- HEADLINES: Markets extend overnight weakness; GFS weather forecast drier in Midwest; Ethanol production scores new post-covid high.
- A ‘The trend is your friend’ mentality prevails in Chicago, with corn, soy and wheat futures shedding additional premium as needed heavy rain looks to fall across the US Northern Plains and Canadian Prairies Thurs-Sat. The arrival of very late season rain in Southern Brazil is also noted, though amid the complete depletion of soil moisture, rainfall of 1-2″ across Parana and Mato Grosso do Sul in the second half of May will do little salvage yield potential. The abandonment of safrinha corn fields in Brazil will be elevated following zero rain there and abnormal warmth in the last 45-50 days.
- We would also point out that if wetter forecasts across the Dakotas in mid-May weighs on row crop markets to the tune of $0.40-0.50 per bushel, volatility will be even greater than prior expectations once the Northern Hemisphere growing season begins in earnest in mid-June. The entirety of the growing season lies ahead and we strongly caution against chasing daily breaks and rallies.
- Macro pressures persist, with crude down $2.40 and the Dow down 300 points. Paris milling wheat and corn futures are down €4.0-4.5/mt ($0.12-0.13/bu).
- What is known is that current prices are working quickly to encourage demand growth. China bought another 1.36 million tons of new crop US corn, bringing their total purchases on a known basis to 9.5 million tons, or 37% of the USDA’s annual 2021/22 Chinese corn import forecast. FAS also announced that Mexico secured 142,000 tons of new crop US soybeans.
- Additionally, US weekly ethanol grind and gasoline disappearance is beginning to reflect a noticeable boost in miles driven. US ethanol production through the week ending May 14 totalled 303 million gallons, a new post-Covid high and some 25 million above the pace needed to meet the USDA’s 2020/21 corn grind forecast. And US ethanol stocks remain historically tight. US ethanol stocks last Friday totalled 816 million gallons, just 2 million above the previous week and 18% lower than a year ago in mid-May. US gasoline disappearance was also a post-Covid high 9.2 million barrels per day.
- Further expansion in gasoline use lies ahead, with the US economy to be roughly fully opened by mid-summer and the lack of current stocks creates the need for enlarged summer ethanol production. Spot and forward ethanol production margins are profitable, with new crop margins estimated at an incredible $1.00 per bushel. Futures-based new crop soybean crush margins are calculated at $1.40 per bushel.
- Algeria late Tuesday released a tender for July supply. Egypt is expected to follow amid today’s break in global wheat prices.
- The midday GFS weather forecast is noticeably drier across the Plains and Midwest next week as meaningful rain has been shifted southward into the Southern Plains and northern Delta region. Confidence in such a dramatic change is low but the EU model’s afternoon release will be monitored for validation.
- The nearby forecast is consistent with morning output. An active pattern of showers will favour North Dakota, Southern Canada and much of Northwestern Midwest, including the drier areas of Iowa. Max Midwest temperatures reach into the 80s beginning Thursday.
- The market’s perception of supply potential has increased following the release the USDA’s May WASDE report, improving Northern Plains precipitation and private estimates of much larger final US corn seedings. As such, the battle between non-threatening US weather and rising future demand will sustain a volatile back-and-forth marketplace. This is no place to make new sales with 2021 spring crops not even fully planted. A wetter pattern will be needed east of the Mississippi River in June.