• Chicago grain and oilseed futures are higher at midday on the wet weather across IL and rumours that China has been buyer of US August/September soybeans. Also, China has issued another 1.5 million mt of TRQ’s for corn imports from world exporters. The Chinese demand and wet portions of the E Midwest is catching the market too short following May first notice day and the end of a month.

• A bounce is underway on short covering. An obvious aspect of the Chicago market is the lack of orders resting above the market’ When funds desire to cover a portion of their shorts, prices rise quickly and “air pockets” develop in the market. Bear market rallies are often short/swift and then turn back lower just as quickly. Amid improved weather forecast and China being on a week long holiday starting Friday, we doubt this advance can garner much new demand. End users nor importers are willing to chase the rally, meaning that further gains must be left to fund short managers. We look for a higher close, but the close will likely be well off the midday highs. Merchants report that the movement of old crop grain has improved on the morning rally.

• Chicago brokers estimate that funds have bought 8,200 contracts of corn and 7,100 contacts of soybeans, while selling 1,900 contracts of Chicago wheat. In soy products, funds have bought 3,400 contacts of meal and 2,600 soyoil. Fund managers want to bank some of their profits before May.

• US exporters report that China has secured 6-8 cargoes of Gulf soybeans for LH August/September. The purchase was completed after the Chicago normal opening with additional interest said to be resting for October. Chinese crushers appear to have most of their summer imports need fulfilled outside of the last half of August. China starts on a week long holiday on Friday and wanted to secure additional forward coverage for autumn import needs.

• China issued another 1.5 million mt of corn TRQ import licenses for use by October. The corn does not have to be secured from the US but will be sold by the cheapest supplier. S American corn is offered below the US during late summer. Last week, China was looking at offering 2.0 million mt of TRQs to aid livestock producers in SE China. The TRQ issuance was less than expected and it is unknown if the corn will be shipped in an old or new crop position. Traders hope that any nearby demand can be filled by the US.

• For their respective crop years to date, the US has sold 953 million bu of wheat (up 18 million or 2%), 1,447 million bu of corn (down 366 million or 20%), and 1,434 million bu of soybeans (down 222 million or 14%). The US corn and soybean sales pace at this late date of the crop year argues for WASDE to adjust down their export estimates in the May 12 report.

• The US sold 22.9 million bu of wheat (old/new crop), 53.4 million bu of corn, and 39.6 million bu of soybeans. All sales were better than expected and included Mexico for corn and China for US soybeans. The China soybean demand was largely known. China showed up as large buyer of US pork and another 1,000 million mt of US beef.

• Excessively wet weather has caused flooding in portions of Central IL which will require 4-6 days of needed warm/sunny/windy weather before planters can return. Thankfully, the midday GFS forecast offers a 6-7 day spate of warm/mostly dry weather to aid the drying progress. The forecast is like the overnight run in that sunny and warming weather will be noted for much of the next week. Cooler temperatures return in the 9-14 day period with better rain chances for the N Plains and the W Midwest.

• It is a month end/China short covering fund bounce. The weather is favourable for Midwest seeding and for Black Sea rains. China will be on holiday Friday and new interest is expected to fade.

• Fund selling is pushing Chicago/French wheat futures lower amid the prospect of rain for a broad area of the EU/Black Sea starting late in the weekend and for the next 10 days. KC July is holding just above its 50-day moving average at $5.755, while July Chicago wheat futures are below all key moving averages including the 50, 100 and 200 day. A close below the July KC 50 day moving average would suggest that a top has been formed, unless adverse weather returns to a major Northern Hemisphere production area. Rains for the Black Sea and Europe (yield) will determine the US wheat export outlook for 2020/21.

• Chicago corn and wheat futures opened with short covering which sparked an opening rally. December corn returned near Sunday’s opening high at $3.36 which provided fresh selling. Soybeans tried to follow the bounce in crude, but with there being no indication of new China demand heading into their week long Labour Holiday, new selling emerged. End users are not willing to chase a Chicago corn/soybean rally until there is clear indication of a coming crop problem. We looks for a mixed Chicago close with wheat the downside leader.

