- HEADLINES: Chicago steady to higher at midday; Wheat leads on short covering.
- Chicago futures are slightly higher at midday in thinning volume. Fund managers returned with new buying after the opening to protect large net long positions in corn, soybeans, and soymeal.
- However, as the Chicago session advanced, that buying has waned. Some of the demand is due to positioning ahead the weekly export sales report to be released on Thursday morning. Another week of large corn, soymeal and hopefully soymeal sales is expected. It does not require much volume to push Chicago higher or lower. Questions abound as to Chinese demand in world corn, but for now, there does not appear to be any fresh interest. We maintain that China will be a buyer of Brazilian/Ukraine corn down the road, with only limited amounts of US corn from private TRQ buyers. The unknown sale this morning was not China’s Government importers and larger sales are needed to narrow the 760 million bu shortfall in US corn sales vs last year.
- Improving S American weather and spot Chicago futures being at their second highest level on record does not argue for a sustained bullish Chicago run.
- US ethanol production in the week ending Jan 20 totalled 298 million gal, up a modest 2 million from the previous week and right at the level needed to validate the USDA’s current industrial corn use forecast. However, net imports were recorded last week, which along with ongoing weak gasoline consumption allowed ethanol stocks to soar to 1,054 million gallons, up 2% year on year. Ethanol stocks building in mid-winter is seasonal, but we doubt a major drawdown in supplies occurs until mid-spring. The cash ethanol market this week, along with production margins, is flat.
- Domestic corn, soy and wheat consumption is so-so. Greater emphasis will be placed on slowing export disappearance once S American harvests reach 40-50%.
- India has confirmed the release of 3 million mt of stocks into the domestic market. This is a sign of supply fears there, but a record Indian wheat crop is likely to be harvested in April. India, like most importers, has managed to get by without discretionary imports. And world wheat trade begins to erode beyond February.
- The midday GFS weather forecast is slightly drier than its overnight solution, but our confidence in this model stays low. The GFS forecast has been under-forecasting Argentine and S Brazilian rainfall for weeks. We suspect that the model has a La Niña component that is still being used. La Niña is in fast retreat.
- The EU model is far wetter and is outperforming the GFS. One storm system is passing through N Argentina and S Paraguay with 0.25-1.00” of rain falling. Showers should break out later tonight across Southern Argentina and persist into the weekend. Rainfall totals are estimated in a range of 0.5-2.00”. The best rain looks to fall on Thursday/Friday. A second system is noted for mid next week with similar rain totals. The rain will allow further soil moisture improvement. The 11–15-day forecast is drier with a new system shown in the week 3 forecast. The S American pattern has changed.
- A bearish mentality prevails on rallies with corn, soymeal, and soybeans to pace the decline. We see soyoil as nearing an intermediate bottom. The wheat rally is based on short covering.