are beginning to readjust to declining S American corn and soy surpluses via rising basis levels. Fob soybean basis in Brazil continues to surge, with premiums for Apr-May delivery in Paranagua quoted at $0.65-0.70/bu over, which compares to new crop offers of $0.35-0.40 in early January. Brazil’s interior cash corn index has rallied to $7.45/bu, vs. $6.80 three weeks ago. And domestic Brazilian processors are outbidding the export market for supply, which poses challenges for filling existing/coming vessels. World cash price relationships are evolving to support abnormally large US row crop exports during spring.
- US exporters this morning sold 239,000 mt of soybeans to Mexico for 2021/22 and 126,000 mt of sorghum to unknown destinations, very likely China.
- Additionally, widespread river logistics issues in the US are not negatively impacting interior basis levels. The cash pipeline must be kept full and monthly US corn exports rise to 250+ million per month beginning in March, vs. exports in Nov-Dec of 180-190 million. Originating supply only becomes more difficult in spring and early summer.
- NOPA member crush in December was all-time record 186.4 million bu, vs. prior expectations of 184-185 million and vs. 183.2 million in Dec 2020. NOPA soyoil stocks on Dec 31 totalled 2.03 million lbs, vs. 1.7 million lbs the previous year. We note that US soyoil disappearance, while unexciting, has been unchanged at high prices. Crush rates must be maximized throughout the balance of the 2021/22 crop year. Crush of 186-188 million bu is expected in January.
- The Tonga Volcanic eruption is not expected to materially impact global climate patterns.
- The midday GFS weather forecast is wetter in Argentina in the 6-10 day period, with cumulative 10-day precipitation totals now pegged at 2-5”+ across Argentina’s primary crop belt. This will recharge soil moisture. The pattern in Argentina reverts to La Niña-based dryness beginning Jan 30, which is not an issue in the near-term but regular rains will be required in Central Argentina throughout Feb and early Mar to stabilise Argentine corn and soy production at 50 and 46 million mt respectively. The Buenos Aires exchange will update crop ratings on Thursday afternoon.
- Abnormally heavy Argentine rainfall raises uncertainty with respect to final crop sizes, particularly corn, which in some regions has pollinated and in others remains unplanted. We hold to a bullish bias into seeding amid positive seasonal trends and as meaningful and irreversible damage has been done to S American yield potential.