Monthly Archives: March 2022

3 March 2022

Posted on March 4, 2022 by simon

• HEADLINES: Soybeans end mixed on global uncertainty; Chicago corn follows wheat; May trades limit up briefly; Wheat remains proxy for Black Sea conflict; Plains dryness worrisome.

• Bull spreads in corn/wheat have blown out to the upside as Russia started the Ukraine war one week ago. The flow of funds and reluctance of farmers to add new sales, along with a potent shift in world trade flows has produced a spike in spreads. The May/July corn spread closed at 44 cent May premium today. In other words, US farmers are penalised for not selling their corn in March/April. We see that elevators are rolling their cash bids forward to July. Our concern is that politicians will be looking for ways to pull back food inflation including slowing biofuel production. The Biden Administration is looking at cutting the RFS for ethanol/ biodiesel as a means of boosting supply. Be careful in chasing Chicago rallies into late March.

• Chicago soybeans settled mixed on Thursday following (relatively) quieter trading session. The USDA announced sales of 2.4 million bu of old crop and a like amount of new crop to China.

• The Export Sales Report showed old crop soybean export sales fell to a 6-week low of 31 million bu, while weekly exports slipped to 28 million bu or the lowest since early September. However, new crop sales of 51 million bu lifted total sales to a record large 248 million, exceeding the 2010 record by 22 million bu.

• In soybean oil, both exports and sales slowed last week. Soybean oil exports slipped to a 3-week low of 30 million lbs, while sales dipped to a 3-week low of 14.5 million lbs. Cumulative exports are less than 1% behind last year, while outstanding sales are down 12%. Export commitments are 5% less than a year ago, while the USDA projects that annual exports will fall 17%. The relationship between late Feb commitments and annual exports and suggests that the UDSA’s forecast is at least 250 million lbs too low. We look for a higher forecast in the upcoming March USDA Report.

• Long-term trends are bullish, but volatility will be extreme. Our initial price targets have been reached, and we caution against chasing Chicago rallies. Support in May soybean futures rests at $15.50-16.00.

• Chicago corn futures ended 7-22 cents higher with May’s premium to July widening to $0.45/bu and May’s premium to Dec reaching an incredible $1.32. The market is signalling the need for supplies immediately as a seasonally growing US export program collides with a shift in demand from Ukraine to other origins. Similar to wheat, it has become highly difficult to manage risk, but without clarity on future Black Sea grain flows, the market will assume Ukrainian supplies stay unavailable to importers for at least 3-4 months.

• We advise against adding market length at current prices, but end user coverage/new length is recommended on corrections of 20-30 cents. May corn in Brazil on Thursday rallied to $8.56/bu and Brazil’s premium to Chicago for spot and May arrival sits at $1.00-1.08/bu. Additionally, cash ethanol margins hold near breakeven following the recent surge in DDG prices. Fundamentally, there is no sign that consumption is slowing, but daily price determination will be at the mercy of Black Sea conflict headlines.

• We urge caution on both sides of the market amid extreme market volatility.

• Massive and swift short covering allowed May Chicago wheat to settled limit up for a FOURTH consecutive day. Spot March rallied $2.30/bu as expiration nears, and option market activity points to another emotional $0.75/bu rally on Friday.

• The market must assume some 14 million mt of Black Sea wheat is unavailable to the world market through June. This assumption will change as the conflict evolves, and otherwise there is just no template for managing risk at a time of record low exporter wheat stocks/use while war rages in the largest exporting region.

• Fundamentally, it is ongoing Plain’s drought that will have the biggest known impact on the US balance sheet. Yield loss relative to trend of 15-20% becomes probable if soaking rain fails to arrive there in the net 45 days.

• We advise against speculative positions currently. The outlook stays bullish as long as military action continues in Ukraine, and how high is high is unknowable. The ultimate fate of Black Sea grain flows/2022 production is uncertain. There are more questions than answers, which makes defining wheat’s fair value difficult.

• Chicago is in reach of the 2008 highs at $13.34.

2 March 2022

Posted on March 2, 2022 by simon

• HEADLINES: Wheat limit up in nearby May Chicago futures; Back months and KC wheat trading; Corn/soybeans decline on profit taking/cash movement.

• Chicago values are mixed at midday with the grains higher (Chicago wheat limit up) while soybeans sag on soybean/wheat spread unwinding. The volume of trade has been massive with wheat being the bullish pin of the day. Soy futures have acted tired on the spread unwinding with losses nearing 40 cents/bu at one point. A hefty 84,000 contracts of May Chicago wheat have traded with the market holding at limit levels.

• Following several days of sharp gains, Chicago acts like the only grain where investors are still chasing is wheat. Note that funds are likely long a record amount of corn and near record amount of soybeans/soyoil. With crude oil values rocketing higher to $112.50/barrel, traders were disappointed that the bio crops of soyoil/corn did not follow. Profit taking is the theme in summer row crop futures following 3 days of rally. We look for a sharply mixed close with selling pressure growing in corn if Chicago/KC May wheat futures can come off limit. Wheat is Chicago’s bullish pin today.

• Chicago brokers estimate managed money has purchased 13,000 contracts of wheat, 4,600 contracts of corn, and 4,100 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soymeal and a net 900 contracts of soyoil. Funds have been selling soyoil after being an early buyer.

• The USDA/FAS announced that 264,000 mt of US 2022/23 soybeans was sold to an unknown destination and another 266,000 mt to China. Of this total, 396,000 mt was sold in an old crop position. We believe that China continues to bid for US and Brazilian soybeans today with at least another 6-8 cargoes being sold.

