17 March 2022

Posted on March 17, 2022 by simon

HEADLINES: Chicago rallies sharply to add war premium; NOAA extended range weather forecast warm/dry for C Plains/W Midwest.

War off/war on. Today the war is on. Chicago futures are sharply higher on declining volume with the market adding back the war premium that was subtracted yesterday. May corn futures are back testing resistance at $7.60-7.80 while May soybeans push against $16.80-17.20 resistance. Wheat futures have lagged following yesterday’s limit down close and lack of fresh US export interest. Traders each week are using the weekly export sales report for a proxy of how much export demand is being shifted to the US due to the Russian war. There has been corn business that has shown up as evidenced by Japan’s more active purchase pace. However, China and a host of other nations do not appear ready to chase world corn/wheat values higher. We look for a higher Chicago close with the market ready to trade the next headline in the Russian war. The volume on the rally has not been large, which serves to exacerbate market volatility.

Chicago brokers report that funds have bought 11,000 contracts of corn, 3,400 contracts of wheat, and 10,400 contracts of soybeans. In soy products, funds have bought 3,500 contracts of soyoil while selling 3,400 contracts of meal.

FAS/USDA reported that for the week ending March 10, the US sold 5.4 million bu of wheat, 72.3 million bu of corn, and 46.0 million bu of soybeans. US corn/soybean sales were above trade expectations and considered bullish. US wheat sales were disappointing as US wheat is non-competitive in the world marketplace. US weekly wheat sales were bearish with the crop year ending in just over 11 weeks. EU wheat sales are ramping up, and until the EU sells out of its old crop supply, will US wheat exports be constrained. Wheat is becoming a new crop story- not only for supply but also demand.

For their respective crop years to date, the US has sold 688 million bu of wheat (down 213 million or 24%), 2,049 million bu of corn (down 334 million or 14%), and 1,970 million bu of soybeans (down 255 million or 11%). 2021/22 US soybean sales were down nearly 560 million bu at one point last autumn, so the ongoing new demand from Brazil’s drought inflicted harvest is likely to cause US soybean exports to near or exceed last year.

China has been an active buyer of Brazilian soybeans this week with their FOB market weaker than the US Gulf as the soybean harvest pushes beyond 75% completed. Brazil is said to have sold 22-26 cargoes of soybeans to China as they continue to add to forward coverage. China crush margins are deeply positive, but China will not chase Chicago rallies. US President Biden and Xi will be meeting later today as the US tries to modify or break China’s support of Russia. China corn demand is absent for now and with May corn trading at such a huge premium to July/December, China could wait to book new crop.

The NWS/Climate Prediction Centre forecast for spring/summer offered warmer and drier than normal weather for the Plains and portions of the W Midwest. That heat/dry looks to extend into the early portions of summer which could pose a problem for US HRW wheat. The good news is that the nearby forecast has excessively wet weather as a potent storm system moves across the Plains, Delta, and most of the Midwest.

The midday GFS weather forecast is wetter for the Central US Plains with a broad area of 1-3.00″ of rain across Kansas/Nebraska early next week as a strong system pulls westward from the Rockies. The system also produces soaking rain for the Upper Lake States and the Delta. The S American forecast is wetter across South Central with just a few widely scattered showers for Argentina.

Fund flows are pushing Chicago values upwards at midday to technical resistance at $7.60 May corn and $16.90 May soybeans. Daily wheat price ranges are exacerbated by the lack of resting orders. We see Chicago grain values as range-bound until after the NASS March 31 US Stocks/ Seeding Report. The report could reflect more than expected corn/soy acres based on margin. Our advice remains not to chase Chicago rallies. Someday soon the war will be off (or at least rumoured to be off).

16 March 2022

Posted on March 16, 2022 by simon

HEADLINES: Fund selling pounds corn/wheat on charts on hope for a cease fire in the Russian/Ukraine war; The break produces importer interest.

Early selling pressure developed as Chicago rocks back-and-forth between headlines at historically high prices. Market volatility stays extreme with key support in July corn below $7.00 while December KC wheat has support below $10.00. Soybean futures are awaiting fresh demand from China, but fob basis falls has made Brazilian offers cheaper today. May Chicago/KC wheat futures traded down the $0.85 cent limit with Chicago limit down at midday.