• Chicago brokers estimate that funds have sold 4,200 contracts of wheat, 2,800 contracts of corn, and 1,400 contracts of soybeans. In soy products, funds have sold 2,400 contracts of soymeal and bought 1,900 contracts of soyoil.

• EIA weekly ethanol data showed a further decline in production, though the fall was slower than prior weeks. And US ethanol stocks declined on a modest rise in gasoline consumption. We estimate that nearly 50% of the US ethanol industry is shut down and that a sizeable rise in gasoline consumption is needed to change existing trends. The US produced 158 million gallons of ethanol last week, down 51% from late February. Amid ethanol production margins that are negative, we doubt that the ethanol industry will bring closed plants online until mid to late summer. Managers must be assured of profitability and rising US/world energy values, before workers are called back.

• The US’s Q1 GDP rate was a negative  minus 4.8%, the worst since the Great Recession of 2009. The Q2 GDP rate could be as large as minus 20 to minus 25%. Although, the opening of the US economy will be slow, it will be late 2020 before the US unemployment rate drops much below 7-9%. The US and world economic outlook is grim, and the opening of the US economy will be a modest process.

• The midday weather forecast is drier across the Eastern Midwest and Delta. Two weak storm systems will pass across the Central US over the next 10 days with planting opportunities opening with warming temperatures. Planting will be active across the Plains and W Midwest over the next 2 weeks with corn/soybean seeding to be completed by May 15. Cool temperatures in the 10-15 day period will slow germination in the E Midwest.

• Improving weather, both in the US and Europe/Russia, will cap Chicago rallies. Funds are selling wheat on liquidation with a close above the 50 day moving average ($4.745) needed to prevent a deeper decline. China has not shown up for US soybeans.

• Chicago prices are mixed at midday with wheat being firmer, while the summer row crops, corn and soybeans sag. The volume of trade has been rather active with funds on the sell side from the opening bell. We look for a mixed close with the market having a heavy feel in corn, soymeal and soybean futures.

• Spreading has been the morning feature with aggressive selling of May-July corn. The May-July corn spread has pushed out to a 9 cent July premium as the longs bail on net long May positions. A sizeable 90,000 contracts of May corn futures were open as the start of today’s trading, sizeable with first notice day on Thursday. May corn longs are either exiting or rolling backwards. Soybean futures are weaker on the lack of China interest ahead of their coming weeklong holiday, while wheat futures bounce on the decline in US crop condition ratings. China needs to step forward and make US purchases in the next few days of US grain or soybeans. Each week that China is not making new large US grain or soybean purchases is more worrisome for their reaching their annual total of $36.5 billion.

• Chicago brokers estimate that funds have sold 2,200 contracts of wheat, 3,100 contracts of corn, and 3,400 contracts of soybeans. In soy products, funds are flat in soyoil while selling 2,900 contracts of soymeal.

• There are rumours that US President Trump will invoke the National Defence Act to increase in US meat processing capacity. This was requested by Senator Grassley (R-IA) late Monday. This act produced more ventilators with GM shifting away from traditional auto production. Unknown is how this act will help US meat processing without additional USDA inspectors or meat fabricators on the line. Some speculate that it could be used to go around unions that are demanding even greater spacing for their members in plant.

• It is calculated that sharply reduced weekly US cattle/hog and poultry kills with Covid-19 infected plants closed for deep cleaning and others are trying to run amid rising absenteeism of employees. Estimates show that just 65-67% of US pork and 72-75% cattle kill capacity is being utilised. Amid sharp falls in production, the US is facing a domestic meat shortage while farmers endure a massive oversupply of unsold animals that cannot be slaughtered with a growing number of hogs/poultry being euthanised. Some Plains feedlots have gone 3 weeks without a bid on market ready feed cattle. This is the biggest problem facing American agriculture today, and rising consumer meat prices with over 26.5 million unemployed shows the strains that the US packing industry is under. Some 400,000 cattle and as many as 1 million hogs will be pushed forward from April into May for processing.

