- HEADLINES: China rumoured to be seeking US new crop corn; C Brazilian weather forecast stays dry; Weekly US ethanol production disappoints with 10% under 2019.
- Chicago futures are sharply higher at midday with corn, soyoil, and soybeans pushing to new rally highs. The morning rally has been largely based on tightening US cash markets and historically high cash basis bids that are producing limited cash corn, soybean, or old crop wheat sales from the farmer or reseller. Shorts fear that they will be tagged to find and deliver receipts against May futures and are exiting positions.
- We look for a strong Chicago close, but May corn is nearing our first upside price target at $6.25-6.40, while May Chicago wheat is testing contract highs against $6.85, while May soybeans are targeting $15-15.20. May options expire on Friday and there are over 1,000 contracts of short May $15.00 calls that are vulnerable. Research suspects that the market will make the holders of these short call options “uncomfortable” before a trading top is set. At these prices there is always the chance for a correction.
- Chicago brokers estimate that funds have bought 14,000 contracts of corn, 5,000 contracts of wheat, and 7,200 contracts of soybeans. In soy products, funds have bought 1,000 contracts of soymeal and 7,600 contracts of soyoil.
- There are rumours that China is seeking US new crop corn for October/November with purchase estimates of 1-2.5 million mt. We have no way of knowing when the purchases will be announced, but like 10 days ago, cash connected traders are discussing further new China interest for US corn.
- EIA estimated US weekly ethanol production at 277 million gallons, 10% below 2019 but 6% above last year. The weekly ethanol grind was of around 99 million bu was less than expected with US ethanol stocks falling 3 million gallons to 859 million gallons. US ethanol stocks are down 26% from last year heading into a new driving season. US ethanol prices have been rising sharply and margins are again in the green by an estimated $0.24/gallon. This should enable the weekly grind rate to expand in the coming weeks.
- Mato Grosso revised their soybean crop estimate up by 1% to 35.7 million mt on slightly better yields at the end of the harvest. IMEA suggested that despite the early season drought, rain occurred with enough frequency to produce a record large harvest. Brazilian soy exports are record large to date, with April soybean exports expected to exceed 15 million mt.
- The midday GFS weather forecast is similarly dry across Parana, MGDS, Goias and Southern Mato Grosso for the next 10 days. The deepening flash drought for Central Brazil will produce increasing stress on winter corn. The extended range maintains this dry forecast into May 6. The forecast shows no evidence of returning a flow of upper air tropical moisture that can produce meaningful rain. Our concern for the 2021 Brazilian winter corn crop stays at an elevated level with a downward yield bias. The biggest weather and crop risk remains cantered on Parana/MGDS and Goias.
- The cash market and potential Brazilian winter corn crop losses are driving Chicago futures to sharp midday gains. The marching Chicago rally is nearing its initial upside price targets and some caution is advised. This is no place to make new purchases as corn tries to fill a long held weekly chart gap. However, amid US cash markets that are strongly bid, any correction will be modest/well supported. Thus, we stay longer term bullish. December corn will find resistance above $5.50-5.70 until more is known about the 2021 US growing season. Look for more two-sided type of trade on Thursday.