• Questions are being asked regarding the Russian SWIFT ban and carve outs for several commodities. Historically, food has not been included in economic sanctions with countries like Iran/Iraq recent guideposts for humanitarian purposes. The US ag industry is seeking comment on whether the SWIFT ban applies to Russian grain/food exports. The USDA has commented that they are uncertain.

• Clarification is needed, and we suspect that although the SWIFT ban was decided at a high political level, the detail of the ban is still being worked out.

• Yet, booking a boat to enter the Black Sea is difficult and no one will provide cargo insurance due to the war. For all practical purposes Russia is unable to export grain/food today. The question of SWIFT and a food/energy carve outs is important in scenarios for world grain trading. The US grain industry is seeking clarification on whether any commodity carve outs were included in the weekend SWIFT announcement.

• HRW wheat spread questions are evident with July-December trading at a $1.30 plus premium. Capital flows and the expectation that the Ukraine war will not go on longer than a few months has jostled this spread violently. We see the KC July/December wheat spread as extremely overvalued, but there is no indication of a top in wheat or guessing when the fund flows will change. Funds are using spreads to enter net long wheat positions nearby at limit.

• The midday GFS weather forecast is further south than what was forecast overnight across Central Argentina with rainfall. Dryness persists across Central Brazil with near to above normal temperatures. This area needs to be closely monitored. It is winter corn that would be impacted.

• Chicago futures have rallied a long way from Friday’s low and the grains are now subject to headline risk and profit taking heading into the weekend. Peace talks would be bearish, while an escalation of the war is bullish. Chicago raised margins overnight which makes capital important in extremely volatile markets. We await a sharp break to reposition long, bull markets always let you in. Don’t chase rallies.

1 March 2022

Posted on March 1, 2022 by simon

• HEADLINES: Wheat/corn post limit gains for second day; China active buyer of US/Brazilian soybeans; Future Ukraine crop sizes unknown.

• Chicago grain/oilseed markets are sharply higher with grain futures bid limit due to the deepening war between Russia/Ukraine, the woe of Black Sea force majeures on prior grain export contracts and resourcing of supply from others.

• Corn, soyoil and wheat have scored new contract highs following historical high closes in Paris wheat, Malaysian palmoil and Chinese corn. The world market has been leading Chicago higher with import demand shifting back to the US, which is an island of supply amid the crop shortfall in S America.

• The Black Sea grain market is effectively closed due to war and lack of SWIFT to Russian sellers/exporters to move bank wire transfers. China is active booking old/new crop US soybeans while other importers are shifting corn purchases to the US. The EU cannot source US corn via a lack of GMO approvals, but some trade of US corn can occur into Spain. World feed importers are seeking Indian feed wheat or US corn as sources of supply. Chicago values remain exceptionally volatile, a pattern that we expect to continue. Chicago breaks will be sharp/short duration as market technical conditions are extremely overbought.

• Chicago brokers estimate managed money has purchased 9,000 contracts of corn, 6,600 contracts of wheat, and 4,900 contracts of soybeans. In soy products, funds have bought 4,200 contracts of soymeal and 3,900 contracts of soyoil. Other than profit taking above the market, any selling is limited. Last week, Central US hedge related selling was active as spot corn futures pushed above $7.00 and soybeans above $17.00. Today, such hedging is void. In the options, Chicago wheat is trading 12-13 cents above limit, KC wheat is trading 15-17 cents with May corn up 2-2.50 cents above the limit. Corn is following wheat.

• The USDA/FAS announced that 264,000 mt of US 2022/23 soybeans was sold to China. Cash connected rumours suggest that China has been active taking US and S American soybeans with 20-24 boats sold from May into December (about 50/50 split between the US/Brazil). China is the big cash soybean short. Declining S American crop estimates likely has their supply attention.

• There is considerable discussion about the size of 2022 Ukraine wheat, corn and sunflower crops, and what degree of war yield cut needs to be applied. EU sources argue that with corn seeding 3-5 weeks off, a lack of fuel, fertiliser and seed calls for a yield/area cut of 10-20%. We would add that the yield risks are extremely elevated, but it is impossible to forecast the outcome of a war that is a week old. The Ukraine winter wheat crop is already seeded, and should Russia take control of Ukraine and claim victory, additional oilseed crops could be planted during the mid to late spring of late April/May.

• The midday GFS weather  forecast is further south than what was forecast overnight across Central and Southern Argentina. Dryness persists across Central Brazil with near to above normal temperatures. The monsoon flow is pulling seasonally northeast across Brazil. We fear that drought will become a new issue for Brazil’s winter corn crop. S Brazilian/Argentine high temperatures hold in the 80’s/90’s. The dry weather aids the ongoing Brazilian soybean harvest, and the third Argentine corn crop is being aided by recent rains. However, yield reductions on the first and second harvests are unavoidable and sizeable. Central Brazilian dryness must be watched, but it is premature to make any yield adjustments at this early date.

• Chicago futures have rallied a long way from Friday’s low and the grains are now subject to headline risk heading into the weekend. Peace talks and aggression by Western leaders against Russia could elevate the political pressure for a settlement. The outrage against Putin is overwhelming across the globe. Bouts of Chicago profit taking will create sharp breaks amid values that are near historical highs. Higher Chicago values are likely longer term but remember that in the marketing/trading business “it is not where you are going, but how you get there”. Don’t chase rallies would be our advice tonight.