Chicago is caught in a broad trading range awaiting fresh headlines on the Russian war against Ukraine. Volatility is something that we have warned about since February, and there is no sign of it ending anytime soon. Buying and selling within air (order) pockets will be a feature into the summer with it not taking much volume to move Chicago in a sizeable way. We still hold a bullish bias on corn, soybean, and wheat futures. However, we would avoid selling sharp breaks or buying sharp rallies. Until the March 31 NASS stocks/seeding report is passed, a range trade is the rule.

Chicago brokers report that funds have sold 15,000 contracts of corn, 7,600 contracts of wheat, and 3,400 contracts of soybeans. In soy products, funds have bought 900 contracts of soyoil while selling 3,600 contracts of meal.

Ukraine President Zelenskyy indicated that ceasefire/peace talks were becoming more realistic with Russian Foreign Minister Lavrov suggesting that there was hope for a compromise. When-and-where such a compromise will occur is unknown, but the US is demanding that Russia pledge that it will never again make war against Ukraine before economic sanctions end. Demands for Russia to pay for their damage and promise to never inflict another war is something that Russian President Putin will have a hard time accepting. Nonetheless, the world grain market is down in the hope of negotiated solution.

No one has any idea when a settlement of the Russian war will occur, which is why Ukraine President Zelenskyy sought an additional $800 million in military aid from the US in an unusual/televised speech to the US Congress this morning. Whether be it Afghanistan, Chechnya or even Vietnam back in the early 1970’s, history reflects that war takes longer to resolve in a peace accord than was ever initially expected. We hope that Russia sees its wrong and stops its aggression, but peace accords are complicated and are full of emotion. Be prepared for additional fits and starts on the Ukraine/Russian peace accord.

US exporters report that even if the Russian war were to end today, it would be 3-5 months before Ukraine or Russian grain would be flowing again. There is too much logistical damage at Ukraine’s ports, rail lines and roadways (bridges) that would allow any normality of ag export trade. And the dropping of Russian economic sanctions could take even longer. Although headlines move markets daily, our point is that Black Sea normality is many months away.

Cash traders indicate that a package of US cash corn was sold off the PNW for July with tonnage estimates ranging from 1.25-2.00 million mt. The buyer is being kept under wraps. Additional demand may be working, but the drop in price is producing new Asian corn interest. Importers see the break an opportunity to replace corn that will not be exported from Ukraine.

The midday GFS weather forecast is wetter for the Central US Plains with a broad area of 1-2.00” of rain across Kansas/Oklahoma early next week as a strong system pulls westward from the Rockies. The system also produces rain for the Upper Lake States and the Delta. The S American forecast is wetter across NE Argentina into Southern Brazil with just a few widely scattered showers for winter corn in Central Brazil.

Tuesday’s volume was the lowest for the year to date which reflects the shift of traders to taking reduced market risk on the uncertainty of headlines. Black Sea grain exports will be disrupted for months if a ceasefire is signed next week. Replacing Black Sea sales with US corn, soybeans and wheat is ongoing with US corn seeing the biggest rise. US export sales will be large on Thursday with a tradable Chicago bottom likely either forming today or early Thursday. Don’t sell this break would be our advice.

15 March 2022

Posted on March 16, 2022 by simon

HEADLINES: Soybeans confirm support at $16.50: Chicago corn recovers on end user pricing; world market follows: US wheat futures surge; continued Black Sea conflict collides with weather adversity.

Chicago soybeans traded in the red throughout Tuesday’s session but finished well above the morning lows, with May finding good support on a test below $16.50. Old crop meal was mostly unchanged or higher, while oil dipped to a 2-week low. The May crush spread gained nearly 12 cents to close near $2.20/bu.

The March NOPA crush report showed a February soybean crush rate of 165 million bu, which was generally in line with expectations and just below the record crush that was set 2 years ago. Based on the NOPA data, we estimate a total US soybean crush rate of 175 million bu. This brings the cumulative soybean crush rate to 1,119 million bu, up 6 million from last year and a record large cumulative crush pace.

We hold an annual 2021/22 crush forecast of 2,215 million bu. Cash and futures-based crush margins at $2-3/bu will keep plants running at capacity into year-end.

The March Grain Stocks and Prospective Plantings reports are 2 weeks away. Soybean futures are expected to hold a broad range into the reports, with long-term support expected below $16 May.

Chicago corn ended steady to higher with May’s premium to July widening to $0.35/bu. There was no specific catalyst for the move but a ceasefire in Ukraine remains unlikely. US corn remains relatively cheap in the world marketplace, with futures in Brazil and Europe following Chicago higher on Tuesday. US Gulf corn remains the cheapest origin into Asia during the spring months. Massive export demand will be in place until mid-summer.

