- 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.