- Managed funds are holding their largest net long combined ag position in nearly two years. This large net long fund position along with Trump trade tensions pounded ag futures on Monday. The US Central Bank is expected to raise interest rates on Wednesday, but key to late week ag price action will be US and S American weather. Outside of US trade flow uncertainty, it is supply (weather) that will determine Chicago prices action into midsummer. We doubt that the sharp break lower in Chicago futures will persist as Argentine crops decline and the Plains drought is far from over.
- Rains amounting to 0.10-1.80” fell across Buenos Aires and Cordoba in Argentina over the weekend and some rain looks to fall in Northern Argentine crop belt this weekend. Some 30-35% of corn/soy will have reached maturity this week with the remainder of the crop having passed the critical growth stage. The coming moisture will not materially affect yield potential. However, normal rainfall will be ongoing across much of Brazil, and threats to safrinha corn yields are currently absent. Assuming the 10-day forecast verifies Feb-Mar precipitation in Mato Grosso (which grows 40% of Brazil’s second corn crop), will be near average, and well above prior drought years. Already, worst-case scenarios are being avoided. Steady shower activity will persist in Central Brazil into the very end of March, and longer-term climate guidance is void of any premature end of the wet season through April 7.
- Heavy fund selling along with weekend concerns over US/Chinese trade relations sent soy futures sharply lower to start the week. The US weekly export inspection data offered no inspiration as last week inspections total fell to the lowest level of the year to just 18 million bu. Funds sold an estimated 12-15,000 soybean futures. Soybean option volatility held at multi year lows through harvest, and then spiked in late January, which continued through February. Note that even at the peak, the option volatility index was just barely over the five year average. Monday’s break has sent the option vol rates back to multi year lows, with the entire US growing season ahead. As such, we will be watching for opportunities to buy calls against existing sales, in the upcoming weeks. With record large Chinese demand and an already short Argentine crop, any type of US weather problem could send Chicago futures higher. In the near term, we expect that the soy market is close to forging a low ahead of the acreage report. The 50 day moving average in May is just below $10.20, followed by the 100 day average near $10.10.
- Corn fell sharply along with the rest of Chicago. Corn-specific news today centred on the European Union potentially targeting US corn (the EU imports 20-30 million bu from the US) as retaliation to recent US tariffs, and also on fund length that has exploded in recent weeks. Profit taking is noted, but we urge caution against turning bearish. US acres are expected to contract in 2018, and the US Gulf market is very well positioned to capture a sizeable share of world feedgrain trade between now and late summer. Argentine origin has been following the US, but note that other competing feedgrains have been unmoved on the US break. Funds sold an estimated 27,000 contracts on Monday. We also mention that corn seeding in LA is just 8% finished, vs. 31% on this week a year ago. Progress in MS is 4% complete, near average, but above normal rainfall is projected across the Southern US over the next two weeks, which could exacerbate a shift in acreage to soybeans. Chart-based support is pegged at $3.70-3.74 basis May.
- Kansas wheat futures led the way down as rainfall in the last 24 hours exceeded prior expectation (both quantity and coverage) and as the US market is still priced at a premium to competing supplies in Europe and the Black Sea. However, we do note that crop ratings as of Sunday are the lowest on record for mid-March, and work suggests that a more significant pattern change is needed to meaningfully alter US yield potential. Good/excellent crop ratings in KS is pegged at 11%, vs. 12% last week and 38% a year ago. Ratings in OK and TX also fell on the week. Low yields are feared. Russian fob wheat offers are slightly lower, but at $210/mt for May delivery are just $8/mt below comparable US origin (vs. $42 two weeks ago). US Gulf fob wheat is much more aligned with world markets, and the US competes with Black Sea origin below $4.50/bu. Some downside remains, but we caution against turning bearish following the emotional $.75/bu collapse. We remain concerned about an expanding Plains drought.