- HEADLINES: Low volume Chicago decline argues that break is correction on momentum fund selling; Cash market tightness to lead corn/soy higher into March/April.
- Chicago futures are lower at midday on renewed liquidation. Mexico booked a couple of US corn cargoes overnight that was announced by USDA/FAS this morning, but otherwise, the tone of the market is one of profit taking.
- Several day corrections in bull markets are normal and needed for technical refreshes. Few will want to be overly short heading into Thursday’s USDA export sales report with China rumoured to be bidding for US DDG’s and ethanol.
- And rumours persist that China has or will book another 1.5-2.0 million mt of US corn that will elevate China’s total corn purchase to 7.5-8.0 million mt. Although China has paused in terms of daily sales announcements, China remains active in seeking US ag commodities in terms of new crop soybeans, corn, corn by products and meats. Chicago breaks will be supported by China demand/interest. We look for a trading low in Chicago either today or early Wednesday.
- Chicago brokers estimate that funds have sold 6,100 contracts of corn, 3,000 contracts of wheat, and 5,100 contracts of soybeans. In soy products, funds have sold 900 contracts of soymeal and 2,600 contracts of soyoil.
- US equity markets have rallied sharply as the “risk on” reflation trade is ongoing. The DOW is up nearly 600 points and new highs are anticipated. The US$ has rallied with the Brazilian Real priced at 5.38:1 while the Argentine Peso is priced at 87.70:1. The Brazilian nor Argentine farmer is pricing any additional new crop corn or soybeans amid large sales on the books. With US farmers having 90% plus of their soybean crop and 80-85% of their old crop corn crop, any Chicago selling is related to profit taking from the bulls.
- Deral Parana degraded crop ratings in announcing that 78% of their soybean crop was good or better, 20% fair and 2% poor. There was 326,000 acres that fell from the good or better to the fair or poor category. A total of 5.3 million Ha (13 million acres) of soybeans are planted in Parana. The very early harvest is showing disappointing yield totals with sacks per hectare down 9-14% from last year. Additional harvest data is needed to confirm the trend, but the outlook for Parana is a soy yield 4-9% below 2020. Weeks of cloudy/wet weather has caused rust/fungal diseases that is impacting soybean quality and yield.
- Egypt’s GASC booked a massive 480,000 mt of wheat for last half of March shipment at prices that ranged from $311.20-311.95/mt basis C&F. The purchase included 240,000 mt of French wheat, 120,000 mt of Russian and 60,000 mt each of Romanian and Ukraine wheat. The purchase confirmation rallied Paris wheat futures which in turn underpinned Chicago/KC wheat. The tender confirmed that world wheat fob prices are rising, and sharply so on a landed basis into the world’s largest wheat importer. The availability of Ukraine and Romanian wheat is limited with high Russian taxes curtailing their future sales. The EU is the destination where the world will turn for wheat in future tenders.
- The midday GFS weather forecast is wetter in Mato Grosso and EC Brazil into Feb 12, a time when dry weather is wanted to start the harvest. For the first time in the 2020/21 growing season, an above normal rainfall pattern starts across Mato Grosso on Friday, which persists into mid-February. The 11-15 day forecast is also wet which could really hamper the start of the Mato Grosso harvest. A dry forecast is offered for the entirety of Argentina and most of RGDS in Southern Brazil. Parana and Mato Grosso do Sul will see near to below average rains. The new drying trend must be watched closely as La Niña tends to produce mid to late season droughts across Argentina/S Brazil.
- Cash markets for US corn/soybeans are snug and firming on basis which suggests that Chicago declines will not be able to carry through. Momentum funds try to sell Chicago values down but cannot find any carry through which causes them to cover going home. End users and importers are using any break to extend their forward coverage. Our lean is to disappointing Brazilian soybean yields which is contrary to those looking for improvement. Tuesday’s USDA report could be a monster for the bulls on expanding exports and falling stock. Be very careful!