• Forecasting CME meat futures is difficult amid the uncertainty surrounding packer processing capacity and what the Government is willing to do. There is about 2 weeks of meat in storage that can initially be utilised, but thereafter, it is all about forward fresh production.

• The forecast is drier across the Eastern Midwest and Gulf States. The next weather system is pushing across the Midwest producing 0.4-1.50″ of rain. Temperatures warm as the Western US High Pressure Ridge progresses eastward, but it then returns west in the 10-15 day period. There will be windows for Midwest row crop seeding and average progress is expected. Cool temperatures in the 10-15 day period will slow germination rates across the E Midwest.

• Demand destruction persists in corn while wheat bounces on diminished Plain’s yield potential. However, the midday CFS forecast has rain for the EU/Russia which will likely cap wheat rallies. We believe that Dec corn above $3.40 is overvalued with an estimated 45% of the US corn crop to be planted through May 3. The risk in corn is down as Midwest planting advances.

• Ag markets are weaker at midday on fund selling and the continued concern over demand destruction in ethanol and livestock feed margins. US old crop corn and soybean end stock estimates are growing, and no world importer wants to pay the $0.85/bu premium for old crop Black Sea or European wheat vs new crop bids.

• Chicago has a bearish tone at midday with few end users wanting to take on additional forward coverage ahead of the weekend. Corn, soybeans and wheat have already been through these price areas and they have no reason to add unless new lows form. Research looks for a weaker Chicago close with the outlook for early next week to be determined by how the US and world economy gets back to work. US/world economic data looks to worsen in the months ahead, even as the US Covid-19 data improves. States that are keeping closed during May will not produce a big jump in the miles driven for the ethanol industry.

• Chicago brokers estimate that funds have sold 3,100 contracts of wheat, 5,900 contracts of corn, and 3,400 contracts of soybeans. In soy products, funds have sold 3,200 contracts of soymeal and 1,200 contracts of soyoil. The funds have been active sellers since the opening.

• USDA announce the purchase of 136,000 mt of US soybeans to China and 589,395 mt of corn to Mexico. For the week, we estimate that China has booked 650-800,000 mt of US soybeans for August/September. US exporters report that they expect most of the old crop US soybean purchases by China to be pushed into new crop.

• Moreover, we doubt that China wants to secure large amounts of US old crop corn. The corn crop quality coming out of the PWN is so poor that high foreign matter and store-ability are being questioned. China would be better advised to secure new crop corn which is likely to be of better quality for their reserve. Most Chinese believe that if China is securing US soybeans or corn for their reserve that it will be held/stored for several years.

• The Brazilian Real fell to an historic low overnight vs the US$ at 5.7:1 as Brazilian President Bolsonaro sacked the head of its federal police which caused the resignation of one of Brazil’s favourite politicians, Sergio Moro, the 47 year old judge that tried the carwash cases that jailed the former Brazilian President Lula. Moro was loved by the Brazilian right and political clashes are likely heading into the next election. Moreover, Brazil is expected to lower lending rates to 3-3.25% next week. With inflation running at 3.5% this means that Brazil will have negative lending rates.

• Brazilian farmers seeing record prices/profit margins for the 2021 soy harvest have been active sellers this morning. The weakness in the Real is spurring Brazil farmers to expand intentions for 2021 Brazilian soy and grain production.

• The midday is drier in the Mid-South and slightly wetter across MO/ IL. One system is pushing through the Midwest today and this weekend with another due mid next week. Rain totals are estimated in a range of 0.5-2.00″ for the E Midwest with 0.25-1.50 for the W Midwest. Considerable warming starts Tuesday and the outlook warmer than normal for the first full week of May. The warmth and coming rain will favour seeded crops with the extended 11-15 day forecast calling for average rainfall.

• US ethanol demand remains in retreat while livestock feed margins will struggle for months ahead as the US packing industry works to restructure fabrication lines and provide spacing for its employees. US miles driven will not be increasing through May while US export demand is seasonally subsiding. We maintain a cautiously bearish outlook. Corn remains the downside leader as a larger share of the US crop is seeded on a timely basis.

