- HEADLINES: Funds liquidate soy/soymeal position; Midday rain further east in the Plains; Regionalisation of world grain supplies.
- Chicago futures are sharply lower at midday with KC wheat/July corn pacing the decline as the forecast of meaningful rain is offered for the Southern and Central Plains for the first time in months. How much good the rain will do for HRW wheat yields is being hotly debated in the industry. Obviously no one will know for sure until the combines roll in June, but producer sources are pessimistic as crop insurance adjusters are active in zeroing out fields amid thin stands and the lack of tillers. Only time will tell how much good a late April rain will produce for HRW wheat.
- Long liquidation is noted in soybeans/soymeal as first notice day against May futures nears. Remember that speculators hold moderate net long position in both. The profit taking from stale longs has added pressure in a risk off day of trade. The back and forth in Chicago is frustrating traders as a trend longer than a few days has been fleeting. The “Chicago dance” since the start of the year has been fraught with sharp rallies and breaks not carrying through. We doubt that this break will carry through either as the US cash market firms and notice day looms. The May/July corn spread rallied to a new high of $0.40/bu this morning. The 2013 May/July corn spread reached a hefty $0.63 premium.
- Chicago brokers estimate that fund managers have sold a net 6,700 contracts of soybeans, 8,400 contracts of corn and 5,700 contracts of Chicago wheat. Funds have sold 3,800 contracts of soyoil and 4,200 contracts of soymeal. The funds have been active sellers across Chicago (and host of other commodity markets).
- US weekly export sales for the week ending April 13 were; 9.5 million bu of US wheat, 12.3 million bu of US corn, and 3.7 million bu of US soybeans. The corn and soybean sales were less than expected as S American offers undercut the US Gulf. For their respective crop years to date, the US has sold 681 million bu of wheat (down 27 million or 4%), 1,498 million bu of corn (down 732 million or 33%), and 1,851 million bu of soybeans (down 247 million or 12%). The US is highly non-competitive against Brazilian fob offers that are a record $1.85 cheaper.
- One reason why Chicago has been so choppy (and bull spreads so firm) is the regionalisation of key exporter’s supply. Brazil has harvested a record large soybean crop of 154 million mt which is 14 million larger than their prior record. The sheer size of the crop pressured cash basis levels to record low levels as Brazil’s logistical infrastructure strained. Thankfully, Brazilian soy export demand has been massive with China taking at least 10 million mt in March/April and potentially even May. This has helped Brazil deal with the massive crop. Yet, Brazil is still offering fob soybeans at $1.85 below the US Gulf!
- Yet, the US is struggling with tight soybean stocks and huge cash premiums of +$0.70/bu. This is why bull spreads gain, but flat prices are wildly choppy as traders shift their focus back and forth from the weakness of Brazil and the cash basis strength in the Central US.
- Eastern European/Russian wheat is also plentiful as the US/Canada running down old crop stocks with cash basis bids holding firm ahead of the harvest. How much of a premium does HRW wheat need to be priced relative to SRW? And world wheat prices are unmoved with Chicago/Paris futures providing the fireworks.
- The midday GFS weather forecast is further east with the Kansas/Oklahoma rain, than the overnight solution. Snow is widespread across the Dakotas with cold temperatures forecast to prevail into May. The combination of cold, rain and snow will keep the Midwest planting progress at no better than an average rate. However, ongoing seeding delays are expected across the N Plains and the Upper Midwest. Seeding delays are forecast.
- US farmers will not sell the Chicago break which is firming cash basis bids. Chicago will look back to the strong US cash markets on Friday and next week. Importantly, the Brazilian monsoon is fading some 2-3 weeks early . This places the late planted corn crop in Mato Grosso/Goias and Parana at risk. Don’t sell breaks or chase Chicago rallies is our best advice. Oil share should outperform into mid-summer.