19 March 2021

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  • HEADLINES: China buys 4 million mt of corn this week, shifts corn outlook from sideways to new bull phase; Soy follows on 2021 planting fight; KC wheat too cheap vs corn.
  • Chicago ag futures are mixed at midday with corn/soy futures sharply higher with wheat sagging on active corn/wheat spreading. China booked another 800,000 mt of US corn taking their weekly purchase pace to an unexpectedly large 4.00 million mt (157 million bu). Soy futures have rallied strongly following corn on tightening domestic supplies amid a lack of farm selling. Wheat is sagging on fund selling and weakening world fob offers. A higher Chicago close is expected with the next upside price resistance in May corn being at contract highs at $5.72/bu. November soybeans have likely scored a trading low against $12.00.
  • The premium of the old vs. the new crop fob wheat market is being unwound. Yet, finding a new crop Russian new crop fob offer is nearly impossible. Importer fears are growing that Russia (due their floating export tax) will be a substantially smaller exporter of wheat beyond June 1. This would push world wheat demand to Ukraine, E Europe and Europe from the Mideast and North Africa. The inability of world importers to find Russian new crop offers beyond June 1 will become increasingly important to world wheat markets. New crop Ukraine offers are starting out around $240/mt or $6.50/bu. Importers and end users see fresh weakness below this price as a purchase opportunity.
  • The USDA confirmed that China secured another 800,000 mt of US corn today. This takes China’s weekly purchase total to 4.0 million mt. We estimate that China has booked 25 million mt of US corn with 8-9 million from Ukraine in the 2020/21 crop year. From all world corn exporters, we estimate that China booked 33-34 million mt of corn (9-10 million above the March USDA estimate of 24 MMTs). The USDA needs to raise their estimate of US corn exports by at least 250 million bu with research estimating US 2020/21 corn exports of 3,000 million bu. This massive US corn export pace would reduce 2020/21 US corn end stocks to 1,100 million bu without any upward adjustment to the ethanol grind or feed/residual use. 850-950 million bu 2020/21 US corn end stocks estimates are quickly becoming reasonable with stock/use ratios that justify a price of $6.00 plus spot Chicago futures.
  • The May KC wheat/corn spread narrowed to a 28-cent wheat premium this morning, the tightest since the Midwest spring flooding of 2019. The nearby KC wheat/corn spread reached a low in August of 2019 as the winter wheat harvest was completed. The prior spread low was set in 2012/13 as North America enduring a dire drought that knifed US corn/soybean production. Looking backwards, you can count the number of days on one had that KC wheat has traded below spot Chicago corn. History shows that anytime the KC wheat/corn spread reaches a $0.20/bu or below (wheat premium), it is a longer term spread opportunity. US HRW wheat economically works into US cattle feed rations in the Plains in a new crop position which could produce additional wheat feeding of 75-100 million bu. The problem is that the US cannot afford to feed too much HRW wheat without causing a dramatic tightening in US HRW wheat stocks.
  • The midday GFS weather forecast is much wetter in S Argentina but consistent with prior drier outlook for N and NE Brazil. The dominant feature of S American weather into early April is the return of high pressure ridging to NE Brazil. This pattern funnels consistent/heavy rainfall into Argentina/S Brazil while leaving N and C Brazil arid. This is a growing worry for the Brazilian winter corn crop with needed moisture to fall during April before the start of the dry season.
  • Brazilian temperatures reach above-normal levels next week. The GFS forecast is overdone with Argentine rainfall, but this broad long wave pattern is correct. The EU model is drier and has been the best performing model since March 10.
  • This week’s China corn buying of 157 million bu (4 million mt) along with a threatening/arid weather for N Brazilian corn is likely to push May corn futures to test contract highs at $5.70. If the NASS Stocks/Seeding Report on March 31 does not hold a big bearish surprise, spot Chicago corn futures will push to resistance at $6.00-6.25 in a demand rationing effort. And as corn goes, so will soybeans and wheat. This is a cash led bull market.
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