Monthly Archives: March 2021

31 March 2021

Posted on March 31, 2021 by simon

• HEADLINES: USDA March stocks/seeding report a bullish shocker; Corn/soybeans limit up on bullish 2021/22 balance sheets; US corn feed/residual too low.

• The USDA Stocks/Seeding Report was bullish with 2021 US corn and soybean seedings well below trade estimates. This creates a need for the marketplace to secure/buy additional acres this spring. Moreover, March 1 US corn stocks were 100 million bu less than expectations which creates the need for the USDA to raise its feed/residual use estimate by 75-125 million bu in April. A final 2020/21 US corn feed/residual use above 5,900 million bu can be argued based on feed usage rates in the first half of the crop year. Price has not created any rationing of demand in the US feed, ethanol, or export markets. And in the case of soybeans, supplies are not adequate to meeting the expanding crush for biodiesel.

• Chicago corn raced to limit gains of 25 cents, soybeans to limit gains of 70 cents, while wheat is following with gains of 15-20 cents. The KC wheat/corn spread is expected to narrow close to even money in the coming trading days. US wheat futures will not be able to trade much lower amid the bullishness of corn and new crop soybean balance sheets. Midwest spring weather conditions just became significantly more important in the weeks to come. Somehow the market must encourage farmers to seed an additional 1.5-2.0 million acres of US soybeans.

• US farmers indicated they will plant 316.2 million acres to all crops, up 6.1 million acres from 2020. Kansas crop seedings were up 3.7% while North Dakota seedings were up a solid 10.6%. Iowa total seeded acres held steady at 24.3 million acres. US 2021 all crop seedings are the largest since 2018, but well below trade hope that US farmers would plant a combined 183 million acres of corn/soybeans. NASS indicated that US farmers would seed 178.7 million acres of both principal crops which is 4.3 million acres less than pre-report expectations. NASS forecast that total US harvested crop acres at 291.7 million acres, up 6.9 million acres.

• US 2021 corn seeding was estimated at 91.1 million acres, up just 300,000 acres from last year. IA corn acres fell 2.9% to 13.2 million acres, while IL was down 3.5% to 10.9 million acres. Even Kansas corn acres fell by 4.9% to 5.80 million acres. Assuming harvested acres of 82.50 million acres and trend yield of 179.5 bushels/acre, 2021 US corn production is forecast at 14,810 million bu. Such a crop is well below 2021/22 usage which we forecast at 15.25 billion bu. The 2021 crop year is now a stock depleting year without acute demand rationing.

• US 2021 soybean seeding was forecast at just 87.6 million bu which was up 4.5 million acres or 5.4% from 2020. North Dakota farmers indicated that they would plant 22% more soybeans or 7.0 million acres, Minnesota seedings were up 5.4% to 7.8 million acres, while Iowa was up 4.3% to 9.8 million acres. Finally, Illinois acres were up 3.9% to 10.7 million acres. US harvested soybean acres are estimated by us at 86.7 million acres with trend yield producing a crop of 4,405 million bu. This crop is 140 million bu below calculated use, producing negative or pipeline 2021/22 stocks.

• NASS forecast that 2021 US wheat seeding would reach 46.4 million acres, up 5% from 2020 with spring wheat acres estimated at 11.74 million acres, down 4.2%. Montana cut its spring wheat seeding by 12% to 1.38 million acre while N Dakota spring wheat seeding was off 1.8% to 5.6 million acres. US winter wheat was pegged at 33.1 million acres, up 8.8% from 2020. US wheat seedings were above forecast.

• US March 1 corn stocks at 7,700 million bu, were down nearly 100 million bu from trade forecasts. The second quarter feed/residual use rate was 1,396 million bu, the largest since March of 2018. First and second quarter corn feed/residual use argue for the USDA to raise their 2020/21 usage rate by 75-125 million bu, at least. On a stock/use ratio at the beginning of March, the ratio was a record low with massive US corn exports to China working. We forecast 2020/21 US corn end stocks between 850-900 million bu which could push May futures to $6.00-6.25. Any Brazilian winter corn crop losses now become highly important in April/May.

• US March 1 soybean stocks at 1.56 million bu were slightly larger than forecast with a quarterly negative residual use of -56 million bu. For the crop year to date, the residual is just 18 million bu. NASS did find back soybeans, but the recovery was not enough to counter the unexpected loss of 2021 US soy seedings.

• To conclude, spot Chicago corn has upside potential to $6.00-6.25 with December corn rising to $5.00-5.25. May soybeans are likely to score new highs and rise close to $15.00 with November needing to rally to $13.50-14.00 to secure extra acres. Wheat will be the follower in its effort to stay out of the US feed ration.

30 March 2021

Posted on March 30, 2021 by simon

• HEADLINES: Chicago takes a lashing on pre-report liquidation as cash market basis holds; CONAB to survey Brazilian wheat stocks in April; Funds massive sellers this morning.

