- HEADLINES: Chicago reverses overnight losses on S American crop concern; China used the break to price; Record 19 million mt of vessels awaiting to load Brazilian soy.
- A Chicago turnaround is underway with corn, soybeans and wheat futures recovering from Monday’s decline. Adverse S American weather and talk of increased Chinese pricing of soybean/corn purchases has sparked the Chicago rally. China has locked down a considerable cache of Brazilian soybeans (estimated at 35-37 million mt) and US corn (estimated at 19.0 million mt including 1.4 million mt in the unknown destination category) which a modest portion was priced on the break. Chinese buyers use Chicago weakness to fix their basis contracts. This is placing a base of support under Chicago corn/soy valuations.
- We note that the focus on Northern Hemisphere weather is starting amid the dryness in the Western US Plains and extreme soil moisture surpluses in the Gulf States/Delta where corn seeding starts in a few weeks. The focus on Northern Hemisphere weather will be acute in coming months amid the pure EU grain stocks shortfall and forecasts for record low US soybean stocks. Mother Nature is going to kill the EU wheat and US corn/soybean crops several times which will hike volatility. We should be preparing for a further expansion of daily price ranges and volatility heading into the NASS March Stocks/Seeding Reports.
- Chicago brokers estimate that funds have bought 4,300 contracts of wheat, 8,900 contracts of corn, and 6,400 contracts of soybeans. In the products, funds have bought 1,200 contracts of meal and 2,200 contracts of soyoil.
- The 2021 March-May corn spread has pushed out to a 16 cent March premium. The last time that this spread pushed out to such heights was back in March of 2013 when the spread reached a 31 cent March premium. Chicago rallied into the March Stocks/Seeding report in 2013 with the corn stocks total being bearish. Forecasting March 1 US corn stocks with any accuracy has become increasingly difficult in recent years due to NASS stocks inconsistencies. The NASS report is a high-risk report for the marketplace.
- The USDA reported a 175,000 mt US corn sale to Japan. This was the first daily sale reported in weeks. Last Thursday’s USDA weekly export sales report was bearish due to the Asian Lunar New Year. We expect that this week’s totals will be larger and with US soybean sales accounting for 98% and corn 88% of their annual USDA forecast, weekly totals do not have to be large to be bullish. In the future, it is going to be difficult for the FAS weekly sales data to be bearish. Due to adverse S American weather, any weakness on the sales report will be purchased heading into the weekend.
- Cash basis levels are firming amid limited US farm sales along with a continued record large US soybean crush rate. And China’s soyoil prices are at multi-year highs which makes pulling world crush margins lower very difficult.
- The midday GFS weather forecast is like the overnight solution with meaningful/heavy rain for N and C Brazil. The regular rains will slow the soy harvest and seeding of winter corn. Most N Brazilian farmers are against seeding corn after March 10 as seasonal tropical rains seasonally stop in late April or early May. Even 95-day maturity corn will not get post March 10 corn to pollinate before the dry season starts.
- The midday Argentine weather forecast maintains dryness with warm to hot temperatures with highs in the 90′s on most days. The 6-10-day period will be exceptionally hot with highs in the mid 90′s to lower 100′s. The Argentine heat/dryness will accelerate stress on reproducing corn/soy crops. Our concern for S American weather is increasing amid the N Brazilian wetness and Argentine drought.
- Chicago values bottomed overnight and are pushing back to chart-based resistance. If the S American weather forecast stays wet across N Brazil and dry across Argentina/S Brazil early next week, a push to new rally highs could occur heading into the March 9 USDA report. The two week forecast into Mar 16 shows a continuance of the existing/concerning pattern. It is S American weather and the resulting supply impact that drives Chicago. There is a record 19 million mt of vessels waiting to load soybeans in Brazil which is testament to strong world oilseed demand.