- HEADLINES: Market volatility ramps up as funds sell grains/buy soybeans; US ethanol stocks rise for fifth week; Argentine weather concern is high.
- Chicago futures opened sharply higher but a wave of profit taking pulling values off the highs by mid-morning. However, with US and S American soy crush margins deeply in the green (US soy crush margin estimated at $1.85/bu), there is no indication of demand rationing. Chicago needed a rest and could not keep rising 20-30 cents/day in soybeans, but lasting bearish price trends are not anticipated. We would see May corn under $6.10 and KC May wheat under $7.50 as offering a new purchase opportunity. We continue to highlight that extreme price volatility is the new theme of Chicago based on high prices and new large fund traders.
- The soybean/corn ratio has pushed out to a 2.44:1 in old crop and a normal 2.40:1 in new crop. Soybean futures have additional work to accomplish if there is to be any chance that the US farmer will seed 90+ million acres of US soybeans this spring. The US needs to seed 90 million acres to prevent end stocks from falling into the negative with record large 2022/23 US exports forecast. A year ago, November soybeans peaked at $14.80/bu which was not high enough to jolt farmers out of their traditional crop rotations.
- Chicago brokers estimate that managed money has sold 12,300 contracts of corn and 4,200 contracts of wheat, while buying a net 4,600 contracts of soybeans. In soy products, funds have bought 3,100 contracts of soymeal and 2,100 contracts of soyoil. Money managers have turned grain sellers based on the charts. Cash markets are holding strong both in the Central US with corn said to be trading at 17-18 cents over h corn futures for nearby delivery. The Chicago correction is not enticing fresh cash corn/soybean movement.
- The USDA reported that 380,000 mt of US old crop soybeans were sold to an unknown destination (rumoured to be China for March) in the 2021/22 crop year. Cash traders indicate PNW soybeans to China are becoming competitive based on rising Brazilian cash basis bids. Brazil is expected to export a record 10-10.4 million mt of soybeans in February. There is a record number of vessels that are waiting to load new crop soybeans. Brazilian crushers are outbidding exporters which is raising interior cash basis bids. Everyone is seeking new crop supply with the Brazilian farmer no longer a seller of their harvest.
- The US weekly corn ethanol grind produced 306 million gallons, up 2 million gallons from last week, and well above the 296 million gallon average forecast by the USDA. The USDA should raise their annual US corn ethanol grind by 25 million bu next week. However, US ethanol stocks swelled 5.6% to 1,086 million gallons. The sharp rise in US ethanol stocks is due to sluggish US ethanol exports. However, with US ethanol priced below unleaded gasoline, we doubt that the slowness in US ethanol exports will persist beyond the next few weeks.
- The midday GFS weather forecast is consistent with the overnight run with a below normal rainfall for S Brazil/Argentina for another 14 days. Argentine weather has been arid for the past 7 days and the crop areas that missed last week’s rains are back to showing stress. A few light showers of 0.2-0.85” are possible from Thursday through Saturday before another 7-10 day stretch of dry weather follows. Temperatures rewarm after February 6 with highs returning to the upper 80’s to the lower 100’s. Hot/dry weather could catch the second corn crop during pollination.
- Record large S American soy crop losses imply an acute need for demand rationing and higher soy prices with US crush margins at $1.85+/bu. S America has lost over 20 million mt of corn, and the Argentine weather forecast is threatening with heat/dryness for its second corn crop. But corn has been unable to close above the summer highs at $6.41 March. Wheat is locked into a range awaiting Putin’s next move. We see KC March wheat in a wide $7.60-8.40 price range. This is no place to turn bearish of corn/wheat.