• Chicago futures are sharply lower at midday with May corn sliding below $5.35, while May soybeans drop to $13.70 and May Chicago wheat to $6.00. Trade volume is moderate which has helped to exacerbate the downward slide as fund managers take off length heading into the end of the quarter and March NASS Crop Report. Few speculators want to stand in front of the slide while cash markets hold firm. US nor S American farmers appear willing to sell cash grain on the drop.

• May soyoil has declined to another daily limit loss which is caused additional exodus of oil/meal spreads. May soyoil is limit down at $50.46 as technical sell signals are issued following an $0.08 decline from a peak less than 2 weeks ago. The selling in nearby May has spread to the back end of the soyoil price curve with December soyoil falling to $43.20. Buying has been relegated to end users making forward purchases on resting orders. The market is moving to the orders on a lack of speculative interest ahead of the USDA report. The sharp Chicago decline is digesting a bearish USDA report. Unknown is whether the USDA report will confirm or deny the break. Today feels like a exhaustion washout of weak and tired bulls.

• Chicago brokers estimate that fund managers have sold 11,200 contacts of soybeans, 14,900 contracts of corn, and 8,200 contracts of wheat. In the soy products, funds have bought 1,200 soymeal and sold 8,100 contracts of soyoil.

• We have been asked, “What has changed that would produce the sharp Chicago break?” Our response is that nothing fundamentally. In fact, it can be argued that Brazilian winter corn dryness is more acute. The Chicago break is about money and order flow amid a stronger US$. US 2020/21 US corn end stocks are forecast at 1,000 million bu or below with either US corn or soybean balance sheet being shorted by acres in the coming spring planting season. The US farmer cannot seed 95 million acres of corn and 90 million acres of soybeans, there just is not enough arable farmland for everything planted in 2021 to increase.

• Unless the NASS Stocks report offers big bearish surprises for US soybean/corn, just getting past the report will be relief with the cash market then directing Chicago price direction. Today’s slide is not about firming cash markets, but the charts and fund length heading into the end of a quarter and a key USDA report. These are big markets and volatility will be the hallmark of Chicago for many months to come. Be prepared.

• Renewable biodiesel is a new demand driver for US soyoil, cornoil, tallow and restaurant waste oil. State Government incentives of as much as $2/gallon will push a slew of new plants to open in 6-12 months. December soyoil should be well supported between $0.40-0.42/gallon on any bearish report on Wednesday.

• Brazil’s CONAB (Brazil’s USDA) will be conducting their first stocks survey between April 5-23 on domestic food stocks of rice, coffee, and wheat. Brazil like a host of emerging nations is battling food inflation and wants to gauge domestic stores of foodstuffs to make correct future policy decisions.

• The midday GFS weather forecast offers showers for Central Brazil on March 7-8 with a weak frontal pass. The forecast is slightly wetter in this timeframe compared to the overnight run as the high pressure ridge weakens. The showers are slated to drop between April 8-10 which is too far out for confidence. Until then, Central Brazilian rainfall will be limited to a few light showers. The models have been trying to drag a weak front across Mato Grosso while keeping West Central Brazil dry. A generally dry trend holds across Argentina.

• This is a good old spring cleaning ahead of the end of the quarter and a major USDA report with fund selling accelerating as Chicago prices decline. This is no place to make new sales. End users should consider forward purchases as the structure of the bull market has not changed amid record large US corn/soybean demand. If NASS does not uncover larger March US stocks, a quick snapback in price will develop.

29 March 2021

Posted on March 29, 2021 by simon

• HEADLINES: Soyoil rallies on end user pricing as debate rages over US old crop soy supplies; US weekly corn exports must average 69 million bu for 3 billion bu 2020/21 total.

• Chicago values are lower at midday with old crop soybeans sinking on risk off trading ahead of the end of the month/quarter and Wednesday’s USDA/NASS Stocks/Seeding report. It does not take much volume to push the market either higher or lower, but this will change after Wednesday with fund managers and traders willing to return to more normal trading volume. Today (and recent day) volume has been constrained by the uncertainty of the report and diminished confidence in USDA data following last year’s corn stock’s revisions. Research looks for a lower close today with the day’s low already set in soybeans, corn, and wheat. A modest recovery into the close.

• FGIS weekly export inspections for the week ending March 25 were 66.7 million bu of corn, 15.6 million bu of soybeans, and 11.1 million bu of wheat. For their respective crop years, the US has exported 1,328 million bu of corn (up 614 million or 87% above last year), 1,987 million bu of soybeans (up 830 million or 72%), and 746 million bu of wheat (down 6 million or 2%). We would note that for the US to export 3,000 million bu of US corn for the 2020/21 crop year requires a weekly average of 69.7 million bu/week. This annual corn export pace is attainable with the US exporting 85-100 million bu on some weeks during the summer.