• A Chicago corn rally is underway with futures rising from a US weekly EIA report did not show a significant new decline in US ethanol production. Wheat and soybeans have reluctantly followed. Corn/soybean futures reached long held downside price targets on Tuesday at $3.02 and $8.10 basis May, respectively. Short covering bounces in bear markets are often sharp/short. In the past 24-hour corn has bounced 10 cents and soybeans over 30 cents from low to high. Key resistance rests at $3.25-3.30 basis May corn and above $8.50 in May soybeans. Wheat values are acting tired with funds already long and some hit-and-miss rain in the Black Sea weather forecast. A mixed close is forecast.

• Chicago brokers estimate that funds have bought 6,400 contracts of corn, 1,200 contracts of soybeans, and 2,300 contracts of wheat. In the products, funds have purchased 2,000 contracts of soyoil and 1,200 contracts of soymeal.

• WTI crude oil prices have rallied sharply with gains of $3-4/barrel with June futures reaching $16.00. Like corn, the rally is largely based on short covering from what was from a multi-year low. We cannot find new demand that will clean up the crude abundance, but when it is priced below $10/barrel, a 40% rally can occur when the shorts want to book a profit.

• The USDA announced the sale of 198,000 mt of US soybeans sold to China for the 2019/20 crop year. The sale has created hope that China could be returning for larger US purchases under the Phase One agreement. We note that a Chinese ag analytical firm is discussing that China could book as much as 10 million mt of soybeans, 1 million mt of cotton, and 20 million mt of corn for their long-term reserve. No mention was made on whether these purchases are spread out over months or years, and they have been circulated before. However, the news is catching the market too short of corn and soybeans. China could book another 2 million mt of old crop world corn under new licenses.

• US weekly ethanol production fell to 166 million gallons/week from 168 million gallons in the week prior, which was down 46% from last year. The decline was not as large as expected. US ethanol stocks rose to a record large 1,163 million gallons.

• The midday GFS weather forecast is drier across the N Midwest with rain totals of 0.25-1.00″. The E Midwest stays wetter with rains of 0.75-2.00″ with two storm systems. Both forecast models offer warming temperatures for the W Midwest and the Plains with highs ranging from the 60′s to the mid 70′s. The E Midwest will be cooler under cloudy skies and a NW upper air flow with highs in the 50′s and 60′s. Planters are rolling across the Midwest, a trend that should persist into the weekend. Another storm system is noted for the middle of next week.

• Chicago futures are bouncing with an upside price target of $3.30-3.35 basis July. We hear of no fresh China interest for US corn. Brazilian farmers are again selling new crop soybeans as the Real declines to $5.40:1, a record low. The rising value of the US$ is likely to cap Chicago soybean rallies. The GFS weather forecast has added some rain for the Black Sea which will be closely monitored going forward. Corn looks likely to be the downside leader as the US ethanol industry stays 45% closed down.

• Sharp declines are noted in Chicago futures in the morning with spot corn testing the 2016 low at $3.02 and then bouncing on modest short covering. May soybeans fell just below the $8.10 support from 2019 while wheat has been pulled lower in sympathy. The deflationary feel is another day of declining energy valuations. However, Chicago values are recovering at midday.

• June crude oil has fallen to $11/barrel as traders understand that today’s oversupply will be corrected in the next 30 days. There may be States that reopen that will increase miles driven/gasoline consumption, but airlines and the full or partial closure of most other States will maintain the abundance of supply amid a lack of storage. A deflationary marketplace exists with few willing to make a longer-term purchase until they are confident that the global fight against the virus has been won. A lower Chicago close is expected as funds continue to press the short side of the market. The volume on the bounce has been about a third of what the decline was this morning.

• Chicago brokers estimate that funds have bought 6,700 contracts of wheat, while selling 8,100 contracts of corn and 3,200 contracts of soybeans. Funds have sold 2,100 contract of soymeal and 1,200 contracts of soyoil.