Importantly, interior cash basis is participating along with futures in prying all available supply from the producer in what will be record/near record export shipments during Mar-June. Spot bids in Central IL have rallied to $0.25/bu over, vs. $0.12 in late Feb and vs. $0.20 over a year ago in mid-March. Additionally, cash DDG prices across the Western and Central Midwest remain perched at $260-265/mt, which is keeping ethanol production margins near breakeven.

The shock of old crop Ukrainian supply loss has been digested. It is now demand that propels spot to $7.80-8.25 by late spring.

US wheat futures ended $0.40-0.60 cents higher, with spot Paris milling wheat rising an equivalent $0.22/bu. Sentiment surrounding a peaceful end to war in Ukraine remains negative and vessel count data suggests a collapse in traffic in the Black Sea. We reiterate that modest tonnages could sneak out of Russia in the months ahead, but to all intents and purposes, Black Sea grain trade has ended for an unknown time period.

Our fundamental focus is shifting increasingly toward adverse weather in many parts of the Northern Hemisphere. The bulk of the US HRW Belt will see accelerating moisture loss as spring-like temperatures lie in the offing. PHDI (Palmer Hydrological Drought Index), a measure of drought, was negative 2.0 at the end of Feb, and without a change in the next 60 days, wheat yield loss of 10-15% relative to trend becomes probable.

We also note that Feb 1-Mar 24 precipitation in Ukraine and Romania will total just 20-40% of normal assuming the 10-day forecast verifies. Pattern changes are needed.

Fair value is pegged at $10.25-12.00 basis spot KC/Chicago into late spring. Upside rises to $13-14 if Russian sanctions stay intact in the second half of 2022. Additional cover is advised on sharp corrections as the market does not enter a lasting bearish trend until massive N Hemisphere acreage expansion is confirmed in late 2022/early 2023.

14 March 2022

Posted on March 14, 2022 by simon

HEADLINES: Russia to ban grain exports through June 30; Brazilian corn at new record high; US weekly export totals lack inspiration.

Chicago values are broadly mixed at midday with corn/soy futures trading lower while wheat futures rally on the news that Russia is planning to ban all grain exports from March 15 to June 30. The Russian headline sparked a US and world wheat rally as exporters that sold wheat from Russia on an optional origin basis, scramble to cover the sale from other world exporters such as the EU, Australia (if they can find loadout capacity) and the US.

No mention was made of Russian banning sunseed/sunoil exports, but based on record high domestic prices, it is expected to be included in the grain ban to be officially announced in the next few days.

The Russian grain ban will push other exporters such as Argentina to consider like bans or higher export taxes. Rumours abound at midday that Argentina is considering raising export taxes on grain to help pay off IMF loans amid the windfall that has befallen Argentine farmers/exporters.

We expect a higher close in US wheat futures with corn/soybeans forming bottom as March contracts expire. We doubt that July corn can push too far below $7.00/bu amid rising cash basis bids. Today’s corn/soy decline is about selling tied to the inability to forge new rally highs, and the lack of a confirmation of rumoured corn demand by Spain.

Chicago brokers estimate that funds have sold 12,500 contracts of corn and 4,000 contracts of soyoil. Fund managers have bought 1,800 contracts of soybeans and 2,000 contracts of wheat. In the products, funds have sold 4,200 of soyoil while buying 1,900 contracts of soymeal.

The USDA reported the sale of 159,000 mt of US corn that was sold to Mexico for 2021/22. No sales of US soybeans or corn was reported to China. China booked 5-6 million mt of Ukraine corn late last year which will not be executed. Due to China not having phytosanitary certificates worked out with Brazil or Argentina, the US is the only origin that can supply this corn. We expect that China will use a Chicago corn break to switch their corn purchase.

Sources indicate that Russia will place a ban on grain exports due to the sharp rise in domestic food prices and the economic sanctions that are already severely limiting trade. The Russian invasion of Ukraine knifed Black Sea wheat exports by 9-11 million mt. We were estimating that Russia could export 3.0 million mt of wheat through June 30. The announced ban today would end the export of 3.0 million mt of Russian wheat that was going to leak into the world market. With Ukraine/Russia no longer exporting grain, stress is coming on key importers like Egypt that may have 600-700,000 mt of wheat purchased from the Black Sea that will have to be sourced from others. Importers/sellers will initially turn to European wheat, but with Australian export loadout capacity taken through August, it is the EU, Canada, or the US as probable sellers. Indian wheat exports will be below 1.0 million mt monthly. This is a big deal for wheat, do not underestimate its importance!