• Chicago brokers estimate that fund managers have sold 5,600 contacts of soybeans, 8,700 contracts of corn, and 3,200 contracts of wheat. In the soy products, funds have bought 2,200 contracts of soyoil and sold 4,100 contracts of meal. May soyoil has rallied sharply on new cash related strength and end user pricing on the decline.

• The two key data points to monitor in Wednesday’s NASS March Reports will be March 1 US soybean stocks and 2021 US corn seeding. Both are gaining the acute attention of traders amid their fear for a bearish report estimate.

• The Dec 1-February US soybean residual could be 40-90 million bu larger based on number of US soybeans that were in transit on Dec 1. The record US export pace and the difficulty in counting beans in transit to China might have skewed the December Stocks estimate to be more bullish. Will some of these soybeans be found back in March, that is the key concern. The average trade estimate indicates that 40-50 million bu will be found back (1,543 million bu is the average trade estimate) which could make it difficult for the report to be overly bearish.

• Moreover, traders are quietly raising their 2021 US corn seeding estimates, based on US farmers planting additional acres for yield. In a good growing year, corn yield gains surpass soybeans. And Last March’s US corn seeding estimate was 97 million acres, with the final being 6.3 million acres less. Based on farmers liking to plant corn, could US 2021 corn seeding reach +95 Mil acres.

• The midday GFS weather forecast offers showers for Central Brazil on April 7-8 with a weak frontal pass. The forecast is mostly dry for Argentina and Southern Brazil with limited rain over the next 10 days. Above normal temperatures prevail with Brazilian highs running in the 80′s to the mid 90′s while Argentine highs in the 70′s to the mid 80′s. Brazil’s winter corn area needs rain, but totals look to be light or limited into mid-April. This will place considerable importance for rain in the last 2 weeks of April and the first week of May. Our concern for the Brazilian second corn crop stays elevated.

• Chicago has been speculatively long and fund managers are liquidating risk for the report and the end of the quarter. The cash markets are firm on basis with farmers unwilling to sell stored cash grain on the break. And record high Brazilian corn bids are pulling supply from Argentina. Chicago corn/soybean values have priced in a somewhat bearish NASS report. Research does not see December corn sliding too far below $4.50 or November soybean too far below $11.50 until trend yields are confirmed. This is a highly unpredictable report, but the risk is starting to shift back to the bulls. A smaller US soybean residual shorts US processors of supply and would cause a return to bullish trends in soyoil. This is why March 1 soybean stocks are the most important number on Wednesday’s report.

26 March 2021

Posted on March 26, 2021 by simon

• HEADLINES: Worry grows over Suez Canal reopening and record high ocean freight rates; Will it reignite world grain trade; Massive range for US soybean stocks estimate.

• Chicago is mixed at midday with soybeans, corn, and wheat futures trading either side of unchanged. Soybeans/soyoil have endured additional long liquidation while the grain markets are bouncing in thin volume trade. Wheat has paced the morning rally as traders try to assess the logistical/cost impact of the stuck container vessel in the Suez Canal on EU/Black Sea wheat exports to the east. Risk off remains the theme with soyoil falling back near limit losses.

• The exiting of corn/wheat and soyoil/soymeal spreads is ongoing. Rumours of S American soyoil imports into CA are widespread, but we would note that whether the soyoil is crude or refined, a 19% import duty will be charged. This hefty duty along with soaring freight rates makes such import deals difficult to justify economically. The same soaring freight cost makes the import of Brazilian soybeans into the US economically arduous. The rising freight costs makes the NASS soybean stocks estimate extremely important with stocks of 1,500 million bu or less causing an immediate need for demand rationing and a resulting sharp rally. Soy product pricing and soybean flat prices are all tied to the prospect of a large negative residual in the Dec-February quarter.

• Chicago brokers estimate that fund managers have sold 7,200 contacts of soybeans and 4,900 contracts of soyoil, while buying a net 1,200 contracts of soymeal. Funds have also bought a net 1,900 contracts of wheat and 4,400 contracts of corn. Active meal/oil spreading has been noted.

• The world will be closely watching whether the Suez Canal will be cleared this weekend with the spring high tide occurring Saturday. This will be best chance to float the sideways container ship and start the long process of returning Suez shipping to normality. Ocean freight rates are sitting at record highs and will soar if the canal stays closed. A lengthy closure would reroute shipping around the world and cause a dramatic cost increase for anyone in the EU or Black Sea that would be sending food supplies east. Moreover, the cost of energy could soar on the Mideast logistical disruption. Gauging efforts to unbeach this massive vessel will be closely followed this weekend.