• Crude oil prices have slid to $7.90/barrel on the soon to expire May futures contract with cash trade said to be as low as $4-6/barrel (if storage can be found). The spot futures price is the lowest since crude oil has been trading in the mid 1980′s and reflects the worsening landscape for producers when demand falls more than 50%. June WTI crude oil is trading at $22/barrel which reflects the massive oversupply, even when world production was reduced nearly 10 million barrels/day last week. The energy market shows the prospect for deflation.

• Weekly US export inspections for the week ending April 16 were; 26.9 million bu of corn, 19.8 million bu of soybeans, and 17.3 million bu of wheat. For their respective crop years to date, the US has exported 835 million bu of corn (down 475 million or 36%), 1,209 million bu of soybeans (up 69 million or 6%), and 897 million bu of wheat (up 45 million or 6%). The USDA is likely to further reduce its estimate of US 2019/20 corn and soybean annual export estimates in the May WASDE. China shipped out one cargo of US soybeans off the PWN.

• The midday GFS weather forecast is wet across the E Midwest with rain totals of 0.75-2.50″. Research argues that the GFS is too wet and too far north with the Midwest rain. The EU model has the rain further south (Delta) and is likely more correct. Both forecast models offer warming temperatures for the Midwest and the Plains with highs ranging from the 60′s to the mid 70′s. The E Midwest will be cooler under cloudy skies and a NW upper air flow with highs in the 50’s and 60′s. Planters are rolling across the Midwest, a trend that should persist through the weekend.

• Chicago futures reached downside price targets which produced the short covering bounce. We cannot find any new US export demand to confirm a larger rally. We doubt that the rally signals an improvement in livestock feed margins or US ethanol demand. The bounce is via oversold chart conditions. The wheat market will closely follow Black Sea weather (still dry) while the soybean market awaits China interest for new crop supply.

• Chicago corn futures are sinking to fresh yearly lows with May futures reaching $3.14, the lowest spot price since 2016. Yet, spot KC wheat prices have rallied to their highest price since 2019, and are testing key resistance.

• The spot Chicago wheat/corn spread has pushed out to a $2.38 premium and appears to be heading to a $2.50 wheat premium. Many feed users will no longer consider wheat a feedgrain, only a foodgrain. Wheat prices are rich when compared to either corn or soybeans.

• Soybeans have been caught between the two grains, but based on favourable Central US weather, they are following corn more than wheat. We look for a mixed Chicago close with wheat to be very sensitive to Black Sea and European weather in the days ahead. We note that the Northern Hemisphere winter wheat harvest starts in just six weeks. Being long of wheat heading into the harvest will be difficult without dire crop declines in Russia/Ukraine.

• Chicago brokers estimate that funds have bought 6,700 contracts of wheat, while selling 8,100 contracts of corn and 3,200 contracts of soybeans. Funds have sold 2,100 contract of soymeal and 1,200 contracts of soyoil.

• Crude oil prices have slid to $7.90/barrel on the soon to expire May futures contract with cash trade said to be as low as $4-6/barrel (if storage can be found). The spot futures price is the lowest since crude oil has been trading in the mid 1980′s and reflects the worsening landscape for producers when demand falls more than 50%. June WTI crude oil is trading at $22/barrel which reflects the massive oversupply, even when world production was reduced nearly 10 million barrels/day last week. The energy market shows the prospect for deflation.

• Weekly US export inspections for the week ending April 16 were; 26.9 million bu of corn, 19.8 million bu of soybeans, and 17.3 million bu of wheat. For their respective crop years to date, the US has exported 835 million bu of corn (down 475 million or 36%), 1,209 million bu of soybeans (up 69 million or 6%), and 897 million bu of wheat (up 45 million or 6%). The USDA is likely to further reduce its estimate of US 2019/20 corn and soybean annual export estimates in the May WASDE. China shipped out one cargo of US soybeans off the PNW.