Brazilian corn prices reached record highs today with talk building that Brazil will be dropping its import levy to 0% on April-June corn imports. The dropping of its import levy could allow US corn to be imported (on paper).

US export inspections for the week ending March 10 were 45.0 million bu of corn, 28.4 million bu of soybeans, and 10.3 million bu of wheat. For their respective crop years to date, the US has shipped out 1,020 million bu of corn (down 168 million or 14%), 1,548 million bu of soybeans (down 411 million or 21%) with wheat exports at 595 million bu (down 117 million or 16%). We would reiterate that US corn Sept-January Census exports are 172 million bu larger than FGIS, so that annual crop year exports to date are actually above last year.

Breaks in Chicago corn, soy and wheat futures offer new buying opportunities. Some cite slower than expected US corn export loadings for the Chicago corn decline, but the total loss of Black Sea exports will push US corn/wheat demand back to the US. And world feed wheat prices are too high for world livestock feeders. Crude oil falling below $100.00 is based on long liquidation, not a change in fundamentals. Bull markets lie ahead for Chicago, but choppiness is probable ahead of the NASS Stocks/ Seeding reports on March 31. Stay bullish is our motto.

11 March 2022

Posted on March 11, 2022 by simon

HEADLINES: Doubts emerge of any quick solution to Russian war; Spain said to be seeking US corn; US rejects MFN (most favoured nation) status for Russia.

Chicago values came under early pressure due to an unspecified comment from Russian President Putin of “positive movement” in the cease fire/peace talks with Ukraine. Putin’s “positive movement” comment came shortly after Putin said that he would bring in 16,000 Syrian fighters to bolster his troops in Russia’s war with Ukraine. Guessing what Putin meant by positive movement and adding troops at the same time has everyone guessing.

Russia did expand its push into Western Ukraine and is focusing on breaking supply chains that flow from Poland. No one (but Putin) understands the direction of the war, but Russian history doubts that Putin is ready to relent without a clear change of political Ukraine leadership. Putin will not leave Ukraine President Zelinskyy in charge. And if Putin relented to economic sanctions at this early date, it would change war tactics forever. Russia does not want to bow to coordinated western economic pressures.

Finally, NATO/the world will not relent on economic sanctions anytime soon if Putin stays the President of Russia. If Putin battles to control of Russia, or there is a cease fire, the economic sanctions including SWIFT shutdown will be maintained. Putin is going to have to likely be exiled from Russia before the sanctions would end. This means closed/complicated Black Sea ag trade for an extended period. World grain demand is pushing to reliable suppliers, including the US/EU/Canada and Australia.

President Biden and EU members will be revoking the US’s “Most Favored Nation” status for Russia. The move is largely symbolic but offers additional levers to pull should Russia’s war aggression continue with tariffs to rise from its current 3%. Some expect that import tariffs could rise to 20-30%. The problem for Russia is once MFN is revoked, its often difficult to get it back. Putin is creating longer term economic hurdles for Russia.

Chicago brokers estimate that funds have sold 2,500 contracts of wheat and 3,800 contracts of soybeans, while buying 3,300 contracts of corn. In the products, funds have sold 5,200 of meal while buying 2,500 contracts of soyoil.

USDA reported that 264,000 mt of soybeans were sold to China for 2022/23 and 128,900 mt of corn for 2021/22.There are rumours that India has made a new purchases of US soyoil due to the discount of US soyoil vs palmoil. China is asking for offers on old and new crop soybeans. And there are inquires for US corn due to switches from Ukraine. No one can confirm Chinese demand just yet, but Chinese feed importers will likely get shorted by 5-6 million mt and will likely look to the US for replacement.

Amid growing US export demand, cash movement from the US and S American farmer is just not enough and cash basis bids are rising. Central IL corn basis is bid at 25-30 cents over with soybeans at 10-15 cents over. Brazilian farmers are selling limited tonnages from their expanding soy harvest. Cash basis and futures spreads must work harder to secure cash supplies.

There are ongoing rumours that Spain is scouring the world for corn to avoid running out of feed in May. The EU is extremely tight on feed supplies with wheat exports increasing following the Russian war on Ukraine. The demand being rumoured is said to be 1.5-2.5 million mt. We see the entirety of the EU potentially being a large US corn importer if Brussels were to approve GMO.