• North America, Argentine and Australian wheat/grain could find themselves competitive to world importers on soaring ocean freight costs. Suddenly, EU and Black Sea exporters would not have a price advantage on a landed basis in wheat heading to the Mideast or East Asia. This has wheat trader’s attention.

• The average trade estimate for March 1 US soybean stocks is 1,543 million bu with the guess range being a massive 1,440-1,825 million bu. This range is more than 10 million mt of soybeans or 385 million bu from high to low estimate. We look for a zero second quarter residual, but the average guess is betting -50 million bu.

• The average March corn stocks estimate is 7,767 million bu in a range of 7,573-7,980 million bu (407 million range), while the average estimate for March 1 US wheat stocks is 1,278 million bu, down 10% from 2020. For the seedings report, the average guess is 93.2 million corn, 90 million soybeans, and 45.0 million acres of wheat.

• The midday GFS weather forecast is drier for Argentina and Southern Brazil and equally as dry for C and N Brazil. Limited rain is forecast for Brazilian winter corn areas for the next 10-12 days with generally above normal temperatures with highs running in the mid 80′s to the mid 90′s. Argentine highs range from the 70′s to the mid 80′s.

• Chicago is paying close attention to soaring world freight costs and how high ocean freight might rise if the Suez stays blocked. The weekend ship refloating effort will be closely monitored and reflected in Sunday’s trade. Otherwise, it is oil/meal and corn/wheat spread unwinding. Soyoil fell to another limit loss with values staying depressed on liquidation. Although the March Stocks/Seeding report will add to volatility, we doubt that it will usher in a sustained bearish Chicago price trend. Do not sell this break.

To download our weekly update as a PDF file please click on the link below:

Weekend summary 26 March 2021

25 March 2021

Posted on March 25, 2021 by simon

• HEADLINES: Chicago sinks on risk off into end of quarter/month and NASS Report: China buys new crop Ukraine corn; US annual corn/soy sales reach 98%/99% of USDA full year forecast.

• Chicago values are sharply lower at midday as fund managers/speculators shed length ahead of the highly unpredictable March Stocks/Seeding Report. Option volatility continues to rise in corn/soybeans suggesting that there will be a sizeable price move following the March 31 report. Wheat option volatility has not expanding much, suggesting that traders are not looking for post report fireworks here. Today’s decline is all about risk reduction (market was long) amid the unpredictability of the March 31 report. Fundamentals are little changed with cash basis bids rising on the break. US and S American farmers are not using the break to make new sales.

• Technically, May corn fell to key downside support at $5.30-5.40, May Chicago wheat at $6.00-6.10, and May soybeans at $13.90-14.10 key long term support. May soyoil futures have fallen to limit losses at $54.98 with end users trying to add to their forward coverage on the break. Soyoil values are hinged to whether NASS can find extra US soybeans in the residual category (soybeans in transit Dec vs March 1) that would allow the US crush rate to be maintained. A US March 1 soybean stocks total of 1,500 million bu or less (0 bushels of residual) would cause a dramatic future rationing rally of soyoil US demand.

• Chicago brokers estimate that fund managers have sold 11,400 contacts of soybeans, 5,900 contracts of wheat and 18,400 contracts of corn. Funds have bought 3,100 contracts of meal and sold 9,700 contracts of soyoil. The selling across the grains has been strong since the morning reopening.

• Ukraine has been active in selling China corn on Thursday with rumoured totals placed at 1.2-1.5 million mt for a September/October/early November timeframe. This is the first corn that we can see that China has booked in a new crop position. European cash sources report that China is still asking for offers and may secure more than 2 million mt. This year, we estimate that China will import 8.5-9.0 million mt of Ukrainian corn and at least 25 million mt from the US during the 2020/21 crop year for a total of 33-34 million mt. Those who estimated China taking 40 million mt of world corn in 2020/21 are coming closer to reality.

• US weekly export sales for the week ending March 18 were; 15.2 million bu of wheat (12.6 million old and 2.6 million bu new crop), 176.4 million bu of corn, and 3.7 million bu of old crop soybeans. Through the daily reporting system, the USDA announced the purchase of 111,000 mt of US corn bt Japan. The corn sales were at the top end of expectations.

• For their respective crop years to date, the US has sold 2,558 million bu of corn (98% of the USDA estimate), 2,231 million bu of soybeans (99% of the USDA estimate) and 913 million bu of wheat (93% of the WASDE forecast). Research argues for the USDAS to elevate its corn export estimate by 400 million bu to 3,000.

• The USDA should raise their soybean export estimate by at least 100 million bu to 2,350 million bu with US 2020/21 wheat exports to be increased by 15 million bu to 1,000 million bu. US 2020/21 soyoil exports appear overstated due to strong domestic use.

