- HEADLINES: Soybeans end lightly mixed at midweek: Adverse Midwest weather forecast pushes corn higher: Wheat ends sharply lower in back-and-forth trade; large old crop Eu/Russian stocks keep cash price stable.
- Chicago soybean futures were lightly mixed, but little changed on nearby strength on Wednesday. July soybeans gained 2 cents on quieter trade, while new crop was down 2.75 cents.
- After falling to multi-year lows through the first 4 months of the year, soybean crush margins finally found a low in early May and are now rallying. The nearby Chicago crush spread fell to $0.56/bu in early May, which was the lowest since June 2020. At the low, estimated cash crush margins were below $1/bu, which had not happened since July 2020. This occurred just ahead of the May contract expirations, and nearby margins have since strengthened against July. Estimated cash margins are averaging around $0.15-0.20, better than the Chicago spread. Compared to a year ago, cash margins are $0.50-0.80 lower but should improve in the coming months. World vegetable oil markets look to be forging a low, while Argentine meal exports are down significantly. This should offer support for US soy product cash markets through the summer.
- Chicago soy markets are oversold and undervalued. A low is forming, with a recovery to get underway in early June.
- Chicago corn recovered amid moderate short covering due to concerning dry Central US weather forecasts. Central US weather has been arid for both April/May which has allowed active seeding progress, but now the market’s concern is now shifting to one of low soil moisture during the vegetative growth stage.
- The afternoon EU model 10-day rainfall forecastshows that into June 4, little rain is forecast for the Midwest making the last half of May and the first week of June the driest on record. The need for rain will be immediate after June 10 with corn yield potential to be cut if the dryness extends into mid to late June.
- Also, Brazil’s interior corn market is beginning to strengthen. US interior basis levels remain elevated with profitable US ethanol plant hunting for spot cash corn. We estimate managed funds’ net short this evening at 90,000 contracts.
- For the next 6 weeks, Chicago corn price action is all about Central US weather and the location and amount of rain. Follow each US weather model run closely for sign of a pattern shift.
- Wheat futures ended sharply lower in a reversal of yesterday. US wheat futures are trying to balance out large old crop stocks and the need of expelled Russian exporters to sell stocks prior to June. Funds were sellers of 4,500 contracts in US futures on Wednesday with KC July again taking aim at $8.00 support. We continue to maintain that volatile and choppy wheat trade will persist until there is clarity on EU/Russian and Canadian wheat production. It is far too early to discuss Southern Hemisphere wheat, but the need for rainfall is immediate across Central and Western Argentina.
- Note EU and Russian spring wheat dryness. Even France and Germany are quickly drying down with improved rains needed as their crop enters the reproductive phase during June. The Baltic wheat crop is also struggling with dryness, so European and Russian weather will take on added yield importance over the next 6 weeks. Today, the dry weather forecasts are concerning, but there remains time for moisture to drop in the first half of June. Until EU rains fall, look for Paris weakness to be modest.