The midday GFS weather forecast is like to the overnight run with parched conditions for Argentina over the next 10 days while near normal rain falls across most of Brazil. The winter corn crop in Brazil is in good to excellent condition and the coming rain will boost growth rates. S American weather is declining in market importance other than Brazilian winter corn.

Chicago futures have bounced following the opening with wheat being the upside leader as traders doubt that Putin will end the Russian war anytime soon. The US is seen as a reliable supplier of grain/oilseeds/vegoils to the world as a host of other countries halt their ag exports. The path of least resistance stays bullish with Central US weather conditions to grow in importance in the weeks ahead for Chicago.

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

Weekend summary 11 March 2022

10 March 2022

Posted on March 10, 2022 by simon

HEADLINES: Wheat plunges on spec selling as corn soars on export demand; Rumours of EU demand for US soymeal as EU natural gas prices soar.

Wheat values are sharply lower while corn/soy futures try to hang onto a moderate rally effort. The volume of Chicago trade is in decline (from prior days) with trader interest watching whether wheat can close limit down. Wheat is on a string of limit days amid extreme market volatility. May Chicago wheat was down over $1.20/bu as prices continue their upwards and lower streak. High prices beget volatility, but amid wheat’s recent market behaviour, Chicago margins are too cheap at $5,100-5,200/contract. The spot Chicago wheat/corn spread peaked on Monday at $6.70 and has done a swan song to $4.65, a 4 day $2.00/bu move which is breath-taking for a spread. Value should be witnessed in December KC wheat at $10.00 or below. The loss of Black Sea production coupled with a developing drought across the winter wheat areas of the Plains mandates support at $9.70-10.10 basis KC December.

December corn futures will find value at $6.25 and below due to the need for extra acres and a record corn yield to make pipeline supplies in the 2022/23 balance sheet. And the current soybean/corn ratio does not favour either extra corn or soybean acres. US farmers report that they expect that farmers will continue with crop rotations that could cause a few extra soybean acres, and less corn. However total combined acres will likely total no more than 181 million acres.

Food security/prices will cause anxiousness from politicians and populations. Egypt, the world’s largest wheat importer placed a ban on wheat exports. For most of the western world, the rising cost of grain will not change lifestyles. We estimate that at today’s wheat price, there is 8.8 cents of actual wheat in a loaf of bread. Even if the price of wheat triples, it is not going to cause a dramatic decline in milling use. It is the feed use of wheat that would be the big loser and boost the demand for corn/DDGs.

The midday GFS weather forecast is slightly drier across N Argentina vs the overnight forecast. Enough rain looks to fall across C and N Brazil to maintain favourable conditions for the winter corn crop. Temperatures will be seasonal with highs ranging from the 70s/80s/90s. April and early May is the key pollination period for Brazilian winter corn.

There was hope yesterday that a peace deal could be brokered with Russia which caused profit taking. Overnight, talks failed, and Russia is back firing rockets, and the war appears to have longevity. Soaring European natural gas prices are cutting soy crush rates and causing end users to reach for US soymeal. Sizeable export demand for US corn, soyoil, and soybeans is ongoing. Stay Bullish.

9 March 2022

Posted on March 9, 2022 by simon

HEADLINES: USDA March report slightly bearish; Chicago breaks with crude oil; Look at new crop corn/soybeans/wheat for value.

The USDA March Report was neutral to slightly bearish as WASDE cut Brazilian and Argentine soy/corn crops, and edged US 2021/22 US corn/soybean end stocks lower, but not to the degree that private analysts were hoping for. The USDA did not adjust US export demand amid the Russian war against Ukraine as evidenced with the 10 million bu cut in US wheat exports to 800 million bu. With the Russian war against Ukraine only 2 weeks old, making such an adjustment will wait until April/May/June Reports.

Chicago had prepared for a bearish report and traders were on point. The focus going forward will be on the Russian war on Ukraine and the switching of ag trade to the America’s, Europe, Australia, and Canada. Combined 2021/22 US major crop stocks declined a collective 140 million bu to 2,378 million.

USDA estimated 2021/22 corn end stocks at 1,440 million bu, down 100 million with the cash farmgate price raised to $5.65/bu. WASDE raised 2021/22 US corn ethanol use by 25 million bu to 5,350 million and exports by 75 million to 2,500 million bu. We would argue that WASDE is too low by 275-300 million bu on US 2021/22 corn exports with US corn end stocks forecast to slip to 1,070 million bu. Such stocks are nearing pipeline and would support May corn futures at $7.80-8.25.