• The midday GFS weather forecast is drier for Argentina and Southern Brazil and equally as dry for C and N Brazil. Limited rain is forecast for Brazilian winter corn areas for the next 10-12 days with generally above normal temperatures with highs running in the mid 90′s to the lower 90′s. Argentine highs range from the 70′s to the mid 80′s. The Argentine corn harvest is gaining speed amid arid weather.

• Fundamentals are bullish, but fund managers are cutting their risk into the March 31 NASS reports and the end of the quarter. April options expire Friday with funds are forecast to be net short wheat heading into a new growing season. This looks like an ideal opportunity for end users to scale into future coverage on this pre-report dip. The market knows that US 2021 corn/soybean seedings will very likely be large, that is known news. The bull market will not end next Wednesday.

24 March 2021

Posted on March 24, 2021 by simon

• HEADLINES: Chicago chops sideways in slow volume session. US corn sales will be massive on Thursday morning; HRW wheat feeding purchases become active.

• Dull/mixed is Chicago at midday with corn/wheat lower while the soy complex trades firmer. An early Chicago rally faded with strong cash markets underpinning the midday decline. US farmers show no interest in selling a break with commercial elevator sources reporting that rising cash soy basis is having no impact on securing additional supply. Cash soybean buyers argue that they could raise soybean basis bids by 50 cents and secure only limited bushels.

• Elevators/farmers are sold out of old crop soybeans and have only a modest amount of old crop corn in store. As farmers become active with spring fieldwork/planting, the last thing on their mind will be moving any remaining old crop grain. Regardless of what next week’s NASS Stocks/Seeding report shows, cash market strength will persist on record large cruslh/export demand.

• We look for mixed/firm Chicago close as traders’ position for large US corn/wheat sales tomorrow. S American soybeans are cheaper, so US soybean sales will be less than 10 million bu. But with the US already having sold 99% of its annual export forecasts in corn/soybeans, future slow sales will not produce a bearish market reaction. The surprise would be that current price does not produce a dramatic slowdown in US corn/soy export sales!

• Strong cash corn/soybean basis is producing an impression that the US has overused the corn/soy crop. May corn is trading at 16 cent inverse vs July with May soybeans at a $2.00/bu inverse to November. Cash basis and futures spreads argue for a bull report next week.

• Chicago brokers estimate that fund managers have bought 2,600 contacts of soybeans, while selling 2,200 contracts of wheat and 4,200 contracts of corn. Funds have bought 1,200 contracts of meal and 1,900 contracts of soyoil.

• Plain’s feedlots are securing massive amounts of HRW wheat to feed from April 1 onward. The recent Plain’s rain is providing hope for a big harvest which is providing comfort from elevators that they can offer HRW wheat as feedstuff across the Plains into October. The USDA indicated in its February Outlook Forum estimate that 140 million bu of US wheat (all classes) will be fed in 2021/22. Based on cash price spreads, we see US 2021/22 all wheat feeding being 175-195 million bu amid the $0.80/bu discount of US HRW wheat to corn in TX. It is the Plains wheat cash discount that is enticing massive HRW wheat feed use.

• The US ethanol grind produced 271 million gallons of production, down 14 million gallons from the prior week. US ethanol stocks grew to 916 million gallons.

• The GFS weather forecast is slightly wetter for Central Brazil with rain amounts of 0.25-0.75″. The coming sunshine/dry weather is initially helpful to winter corn, but regular and above normal April rainfall will be essential to final yields. The forecast offers above normal rainfall for Southern Brazil (RGDS) and the northern half of the Argentine crop belt. The rains come too late to produce a yield bump, but it will allow for stabilisation. Dry Argentine pockets remain, but they will be offset on above normal rains in other regions. Heat will be felt on NE and C Brazil with highs in the mid 80′s to the mid 90′s. The forecast leans mixed to supportive corn.

• Low volume and mixed is Chicago at midday. Thursday’s USDA corn export sales should be near record large at 160 million bu. Chicago has been choppy with soyoil/soybeans rising and wheat futures in decline. However, wheat has reached a spread (vs corn) where it is becoming the main starch ingredient in cattle rations through the summer. Moreover, Russia looks to hold to a variable rate tax system that will start on April 1. We fremain bullish on Chicago breaks with a desire to just get past the always uncertain March 1 Stocks/Seeding report. The market risk is to the upside.

23 March 2021

Posted on March 23, 2021 by simon

• HEADLINES: Chicago rallies amid limited fresh news; Cash market firm on tightening supply; Brazilian line up to load soybeans rises to 25 million mt, largest since 2016.

• Chicago ag futures reversed early losses and are higher at midday. Fund long liquidation slowed following the 8:30 morning opening with a reversal in wheat allowing Chicago corn to rise amid strong cash basis bids. Soybeans/soyoil rallied on strong cash basis with May soybean futures pushing back against chart resistance at $14.40-14.50. Renewed biodiesel and food end user pricing is noted in soyoil amid the concern over a summer slowing of the US soybean crush. There is no evidence of soybean imports from S America. Moreover, imported soybeans/soyoil are not eligible for RINs or the blender’s credit.

