- HEADLINES: Soybeans correct Tuesday’s gain: Corn’s turnaround Tuesday avoided on threatening Midwest weather: Wheat ends sharply higher; sizeable fund short collides with world weather concern.
- Chicago soybean futures gave back part of Monday’s rally with soyoil pacing the drop. Fresh market news was limited, but the market is preparing for a long holiday weekend, and the theme of expanding day-to-day price volatility heading into the heart of the growing season stays in play. We doubt that the bulls and the bears will find gratification until next week. Ongoing dry Midwest weather trends are worrisome.
- US daily soymeal export sales announcements are rare, but so far, there have been 2 announcements this month. Argentine meal is often offered far below the US but has rallied to within just a few dollars. April meal exports fell to 1.13 million mt or the lowest level in 20 years. The Argentine vessel lineup has improved, but May exports are estimated near 1.9 million mt, a 20-year low. Exports in the first 2 months of the local crop year are estimated to be down 41% from a year ago, the lowest since 2003. World soymeal demand, especially from Europe, is in decline due to bird flu/pig herd liquidation. But the sharp drop in Arg meal supply will boost US meal sales/exports into yearend.
- Chicago soy markets are deeply oversold, with tightening US stocks and the entire new crop growing season ahead. Seasonal lows are forming with a recovery to get underway in June. This is no place to chase breaks to the downside.
- Chicago corn recovered amid moderate short covering. Brazil’s interior market is beginning to strengthen. US interior basis levels remain elevated. Dec corn is oversold, technically, and while this week’s rally has been driven mostly by money flow, a more supportive market evolves beyond the US Memorial Day holiday if dry Midwest forecasts are extended into the second half of June. It is premature to be overly concerned, but unlike recent years there is a need for regular June rain across the Midwest. We estimate managed funds’ net short this evening at 95,000 contracts.
- Global corn stocks fail to build adequately if Northern Hemisphere yields are even 3% below trend, which is important. Weather issues are not yet bullish, but this does suggest volatility will be incredible during the summer. Close attention will be paid not only to the primary US Corn Belt, but also drying trends in Europe and Ukraine. Additionally, we note that while the Black Sea export corridor has been renewed, vessel movement remains slow and likely tapped down by Russia.
- We are short-term cautiously bullish of corn. A higher close Wednesday confirms a bottom.
- Wheat futures ended sharply higher in the US and Europe. Tuesday’s specific catalyst is difficult to establish, but weather in large parts of Russia remains threatening, net soil moisture loss will be ongoing in large parts of Canada, and a new threat is emerging in the form of soaking rainfall across the primary US HRW Belt. Rather quickly, weather there has shifted from historic drought to weekly rainfall of 2-6.00”. A drier pattern will be needed in June to prevent quality/disease issues and advance the harvest. Eroding North American high protein supplies will be a defining feature of the 2023/24 market if weather patterns fail to change. Recall assuming normal weather outside the US, major export production is forecast to decline 12 million mt to 382 million, the lowest since 2019. This discrepancy widens considerably if heat/dryness persists in Central Russia and El Niño-based dryness in Australia is extended into Aug/September. We also note that while global trade currently sits at seasonal lows, importer interest returns in bulk by July/August. Favourable weather is needed to press EU/Black Sea fob offers much lower. Modest weakness should be rewarded with end user buying.