Globally, WASDE lowered the Argentine corn crop by 1 million mt to 53.0 million while Brazil’s corn crop held steady at 113 million mt. We would argue that both estimates are too high with risk being a deeper downward crop drop in April.

USDA dropped its 2021/22 soybean end stock estimate to 285 million bu, down 40 million with a farmgate price of $13.25/bu, up $0.25/bu from February. WASDE raised 2021/22 soybean exports to 2,090 million bu (up 40 million) which fell right to the bottom line. WASDE cut world soybean production 9.5 million mt with the Brazilian crop at 127 million mt (down 7 million), Argentina at 43.5 million mt (down 1.5 million) and Paraguay at 5.30 million mt (down 1 million). This was the third month of sharp crop declines with additional crop falls forecast.

We see 2021/22 US soybean exports at 2,160 million bu, up another 70 million that would drop 2021/22 US soybean end stocks to 215 million bu. If China keeps securing US old crop soybeans, a further gain in exports is anticipated. The downside price risk below $16.20 appears limited amid tightening global supplies.

The USDA’s adjustments to world wheat supply/demand were as expected, measured. It is difficult to accurately predict global trade flows through the remainder of the marketing year, though focus on WASDE wheat data will be short-lived. Generally speaking, USDA updates were bearish as USDA hiked Aussie production to a record 36.3 million mt. Combined Australian and Indian exports were raised 3.5 million mt. This partially offset a reduction in Ukrainian/Russian exports of 7 million mt. Additionally, total world wheat trade in 2021/22 was lowered 3.6 million to 203 million mt. US wheat end stocks were lifted 5 million bu to 653 million as reduced exports more than offset reduced imports. USDA’s US wheat export forecast of 800 million bu is 20-30 million too low in our opinion.

And based on trade date through February, Russian wheat exports are 24 million mt, with Ukrainian shipments to be capped at 18 million mt. This implies that Black Sea exports must be reduced another 9-11 million mt, and this demand cannot be filled by Australia, India and Europe. We maintain that supply rationing is needed, and the task of wheat pricing in the long run is to maximise 2022 winter wheat seeding across the Northern Hemisphere. December KC wheat is a buy under $10.

Future USDA reports will confirm smaller US corn, soybean, and wheat 2021/22 end stocks on larger US export demand. The need for demand rationing is acute and all those who bought Black Sea wheat/corn/sunoil have yet to secure their import needs elsewhere. Market volatility will be extreme. We would see a dip in Dec corn to $6.20 and Nov soybeans to $14.25 or less as a longer-term buy. Wheat trades limit back and forth each day.

To download our USDA Recap as a PDF file please click on the link below:

USDA Recap 9 March 22

8 March 2022

Posted on March 8, 2022 by simon

HEADLINES: French news agency reports that Ukraine no longer desires to be NATO member, confirmation awaited; USDA report Wednesday.

Chicago values are mixed at midday with wheat/corn and wheat/soybean spreads enduring profit taking following a series of limit up days in Chicago May wheat futures. The short pin position of May Chicago wheat has been lifted, which produced a correction in wheat, while soybeans/corn are rising on demand considerations and tightening cash supplies. US and S American farmers have dramatically slowed cash sales and basis bids are rising to reflect the growing need to spur movement. China continues to book US soybeans (daily basis), a trend that will be ongoing. US soybeans are the cheapest in the world, and as energy values rise, the demand for biofuels is also growing.

President Biden has announced a ban Russian crude and other energy derivatives into the US. Other nations like the UK, Japan and other NATO members will follow. Rising energy prices make ethanol/biodiesel/renewable diesel more profitable. Biden is unlikely to alter the RFS in 2022. The Biden Administration needs the extra fuel supply and does not want to anger farmers ahead of the midterm elections in November.

The March USDA Crop Report will be released on Wednesday and is expected to be slightly bearish as WASDE stays conservative in their US export estimates. Closely watched will be S American soy/corn crop estimates with us looking for WASDE to cut Brazilian/Argentine soy crops by a combined 9-11 million mt. S American corn production should be cut by a more modest 3-5 million mt. The result should be larger US exports and smaller 2021/22 end stocks. Traders look to buy Chicago wheat, corn or soyoil on a post report break.

Historically in demand bull markets (based on the closure of Black Sea), Chicago values rally early and late in the week with profit taking occurring midweek. Risk premium is added as the Russian war is ongoing without a visible end. Russian President Putin has a track record of pounding enemies with rockets until cities are rubble. That same war plan is playing out with any cease fire solution lacking today. NATO members do not want to be ensnarled in war and will continue to ramp up sanctions on Russia.