• The soybean nor corn market shows no evidence of demand rationing with soyoil/cornoil supporting domestic crush margins, regardless of high cash corn/soybean bids. The unknown remains next week’s Wednesday USDA/NASS report and whether a new demand rationing phase is needed. A bearish report will likely be purchased by end users amid the uncertainty of a new US growing season.

• Chicago volume is diminished with few resting orders above or below current values. This is causing Chicago to rally and fall sharply on limited fundamental news. US wheat futures have rallied more than $0.20/bu today without a change in demand or weather. Market volatility looks set to stay high into April.

• Chicago brokers estimate that fund managers have bought 4,500 contacts of wheat, 6,300 contracts of soybeans, and 6,700 contracts of corn. Funds have bought 1,900 contracts of meal and 3,400 contracts of soyoil. Fund managers bought the early Chicago break, but their purchase pace has slowed at midday. The weekly US export sales report will take on added importance on Thursday amid last week’s massive China purchase of nearly 160 million bu of US corn.

• Brazil has decided against lowering its soyoil blend rate in biodiesel from 13%. The industry and Government were having discussions on lowering the blend rate to cut costs on rising soyoil values. However, the strong farm lobby and a letter from the Ag minister has supported keeping the blend rate at 13% instead of 8%, which was being pushed by petroleum groups. The high price of food has some lobbying to use less vegoil in a new fuel vs. food fight.

• The Paranagua paper soybean market continues to slide on the massive export line up (and still growing) for Brazilian soybeans. Paper Paranagua soybeans are offered at 10 cents under and bid at 30 cents under, the weakest in years. We note that the paper market does not include a load out provision, so the longer the line to export Brazilian soybeans, the weaker the paper market. We put the Brazilian soybean export line up at 25 million mt as of March 22, the largest since 2016. This huge line up reflects the massive forward purchases of Brazilian soybeans by China. Yet, the Paranagua paper trade acts as a drag on Chicago soybean futures, but it is unlikely that Brazilian soybeans will be imported until June amid loadout constraint.

• The midday GFS weather forecast is dry for Central and Northern Brazilian winter corn areas while allowing the soy harvest to push ahead strongly. The sunshine/dry weather is helpful to winter corn, but regular and above normal April rainfall will be essential during April and early May.

• The forecast models argue for above normal rainfall for far Southern Brazil (RGDS) and the northern half of the Argentine crop belt. The rains come too late to produce a yield bump, but it will cause stabilisation of corn and soybean crop conditions. Dry pockets remain, but they will be offset by above normal totals in other regions. Heat will be felt on NE and C Brazil with highs in the mid 80′s to the mid 90′s. The harvest is ongoing, but Central and Northern Brazilian weather must be monitored for its winter corn crop.

• Traders are frustrated with the recent back-and-forth in Chicago. There was no clear fundamental reason for Monday’s break nor for today’s rally. However, tightening cash corn/soybean supplies and record large US corn exports through the summer underpins Chicago on breaks. Whether corn/soy needs to start a new demand rationing effort will be determined by the NASS March 1 Stocks report. US 2021 corn/soy seedings will be near record levels, the market risk is March Stocks totals.

22 March 2021

Posted on March 22, 2021 by simon

• HEADLINES: Chicago corrects last week’s gain in low volume; Fund managers reduce risk into the end of the month/quarter; US corn exports record large last week.

• Chicago ag futures are mostly lower in midday trade while soyoil futures rally to sharp gains. Risk off appears to be the mentality ahead of NASS March 31 Stocks/Seeding report. Fund managers were the sellers of the morning decline in thin volume. It does not take much order flow to push Chicago around at 9-year price highs with a new Northern Hemisphere growing season just starting.

• US, European or S American farmers are not going to sell a Chicago break and Midwest cash market basis is steady to firmer as a result. It is the cash market that will catch the break with the big risk being a bullish NASS report that does not match the trade’s expectation on record combined US corn and soybean seeded acres (182 million) or a decline in second Quarter corn feed/residual use. US first quarter corn feed/residual use record large, and the second quarter should be similar based on the huge premiums of sorghum, wheat, and barley. The USDA should raise their 2020/21 US corn exports by 200-300 million bu, the ethanol grind by 50-100 million bu and US corn feed/residual by 50-150 million bu.

• The result will be a US corn 2020/21 end stocks forecast of 1,000-1,100 million bu, which could easily fall to 850-900 million bu if China decides to ship out all its purchases. We estimate 2020/21 US corn exports at 3,000 million bu, 7% US corn stock/use ratio $6.00-6.50 spot Chicago corn futures and a growing need for demand rationing into summer. A cash led bull market lies in the offing for corn, with any new crop weather problem expanding the upside potential.

