- Chicago grain futures are mixed at midday in limited volume. Chicago open interest is declining each day and the market has traded just 65,000 contracts of May corn futures at this time. Amid the uncertainty that can show up with Covid-19 and the major USDA Crop Report next Tuesday, traders are backing away from taking new positions. Based on volume shortfalls, we would highlight that Chicago futures can make unexpected price moves based on the ongoing liquidity shrink.
- Chicago brokers estimate that funds have bought 3,100 contracts of corn, 9,900 contracts of Chicago wheat while being flat in soybeans. Funds were early buyers of beans but returned at mid-morning as a net seller. In the products, funds have sold 1,300 contracts of soyoil and 2,100 contracts of soymeal.
- FAS reported that the US sold 138,000 mt of US corn to an unknown buyer. We strongly suspect that it was China booking 250,000 mt of US corn overnight. There is also talk that China has started securing US new crop soybeans for Sept/October. We note that the November soybeans are trading at an unusual 21 cent premium to May ’21 soybean futures. There is no reason for a farmer to store their new 2020 soybean crop. Any sales are best placed at harvest.
- EAI reported that US weekly ethanol production declined to 1,005 thousand barrels/day vs. 1,035 last week. The ethanol production consumed 295 million bu of corn compared vs 304 million the week prior. The decline was as expected with big closures/drops in production coming in the weeks ahead. The Anderson’s which produce 420 million gallons of ethanol annually, announced that they would take an extended maintenance shutdown with production reaching just 50% of capacity during April. US ethanol produces are losing an estimated $.80/bu. Traders should be prepared for new plant closure notices in the days ahead.
- CME cattle futures opened sharply higher to limit up with profit taking forging a correction in back month futures after the higher start. April futures are well under the cash market and should remain firm with first notice day just a few weeks away. Packers report that they have forward sold a considerable amount of beef to retailers through mid-April. We look for this week’s cash cattle trade to be sharply higher.
- We are not hearing any new US wheat export demand interest. Futures are rising on massing fund buying of nearly 10,000 contracts. There is talk that Iraq could secure US wheat, but US landed values are non competitive. It is late in the old crop year (just 2 months left) to start a US demand led market with world grain flows in decline. New Northern Hemisphere buyers are near and based on the discount of new vs. old crop, importers and end users are both waiting for new crop. We are not finding that Covid-19 impacted countries being panicked into purchases. The wheat rally is based on speculative buying.
- China has secured 1.0 million mt of US corn in an old crop position to date. We forecast that China could secure another 1-1.50 million mt that would limit the decline in the 2019/20 US WASDE corn export forecast. If China booked a combined 2.5 million mt (another 1.5 million) of US old crop corn it would amount to 98 million bu. This demand help keep the prevailing WASDE 2019/20 US corn export forecast at 1,725 million bu.
- The news that an unknown buyer secured US corn (likely China) rallied Chicago corn futures. Key resistance lies at $3.55-3.60 May where cash corn value gets back near $3.50 for producer sales. Chicago wheat futures are higher on the massive fund buying of 10-11,000 futures. Funds are pushing back into the long side of wheat as key moving averages are breached. Russia has sold much of its elevations for April, and importers are trying to bridge the gap into new crop. The meal market is breaking as the China restocking rally is unlikely to persist amid the flotilla of soybeans that are afloat from Brazil. We maintain that corn is the most bearish on sliding US ethanol production and slowing world feed grain trade.