- HEADLINES: Soyoil rises sharply on EPA rumours to expand mandates; China booking US corn/soybeans. Crude oil rallies on OPEC+ increase.
- Chicago futures are mostly higher at midday with July corn sagging on the intra crop fund spread unwind. Funds were huge spreaders of long July corn and short July soybeans following the March 31 Seeding Intentions report on the idea that record large US soybean seeding was going to cause the spread to narrow. The ratio has widened and rests at 2.37 basis beans, which was deemed as high relative to fundamentals. Funds are exiting to limit their losses.
- Corn is where the bullish long term fundamental story rests, but the fund liquidation has provided recent day pressure. However, as Chicago corn futures have fallen, cash corn bids have held steady or risen. Once funds are done with their intra crop spread liquidation, corn should catch a bid and rally.
- And end users are using the Chicago break to extend forward coverage due to increasing margin. Corn oil above $1.60/pound is helping push cash ethanol margins above $0.80/bu which shows no sign of demand rationing. That is the point that needs to be made that US cash soybean crushers are making $2.40/bu and ethanol producers $0.80/nu and that they will keep pushing for cash movement. There is no hint of demand rationing.
- Wheat futures have fallen on the prospect of a grain export corridor out of Ukraine. We would argue that US/UK warships will not be allowed into the Black Sea to open such a corridor and that the odds of its establishment is slight.
- Chicago brokers estimates that funds have bought 4,700 contracts of wheat, 2,100 contracts of corn, and 7,600 contracts of soybeans. In soy products, managed money sold 1,200 soymeal while buying 3,600 contracts of soymeal.
- China will be on its Dragon Boat Holiday on Friday with a 3-day weekend. There are rumours that China has booked another 3-5 cargoes of US soybeans and are also seeking US corn for September-November shipment. China remains active seeking corn from the US and Brazil ahead of their new crop harvest.
- FAS reported that Pakistan purchased an unusually large 352,000 mt of US soybeans split into 55,000 mt of old and 297,000 mt of new crop. Pakistan had 640,000 mt of US soybeans purchased in an old crop position and 6,300 MmtTs of new crop before today’s announcement.
- US weekly ethanol production rose to 315 million gallons of production, well above the 307 million that is needed to reach USDA’s annual target. And as production gained, US ethanol stocks fell by 32 million gallons to 964 million. US gasoline stocks fell as consumption rose by 2%. It was interesting that OPEC increased their production by 648,000/day in July and August, but futures rallied sharply to over $117.50/ barrel. US diesel stocks are record low and US summer shortages appear likely.
- Rumours abound that the EPA will raise their 2022 mandates for ethanol and advanced biofuels in announcements that are due by June 4. We have no way of knowing if such rumours are true, but RIN values have rallied sharply, which may be a precursor. Soyoil futures are rising on the hope for expanded mandates, which would further aid renewable diesel producers.
- The midday GFS weather forecast is slightly drier from the overnight run for the C Plains and the W Midwest. An active pattern of precipitation will be in place across the SE Plains and the Delta, including S Missouri. Limited precipitation is forecast for the Canadian Prairies which will aid planting. No extreme heat is noted any high-pressure ridging relegated to the SW US. The big question is whether this ridge will position further east this summer.
- We doubt that recent weakness is the establishment of a lasting bearish price trend. A Ukraine export corridor is unlikely in our opinion, and this will place acute financial strain on its farmers. The absence of wheat/corn coming from Ukraine becomes more important with time. Thankfully, Central US weather is generally favourable. We stay bullish.