• Chicago brokers estimate that fund managers have sold 7,900 contacts of corn, 4,300 contracts of soybeans, and 3,800 contracts of wheat. Funds have sold 3,900 contracts of soymeal and bought 3,100 contracts of soyoil.

• FGIS indicated that the US exported 77.2 million bu of corn, and 18.0 million bu of soybeans, and 23.8 million bu of wheat in the week ending March 18. For their respective crop years to date, the US has shipped out 1,259 million bu of corn (up 594 million or 89% from last year), 1,971 million bu of soybeans (up 829 million or 72%), and 733 million bu of wheat (down 5 million or 1%). The US soybean weekly export shipping pace needs to decline to 12 million bu for the USDA 2,250 million bu forecast to be correct. We see the USDA 2020/21 US soybean export estimate as at least being 100 million bu too low. Brazil also shipped out a record number of soybeans last week at 134 million bu. World demand for corn, wheat and soybeans is staying strong and record large for the summer row crops.

• Last week’s US corn export estimate was revised upwards to 89.5 million bu, a record high surpassing a total that occurred in November 1989.

• The GFS weather forecast is dry for Central and Northern Brazilian winter corn areas while allowing the soy harvest to push ahead strongly. The sunshine/dry weather is helpful to winter corn, but regular and above normal April rains are essential for trend line yields. It is too late for weather to produce much change in the Brazilian soy crop, but 2 rainfall events will help the RGDS soybean. The RGDS soybean yield could reach near record levels amid frequent rain events since Jan 1. Our biggest weather concern is Brazilian winter corn as a lasting dry trend appears to be establishing over Mato Grosso, Goias, Mato Grosso Du Sol and Minas Gerias. Highs will range from the 80′s to low 90′s across Brazil.

• Rule 1 – Never sell a low volume break in a bull market. The corn drop is corrective in nature as China did not show up securing more US corn today. Yet, corn/soybeans are cash led bull markets amid tightening domestic stocks. Wheat values are declining seasonally, but we worry that the EU/Black Sea cash price falls are premature amid limited stocks and farmers that are unwilling to sell the discounted new crop. This is no place to be making new sales.

19 March 2021

Posted on March 19, 2021 by simon

• HEADLINES: China buys 4 million mt of corn this week, shifts corn outlook from sideways to new bull phase; Soy follows on 2021 planting fight; KC wheat too cheap vs corn.

• Chicago ag futures are mixed at midday with corn/soy futures sharply higher with wheat sagging on active corn/wheat spreading. China booked another 800,000 mt of US corn taking their weekly purchase pace to an unexpectedly large 4.00 million mt (157 million bu). Soy futures have rallied strongly following corn on tightening domestic supplies amid a lack of farm selling. Wheat is sagging on fund selling and weakening world fob offers. A higher Chicago close is expected with the next upside price resistance in May corn being at contract highs at $5.72/bu. November soybeans have likely scored a trading low against $12.00.

• The premium of the old vs. the new crop fob wheat market is being unwound. Yet, finding a new crop Russian new crop fob offer is nearly impossible. Importer fears are growing that Russia (due their floating export tax) will be a substantially smaller exporter of wheat beyond June 1. This would push world wheat demand to Ukraine, E Europe and Europe from the Mideast and North Africa. The inability of world importers to find Russian new crop offers beyond June 1 will become increasingly important to world wheat markets. New crop Ukraine offers are starting out around $240/mt or $6.50/bu. Importers and end users see fresh weakness below this price as a purchase opportunity.

• The USDA confirmed that China secured another 800,000 mt of US corn today. This takes China’s weekly purchase total to 4.0 million mt. We estimate that China has booked 25 million mt of US corn with 8-9 million from Ukraine in the 2020/21 crop year. From all world corn exporters, we estimate that China booked 33-34 million mt of corn (9-10 million above the March USDA estimate of 24 MMTs). The USDA needs to raise their estimate of US corn exports by at least 250 million bu with research estimating US 2020/21 corn exports of 3,000 million bu. This massive US corn export pace would reduce 2020/21 US corn end stocks to 1,100 million bu without any upward adjustment to the ethanol grind or feed/residual use. 850-950 million bu 2020/21 US corn end stocks estimates are quickly becoming reasonable with stock/use ratios that justify a price of $6.00 plus spot Chicago futures.

• The May KC wheat/corn spread narrowed to a 28-cent wheat premium this morning, the tightest since the Midwest spring flooding of 2019. The nearby KC wheat/corn spread reached a low in August of 2019 as the winter wheat harvest was completed. The prior spread low was set in 2012/13 as North America enduring a dire drought that knifed US corn/soybean production. Looking backwards, you can count the number of days on one had that KC wheat has traded below spot Chicago corn. History shows that anytime the KC wheat/corn spread reaches a $0.20/bu or below (wheat premium), it is a longer term spread opportunity. US HRW wheat economically works into US cattle feed rations in the Plains in a new crop position which could produce additional wheat feeding of 75-100 million bu. The problem is that the US cannot afford to feed too much HRW wheat without causing a dramatic tightening in US HRW wheat stocks.

