- HEADLINES: Chicago speculative inflows slow-grain values decline; Soy futures rise in thin volume trade, meal/oil spreading featured.
- It has been a mixed morning in Chicago with corn, soybean and wheat futures trading either side of unchanged in moderate volume. Wheat has been the downside price leader with Chicago posting double digit losses, while soybeans hold in the green on fresh Chinese demand. Chicago has a corrective feel with profit taking capping rallies and the Midwest planting outlook determining price direction late week. We forecast a mixed to slightly lower close with the inflow of capital into the markets being much less than Monday. It is the inflow that has become so key to Chicago directional trade since mid-January. With WTI crude oil futures down over $5.00/barrel and the IMF cutting Chinese and world growth rates, the market is trying to decide if price is starting to ration demand. Our current view is that price is not yet high enough with ethanol and crush margins in the green, but the slowing of China’s economic outlook must be closely monitored.
- Chicago brokers estimate that funds have sold 3,200 contracts of wheat, 2,800 contracts of corn, and 3,100 contracts of soybeans. In soyoil, managed money has sold 3,100 contracts of soyoil, while buying 1,900 contracts of soymeal. The meal/oil spread is back in vogue this morning with crude oil in decline.
- FAS/USDA reported that an unknown destination booked 123,650 mt of US old crop soybeans. There are also rumours that China continues to seek new crop cargoes off the PWN. Talk of fresh US Chinese corn demand has subsided for now, as US prices rise import margins are barely profitable.
- Questions abound for economists on China’s economic outlook as the Government sticks to a 0% Covid tolerance. Daily Covid cases rose to 31,403 yesterday, against a 7-day average of 27,353 infections. China is locking down areas were new covid infections are found which depresses raw material demand, including food consumption. Some argue that China is locking down their population to control inflation, not covid, but there is no way to confirm or test this hypothesis. Either way, the IMF cut China’s GDP forecast for 2022 to 4.4%, the lowest in decades. The covid lockdowns also produce fresh supply chain issues which will cause the US Central Bank difficulty in fighting inflation. The 0% Covid fight is causing widespread talk of stagflation in early 2023 with world demand in decline while price rises are ongoing. This would raise the odds that the world or US slips into a recession.
- We doubt that US farmers will be ploughing up hay/grass land to plant summer row crops as the availability of hay acres is the lowest since 1907. And the profit margins on hay are historically high. Moreover, most producers of hay need it for their own livestock. The point is that it is Mother Nature that will have the biggest impact on crop seeding determination with the pie of seeded farmland unlikely to rise much above 181 million acres of corn/soybeans combined.
- The midday GFS weather forecast is heavier with several rain systems that pass from Missouri into the E Midwest. The midday forecast is wetter across IL/IN and OH with 1.50-3.00” to further delay spring seeding. Other areas should be able to start turning wheels later this week and weekend, and progress will be scored, but another Canadian cold shot impacts the E Midwest next week. The 10–14-day forecast is drier with warming temperatures which looks to produce a window for widespread spring seeding. The warm/drier pattern change must be pulled forward in the forecast, but late April and early May offers improving weather conditions for planting.
- It is all about new investment inflows. When new fund inflows stall or are diminished, Chicago valuations soften. There was a block trade this morning in Dec ‘24 corn for 1,500 contracts that was completed at 2 cents over which bolstered the back end of corn. Nearby corn futures are sagging on weakening cash basis bids amid the prospect that Midwest seeding will get fully underway in late April. The US Central Bank will be meeting in early May to raise interest rates to fight inflation. We stay longer term bullish, but values have reached our intermediate upside targets and need a weather driver to score new highs.