Chicago brokers estimate that managed money has sold 9,000 contracts of wheat while buying 7,700 contracts of corn and 4,600 contracts of soybeans. In the products, funds have bought 3,400 meal and 1,400 contracts of soyoil.

Talk that Brazil has sold 500,000 mt of corn appear to be overstated. It is possible that Brazil could have sold a few cargoes of corn (to EU), the bet is that rising domestic corn price makes export sales unlikely until the winter corn harvest is available in July. We note that Brazilian corn is priced at $8.90/bu, a record high. On replacement, big losses would be incurred if Brazil sold corn below the US. It is possible that corn was sold as optional origin with Brazil an origin, but large-scale sales are unlikely. Brazil will continue to be a big importer of Argentine corn into mid-2022.

The GFS weather forecast is like the overnight forecast with rains for Northern and Central Brazil over the next 10 days with drier weather for Southern Argentina. The rains for Central Brazil will aid the outlook for winter Brazilian corn. Pollination lies ahead in April, and additional rainfall and seasonal temperatures will be key.

Headlines! News from a French news agency that Ukraine is no longer demanding it become a NATO member caused a quick sell off in commodities/rally in equities. Confirmation from Ukraine is lacking. We would doubt that the US/NATO will be willing to lift their Russian sanctions without a final peace accord. The Russian war against Ukraine is ongoing with various headlines causing acute market volatility. We are a cautious Chicago buyer on any acute headline selling. Headline trading makes Chicago trading difficult. Yet, a bear market is unlikely amid growing S American crop losses. The world is short of grain/food.

7 March 2022

Posted on March 7, 2022 by simon

HEADLINES: Chicago wheat stays limit bid; US corn export inspections surge; CONAB out Thursday; Russian war worry-could be extended.

Chicago values are mixed at midday with Chicago wheat limit up for the sixth day (expanded limit $0.85/bu) while corn/soy trade either side of unchanged. Soyoil sold off along with crude oil while soybeans have rallied on tightening cash supplies and ongoing Chinese demand. China is back bidding for US and Brazilian soybeans for June/July with the US Gulf being the cheapest option. We look for a mixed Chicago close with strong cash markets maintaining firm wheat/soy futures while corn endures bear spreading on profit taking. We doubts that any Chicago selling will be long lived or lasting, however profit taking ahead of the USDA report is expected on Tuesday.

We believe that May Chicago wheat came close to coming off limit but is trading 11 cents above limit based on the current futures and options spreads. If May wheat settles the $0.85/bu limit, the daily limit will expand to $1.35/bu on Tuesday. We look for the bullish pin of wheat to soon be released, which could cause long liquidation in other Chicago markets. Traders are fearful that the USDA will stay conservative in their assessment of S American crops and US balance sheets. No new crop US balance sheets are now offered until May, so the USDA will keep the industry guessing on the Black Sea impact.

Chicago brokers estimate that managed money has sold 2,000 contracts of wheat, 11,100 contracts of corn, and 3,000 contracts of soybeans. In the products, funds bought 1,000 contracts of soymeal and sold 3,000 contracts of soyoil. The morning aggressive fund selling in corn is somewhat surprising, but largely tied to the drop in energy futures.

US export inspections for the week ending March 3 were 62,287 million bu of corn, 28.1 million bu of soybeans, and 12.6 million bu of wheat. For their respective crop years to date, the US has shipped out 975 million bu of corn (124 million behind last year or 11%), 1,520 million bu of soybeans (down 419 million or 21%), and 582 million bu of wheat (down 103.5 million or 15%). The weekly US export pace for corn was the largest of the crop year to date, while soybeans are making up their big losses vs last year on soybeans.

We have highlighted several times that it is the duration of the Russian war against Ukraine that produces the upside price potential in world corn/wheat and vegoil values. The longer the war goes on, the greater the new crop losses in both Russia and Ukraine. We doubt that even if Ukraine surrendered to Russia, that the world would drop aggressive sanctions on both countries if Putin stayed as President. Only if another Russia President took over that was more moderate, would the world being willing to forgive/forget. By that measure, the impact on energy/ag availability from the Black Sea could be extended well beyond current expectations. Short of a structured settlement or Ukraine winning the war, it is difficult to find a scenario that the end is near.