• Greater focus will be placed on Black Sea weather. The midday GFS weather forecast is wetter across much of Ukraine and through portions of Southern Russia with totals of 0.5-1.50″. More rain is needed, but the forecast shows some rain improvement. The 11-15 day forecast also added rain for Southern Russia and Ukraine which is welcomed, but more will be needed in the critical months of May and June.

• The midday GFS forecast is wetter across the Upper Midwest with rain totals of 0.75-2.50″. Research argues that the GFS forecast is too wet and maintains that the drier EU model has a better handle on the pattern. Nonetheless, both models offering warming temperatures for the W Midwest and the Plains with highs ranging from the 60′s to the mid 70’s. The E Midwest will be cooler under cloudy skies and a NW upper air flow. Planters are rolling across the Midwest, a trend that should persist into the weekend. Research looks for a fall in US winter wheat ratings of 2-3% in good/excellent with 9-11% of the US corn crop already planted.

• The sharp slide in crude oil underscores the problems that ethanol will have returning to profitability with plants to stay closed for months. It will be an active week for spring planting and weather premium in summer row crop prices is being diminished. One must be careful about being long wheat with spring always producing a few good rains in the Black Sea. And as stated on Friday, soybeans are sinking trying to uncover Chinese demand.

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Weekend summary 17 April 2020

• Mixed has been the morning as Chicago futures trade either side of unchanged. The wheat market gave up early gains as Egypt secured French and Russian wheat for late May/June shipment, while the soybean market is trying to reach price levels that stimulate Chinese interest for US soybeans. Bull spreading has been noted in corn as interior cash markets firm on a lack of farm selling while improved weather is offered for new crop seeding beyond the weekend.

• Interest in trading will fade into the weekend as all await political developments on reopening the US and world economies. We look for a mixed close without much passion. Unless China shows up to secure US soybeans, few want to chase a rally amid improved US/European and Black Sea weather forecasts.

• Chicago brokers estimate that funds have been more moderate sellers of 3,200 contracts of wheat, 2,800 contracts of soybeans and 1,200 contracts of soyoil. Funds are flat in corn and soymeal, with spreading turning more active as first notice day against May futures comes into focus.

• China is strongly hinting that it will soon seasonally start their weekly corn auctions to restock the cash markets and pressure domestic feed prices.

• Egypt’s GASC secured 240,000 mt of Russian and French wheat at $243/mt. The purchase should cover GASC heading into the new crop when Russian price offers are as much as $.90/bu below the old crop. The line up to secure old crop wheat is in sharp decline and the wheat market now all depends on Black Sea weather going forward. Chicago wheat futures are under their 50-day moving average with the same price trigger resting at $4.745 in KC July.

• US export sales for the week ending April 9 were; 6.6 million bu of old crop wheat and 15.4 million bu of new crop wheat, 35.7 million bu of corn and 9.0 million bu of soybeans. The sales were disappointing and unlikely to improve unless China steps forward and secures more US soybeans. We would note that China booked US wheat, sorghum and pork in the past week.

• The 90 day forecast for Apr/May/June is attached and it reflects favourable growing conditions with average temperatures and near to above normal rainfall. If seed gets planted on a timely basis, the crops should be ok.

• For their weekly crop years to date, the US has sold 927 million bu of wheat (up 11 million bu or 1%), 1,365 million bu of corn (down 394 million bu or 22%), with US soybean sales at 1,383 million bu or down 15%). We believe WASDE is far too high with their 2019/20 old crop US soybean export estimate.

• The midday GFS weather forecast is much wetter and this model remains erratic beyond the next 7 days. We would argue that the GFS forecast is too wet and maintain that the drier EU model has a better handle on the pattern. Nonetheless, both models offering warming temperatures beyond Friday which will firm soils. We look for planting activity to restart on the weekend and become active next week. The W Midwest and N Plains is where seeding progress will be the most extensive. Any flooding will occur in the Gulf States.

• Higher wheat prices demand a deepening Black Sea drought while the soybean market demands the return of China for US soybeans. US ethanol markets are oversupplied and new stay at home orders into mid-May for the NE US will not be aiding US gasoline consumption.