- HEADLINES: Macro market sell off ahead of 3-day US holiday weekend and end of month.
- Chicago grain futures are sharply lower at midday with corn, soybeans and wheat all coming under acute selling pressure. The slide of nearly 90 points in the stock market and nearly 400 points in NASDAQ has produced a “risk off” day in a host of financial markets. Last week’s low was taken out in wheat/corn which added to the selling pressure. Soybeans are holding somewhat better on cash strength, but even soyoil is in the red amid risk off selling. We look for end users to use the break to add to forward coverage but heading into a long 3-day US holiday weekend, commodity and stock values appear to be linked. A lower to sharply lower close is expected.
- Chicago brokers estimate that funds have sold 13,000 contracts of corn, 3,600 contracts of soybeans, and 9,500 contracts of wheat. In soy products, funds have sold 600 contracts of soymeal and are flat in soyoil. The selling has been robust from the opening bell.
- The EU head of the Commission, Chief Ursula von der Leyen called for talks with Moscow to unlock Ukraine grain exports to avoid a world food shortage at the Economic Forum in Davos, Switzerland.
- Moscow has already rejected such calls by the UN, WTO, and the US on the weekend. It is highly unlikely that the EU will hold any persuasion to get a corridor of humanitarian grain from Odessa. The Black Sea is the only real means to move the amount of grain needed by the world that is needed. Rail infrastructure from Ukraine into the EU is too limited and comes under constant bombing from the Russians. And Russia is now targeting grain storage facilities with Ukraine. And NATO or the US has no desire to pass naval vessels through the Bosporus as an act of war against Russia. The UK was rumoured to be considering such a naval move, which has since been denied. Unfortunately, it is extremely difficult to move more than 1-1.4 million mt of grain per month out of Ukraine, which falls far short of world demand.
- As previously reported, China has purchased 500,000 mt of Brazilian corn for September as it had completed a phytosanitary agreement in late April to allow for the Government-to-Government purchase. China needed more than one corn supplier, the US, and struck the Phyto Deal with Brazil for an alternative. China used to secure corn from Ukraine, but with the Black Sea blockaded, China has lost this supplier to the war.
- The China/Brazilian corn deal should send shivers down the spine of Europeans as they cannot import US/Argentine corn on GMO grounds. Brazil was their only other supplier and now they have a large new competitor in China. The EU will need to import massive amounts of Brazilian corn due to a deepening drought. We were surprised that China would secure Brazilian corn for September with their own harvest just underway. China must have an acute corn import need.
- We see the China opening of the Brazilian corn market as bullish for world feed prices. Every grain importer must have a list of suppliers and the US Gulf is virtually sold out on September elevations with offers at $3.00/bu over. We do not see the China diversification to Brazilian corn demand as bearish with China on pace to import 27-29 million mt in 2021/22.
- The midday GFS weather forecast is drier in the E Plains and E Midwest. Cool temperatures prevail this week with heat returning to the S Plains next week (and into mid-June). A ridge of high pressure holds across the East Central US which pushes heavy rain back into North Dakota and the S Canadian Prairies. This will cause further troubles for North Dakota farmers.
- This is a price break that world end users of wheat and new crop corn have been waiting for. The US/EU are not going to send in naval vessels to form a humanitarian food corridor out of Odessa to release 20 million mt of Ukraine grain. And China signing a phytosanitary agreement for Brazilian corn is not bearish when they book an immediate 500,000 mt for September and are asking for new offers. Dec corn appears to be nearing a bottom and Chicago/KC and Minneapolis wheat futures are undervalued. This is a break to buy in corn/wheat in our considered opinion.