• The midday GFS weather forecast is much wetter in S Argentina but consistent with prior drier outlook for N and NE Brazil. The dominant feature of S American weather into early April is the return of high pressure ridging to NE Brazil. This pattern funnels consistent/heavy rainfall into Argentina/S Brazil while leaving N and C Brazil arid. This is a growing worry for the Brazilian winter corn crop with needed moisture to fall during April before the start of the dry season.

• Brazilian temperatures reach above-normal levels next week. The GFS forecast is overdone with Argentine rainfall, but this broad long wave pattern is correct. The EU model is drier and has been the best performing model since March 10.

• This week’s China corn buying of 157 million bu (4 million mt) along with a threatening/arid weather for N Brazilian corn is likely to push May corn futures to test contract highs at $5.70. If the NASS Stocks/Seeding Report on March 31 does not hold a big bearish surprise, spot Chicago corn futures will push to resistance at $6.00-6.25 in a demand rationing effort. And as corn goes, so will soybeans and wheat. This is a cash led bull market.

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Weekend summary 19 March 2021

18 March 2021

Posted on March 18, 2021 by simon

• HEADLINES: Market shrugs off corn export demand; Crude falls sharply.

• Chicago ag futures have extended overnight losses on weakness in crude oil, sharply lower global canola prices and as market focuses attention on a paper released from China suggesting feed operations find alternative sources of supply. China’s massive rice stocks have been cited, but otherwise it will be difficult to replace corn and meal with minor feedgrains and meals without massive Northern Hemisphere production this spring and summer. Liquidation is the theme at midday, but we doubt this break can be extended into Friday.

• Crude and gasoline futures are down sharply as US stocks rise and as longer-term energy outlooks are mixed. Demand rises sharply worldwide once vaccine distribution ramps up across Europe and Latin America. But the market is aware there is a price that OPEC begins to boost daily production rates. There is similarly a price that US shale production comes back online. Energy markets needs to see and feel the coming demand boom before newer highs are scored.

• US weekly corn, wheat and meal sales exceeded expectations, while even soybean sales are viewed sales are viewed as positive.

• Through the week ending March 11, exporters sold 39 million bu of corn, vs. 16 million the previous week. Wheat sales totalled 14 million bu, vs. 12 million the previous week. Soybean sales were 7 million bu, vs. 13 million the previous week, with US meal sales a sizeable 235,000 mt. The pace of meal sales is now in much better alignment with the USDA’s forecast.

• For their respective years to date (as of March 11), the US has sold 2,382 million bu of corn, up 109% on Last year and a record 92% of the USDA’s forecast, 2,228 million bu of soybeans, up 74% on last year and just 22 million bu short of the USDA’s annual forecast, and 901 million bu of wheat, up 2% on last year.

• FAS announced another 27 million bu of US corn sales to China for old crop delivery. This brings total Chinese purchases this week to 121 million bu, which in turn puts total US export commitments on a known basis to just over 2,500 million bu. Exporters now must average sales of only 4 million bu/week late March onward. There will remain debate over the full execution of Chinese purchases, but we have little doubt the USDA’s 2020/21 US corn export forecast is 250-300 million bu too low. China last week also secured 11 million bu of US sorghum.

• But crosscurrents abound. The recharging of US soil moisture has weighed on new crop values this week. Additionally, drought has been eliminated from Central KS and Eastern NE. Another round of widespread showers impacts the Southern and Central Plains next Tues-Thurs, which will further relegate drought to far Western HRW producing regions.

• However, NOAA’s updated seasonal climate forecasts maintain warmth and dryness across the Plains during spring. The risk of abnormal warmth in all regions through summer is elevated. The shedding of weather premium is logical, but winter wheat crops are made in Apr-June.

• The midday GFS weather forecast is much wetter in Argentina but consistent with prior output in Brazil. The dominant feature of S American weather into early April is the return of high pressure ridging to Eastern Brazil. This pattern funnels consistent/heavy rainfall into Argentina, with cumulative totals of 3-4″ offered to Cordoba and Santa Fe, while leaving Brazil arid. Brazilian temperatures reach above-normal levels next week. The GFS forecast is overdone with Argentine rainfall, but this broad outlook seems to be correct.

• Choppy trade continues into March 31. Volatility stays elevated into autumn. We continue to caution against chasing breaks and rallies until planting intentions are known but maintains that it is important to boost old crop supply coverage on weakness as US 2020/21 balance sheets tighten further.