- HEADLINES: Brazilian precipitation and export cancellations pressure ag markets.
- Chicago futures are sharply lower at midday in a volatile trading session. Soybeans have traded in more than a 50-cent range while corn/wheat follow to sharp losses. May Chicago corn fell to key support at $5.35-5.40 while May soybeans declined under $14.00. Paris wheat futures were unable to rise above their key monthly downtrend line, which has sparked Chicago selling. Chicago trading volatility is on, with S American weather forecasts helping to direct daily direction. And the macro financial markets are weaker on the continued rise in US long-term bond interest rates. US mortgage rates have reached levels that are causing investors to have second thoughts on inflation.
- The heightened volatility in a host of commodity/financial markets is causing investor pause. Advisors argue that the easy money has been made in commodity and equity markets. The extra volatility adds to market risk and traders should be reducing their positions.
- Chicago brokers estimate that funds have sold 8,200 contracts of soybeans, 12,300 contracts of corn, and 6,500 contracts of wheat. In soy products, funds have sold 4,500 contracts of soymeal and 2,700 contracts of soyoil.
- Through the week ending Feb 18, US exporters sold 18 million bu of corn, vs. 39 million the previous week, a net 6 million bu of soybeans, vs. 17 million the previous week, and 6 million bu of wheat, vs. 15 million the prior week. FAS reported soybean sales cancellations from China/unknown destinations of 13 million bu of soy and 14 million bu of corn. This follows the weakening of Brazilian soy fob basis for March onward and the return of competitive Argentine corn offers. US meal sales were 160,000 mt, vs. 263,000-322,000 in the three previous weeks.
- The USDA’s 2020/21 US corn and soy export forecasts are still too low, but as discussed previously, sizeable new demand is needed to sustain an unabated bullish trend in the marketplace. This in turn comes in the form of confirmed S American crop loss, and accurate S American corn and soy production estimates are unlikely to materialise prior to mid/late March, when the bulk of crops harvest. The USDA’s March WASDE report is unlikely to feature major adjustments to Brazilian and Argentine crop sizes.
- The midday GFS weather forecast is wetter in Southern Brazil, with 10-day accumulation in Parana, Mato Grosso do Sul and Sao Paulo pegged upwards of 5-8″. This region of Brazil has seen only 35-60% of normal precipitation over the last 10 days. The coming boost in soil moisture will aid later planted soy crops as well as trigger a solid jump in moisture available for early safrinha corn growth. Showers keep soy harvest in Mato Grosso slowed. The GFS forecast is drier in Northern Argentina. Net soil moisture loss persists across Argentina’s primary ag belt amid a lack of rain and rising temperatures.
- Chinese demand growth and the need for near-perfect weather this summer remain intact, and drive demand growth in 2022/23. Yet, S American exporters are working to find demand, which is different from the last 6 months. The US cash market must drive futures significantly higher, with physical supply shortages unlikely until early summer. We caution against chasing breaks and rallies into NASS’s Stocks and Seedings release.