CONAB will release their Brazilian soy crop estimate on Thursday morning. The trade will look forward to the CONAB estimate more than the USDA’s update. Ag Rural dropped their soybean crop estimate to 122 million mt. We would estimate the final soybean crop estimate of 119.5 million mt.

The midday GFS weather forecast is slightly wetter across Central Argentina than what was indicated overnight. And the winter corn crop in Brazil will see enough rain for early vegetive growth, but better amounts will be needed in the last half of March and April as reproduction nears. Close attention must be paid to Central Brazilian weather in April.

Corn futures have declined on liquidation. The political will to change the RFS is waning as rural US Congressmen speak out against any change ahead of the midterm US election. WTI crude oil has rallied strongly, and future inflation data is expected to show a widening spread to US interest rates. Chicago will raise margins (again) on Tuesday with wheat rising $1,000 contract to $5,200. Corn and soyoil margins are also increasing.

4 March 2022

Posted on March 4, 2022 by simon

HEADLINES: Extreme Chicago volatility as wheat starts to trade; Corn falls $0.60 from its high; Chicago May wheat still locked limit.

Chicago values are sharply mixed at midday. Corn has traded $8.00 for the first time since 2012 while wheat futures scored new highs on a synthetic option basis. Rumours are widespread of firms struggling to meet margin calls as Chicago wheat futures have rallied an incredible $3.50/bu (to $12.09 May). Last Friday, wheat closed limit down at $8.59 as NATO members did not include SWIFT in their sanctions. That changed on Saturday and the grains have been on an incredible bull run since. The break appears to be on wheat trading again.

The Chicago rally has caused short wheat holders to spread their losses by buying corn and even soybeans. Wheat shorts are trapped and are buying anything that can help them to reduce or manage risk. In 2008, wheat ran to record highs on the influx of money from the new index funds. That rally did not run limit up every day and allowed the bears to manage their position. This rally has not allowed the bears to step aside in an orderly manner. Concern is growing that brokerage firms will dramatically raise margin rates or put restrictions on position size to help them manage risk. The volatility of Chicago and other markets is going to stay extreme due to headline risk.

Chicago brokers estimate that managed money has purchased 9,000 contracts of wheat, 20,600 contracts of corn, and 8,200 contracts of soybeans. In soy products, funds have bought 5,600 contracts of soymeal and sold 6,400 contracts of soyoil. The potential that the Biden Administration could change the RFS would have an important impact on soyoil demand and soybean crush margins. Our hope is that USDA/Biden hold to their prior RFS pledges.

Chicago spread and options are trading widely as traders are loath to enter new positions amid the heightened risk ahead of the weekend. Option volatility is soaring with the corn vol rate rising to 56%, the third highest on record. Historically, option vol rates have correlated with intermediate tops in futures, so this week’s climb in volatility has been something to watch. The vol rate is like a momentum indicator in suggesting that emotions are high. Options are costly on any purchase of a put or a call.

The USDA announced that 106,000 mt of soybeans was sold to China, 108,860 mt to Mexico, and 125,000 mt to an unknown destination. All the sales were for the 2021/22 crop year.

Rarified Air – Chicago spot corn has only traded 8 weeks above $8.00 in history in the timeframe of July/August in 2012 when a dire drought struck N America. This drought produced the active planting of the winter corn crop in Brazil which brought this country to being the second or third largest corn exporter in the world. The market is trying to secure additional Brazilian and US corn seeding in 2022.

The midday GFS weather forecast is slightly wetter across Central Argentina than what was indicated overnight. And the winter corn crop in Brazil will see enough rain for early vegetive growth, but better amounts will be needed in the last half of March and April as reproduction nears. Close attention must be paid to Central Brazilian weather in April.

Corn futures fell 60 cents off their high as wheat values started to trade in KC and back month Chicago futures. All the short wheat holders that were long corn/soybeans sold out as they can get out of short wheat. The wheat relief value of the market opened which sent the summer row crops reeling.

Going forward, the most pressure will be felt in soyoil futures if the Biden Administration decides whether to roll back RFS mandates to aid food inflation. Policy headlines for Chicago grain/soy are dangerous following the massive build up in net long speculative positions. Net long managed money in corn should be record large this afternoon. We are a longer-term bull, but caution is advised due to extreme market volatility, high option volatility and rising margin requirements. New crop futures offer the best risk on sharp setbacks. Remember that bull markets always let you in and May Minneapolis wheat is priced at a discount of $1.00 vs. Chicago in the options which is shows the speculative imbalances of large funds chasing the most liquid wheat futures.