- Chicago ag futures are steady to slightly higher at midday on a short covering bounce. The US DOW is breaking on expansion of the coronavirus infections across the world with investors seeking safe harbour. The DOW was down over 400 points at midmorning, producing the largest 4-day correction since August.
- After rallying strongly since 2009, a long-needed equity correction appears to be unfolding as traders understand that dropping US/world interest rates will not boost demand until a coronavirus treatment or vaccine is available.
- Following Monday’s sharp decline, Chicago is attempting to catch its breath, but it is doubtful that any lasting rally can unfold without adverse weather.
- We look for a mixed to lower Chicago close with a weekly trading pattern of declining early and late week with a bounce in price in the middle. End users are now getting forward coverage well into mid-summer.
- Chicago brokers estimate that funds have bought 2,000 contracts of wheat, 1,900 contracts of soymeal and 1,200 contracts of soybeans. Funds have sold 4,700 contracts of corn and 2,200 contracts of soymeal.
- There are rumours that China is asking for March Brazilian soybean cargoes to be delayed due to supply chain disruptions and slowing feed demand. We cannot confirm how many cargoes that China crushers are asking to be delayed (holiday), but we do not foresee that China is wanting to shift any of that demand to the US. China has secured a record number of Brazilian soy cargoes through May, but until there is clarity on the coronavirus’s economic in China, the future purchase pace is likely to slow.
- US interest rates (30-year bond) are perched at record lows with the rate falling to just 1.8%. The 10-year note has fallen to 1.3% with the spread between the two just 0.5%. The US interest rate market argues that its concern for a slowing US and world economic outlook is ongoing.
- Brazil has started to offer new crop corn for export in July at 54 cents over July Chicago corn futures. This compares to US Gulf offers of 59 cents over. Argentine fob corn is still the cheapest in the world from April forward by $6/mt or 15 cents/bu. The window for US corn exports is closing. US corn exports through February 20 are down 462 million bu while export commitments are down 524 million bu at 984 million. US 2019/20 US corn exports are forecast by WASDE at 1,675 million bu, which is likely too high by 50-125 million bu.
- China is expected to start taking offers for duty exempt ag import licenses on March 2. No-one seems to know when actual licenses will be issued, but unlike last week, the tyre kicking by Chinese importers for US ag goods has slowed.
- The midday GFS weather forecast is wet across N Brazil while a dry pattern holds across Argentina for the next 10 days. No heat is expected for S Brazil and Argentina with the 11-15 day period keeping Brazil well-watered while Argentina stays arid. The overall S American weather pattern appears to be stuck. Argentina needs several finishing rains with the soybean and second corn crop in reproduction.
- The livestock markets are not flashing a bottom with fresh losses today. It is hard to be bullish of an ag commodity amid the fear of declining global GDP (demand) due to coronavirus. The price pattern in the “virus markets” is to rally during the midweek (short covering) with selling (risk off) during the early and late week.
- Corn, soybean and wheat futures are trying to bounce midweek as soybeans have been able to hold their January low.
- Funds are still holding a large net long of 38,000 contracts in Chicago wheat with world cash fob offers softening. Russia and Brazil are likely to return following the Carnival holiday with new cash selling.