- HEADLINES: Chicago corn recovers on cash tightness/planting worry; Midday Central US weather; More rain; China demand for US soy.
- It is a macro-Monday with sharp losses in world equity prices and worry over China locking down Beijing (and other cities) which would slow commodity demand thereby pressuring Chicago values. Although there is no statistical evidence that world grain demand is slowing, it is the fear of a future recession along with first notice day against May futures that pushed Chicago values lower in morning trade. We doubt that the Chicago break will be lasting or deep.
- China’s 0% Covid tolerance policy is not working. But the Government does not have an effective vaccination or hospitalisation policy. Yet, Chinese policy makers are not willing to admit Covid feat. And economists argue that China is deliberately locking down large urban areas to lower soaring raw material prices and inflation. Chicago weakness is due to the fear of slowing world economic growth. However, Covid has raised food consumption in impacted countries in 2020/21. Will China’s lockdown raise or lower caloric consumption is the question that is being pondered by traders/fund managers. Our bet is that it will cause hoarding on the fear of the unknown.
- The supply side of the world grain/oilseed markets is turning more bullish. There are new weather/crop threats for Canada, Brazil, and the US Plains. Canadian Prairie farmers were blasted with snow/rain and cold on the weekend with widespread flooding reported across SE Saskatchewan and Manitoba. The same winter type of weather impacted the Dakotas with farmers reporting that they will be out of the fields for 10-14 days (if it stops raining). Already N Plains producers are talking about accepting the Prevent Plant option amid high input costs and the hefty revenue provided. Rain chances for the drought areas of the W and S Plains are poor and we estimate that US farmers have only seeded 7-9% of their 2022 corn crop, half the normal rate. Temperatures are currently in the 20’s across the Dakota with 30’s extending southward into Iowa/Nebraska. This is not the spring start that farmers were hoping for.
- The USDA reported that 330,000 mt of US soybeans were sold to China with 66,000 MTs in the 2021/22 crop year while 264,000 mt were for new crop.
- US weekly Export Inspections for the week ending April 21were 65.0 million bu of corn, 22.1 million bu of soybeans, and 10.6 million bu of wheat. FGIS exports for their crop years to date rest at; 1,373 million bu of corn (down 257 million or 16% less than last year), 1,712 million bu of soybeans (down 257 million or 13%), with wheat inspections at 675 million bu (down 157 million or 19%). We note that US corn Census exports are running above last year through February due to the record Canadian imports of US corn which is not caught in the Monday data.
- We see estimates that Russia will export 36-39 million mt of wheat in 2022/23, which assumes that Russia will use its full export capacity (question mark?). We believe such heady export estimates as propaganda by the Russian Government with totals unlikely to surpass their current rate of 1.3-1.6 million mt/month due to the war. The EU is where world wheat demand will be focused on in the new crop position as the Black Sea is hobbled by the lack of insurance and high costs. We peg Russian 2022/23 wheat exports at 18-20 million mt and Ukraine at 4-5 million mt (at best right now), which leaves a hole in world trade of 27-30 million mt that cannot be filled by others, including India, which is facing a smaller harvest on bad weather.
- The midday GFS weather forecast is like the overnight run. Heavy rains will continue to batter the Northern Plains and the W Midwest and Delta with 10-day totals of 1.50-3.00”. The rain and ongoing chill will cause issues for seeding and rapid fieldwork. The time is now that Mother Nature needs to start cooperating more favourably if there is any chance in getting corn/soybean and spring wheat crops seeded on a timely basis.
- Macro financial worry tied to China’s Covid lockdowns and May liquidation ahead of first notice day have pressured Chicago values in recent sessions. However, declining US HRW wheat conditions and a slower than desired spring seeding look to push Chicago values to new highs. Stats Canada will be out with its April Seeding Intentions Report on Tuesday. We remain bullish Chicago on price breaks.