- HEADLINES: Ag markets retreat from morning highs; China ups weekly purchases of US corn to 147 million bu.
- Chicago futures are again mixed at midday with confirmation of large US export sales and additional Chinese corn demand having been digested by the morning rally. However, the US is exporting its corn and soybean surpluses much too fast and it remains that breaks in value only serve to encourage consumption.
- The spot futures-based soybean crush margin at midday is calculated at $0.77/bu, which is profitable. Early season Brazilian soy exports remain at risk amid the possibility that a pattern of above normal precipitation continues across Southern Brazil throughout February. EU rapeseed oil is now quoted at $0.51-0.52/lb into April. The message is that there is no indication that global cash prices are weakening, which is important.
- US export sales through the week ending Jan 21 featured 73 million bu of corn, 17 million bu of soybeans and 14 million bu of wheat. Corn sales were above expectations while wheat and soy were in line. China also secured another net 7 million bu of US sorghum for old crop delivery and 1.5 million bu of sorghum for delivery in 2021/22. US sorghum export commitments sit at 227 million bu, or roughly 80% of the USDA’s forecast with a full 7 months remaining in the crop year.
- For their respective crop years to date, exporters have sold 1,916 million bu of corn, up 126% from last year, 2,125 million bu of soybeans, up 83% on last year and 95% of the USDA’s forecast. US wheat export commitments total 800 million bu, up 4% from last year.
- China this morning bought another 67 million bu of US corn for old crop delivery, which again confirms that TRQs are not needed for government purchases and also implies the USDA’s US corn export forecast is MASSIVELY understated. When adding announced sales made to China and unknown destinations since last Thurs (160 million bu of corn, 14 million bu of soy), US corn exports moving forward must average only 16 million bu/week to meet USDA’s forecast and weekly soybean sales must average only 3 million bu.
- Even in years of timely harvests in Brazil, the pace of US soy sales does not retreat into the single digits until Jun-Jul. Brazilian fob beans for March arrival are offered just $0.09/bu below US Gulf origin. Soy harvest in Mato Grosso is unlikely to reach 50% complete until the end of Feb/early March.
- Meanwhile, exporting countries’ focus on food security/food inflation reflects the need for ideal weather moving forward, beginning with Brazil during the Mar-May period. There remains concern that Argentina will follow Russia in slowing the pace of grain/soy exports to quell rising prices there.
- The midday GFS weather forecast is drier in Mato Grosso and NE Brazil in mid-Feb than the overnight solution and is wetter in Paraguay and RGDS in far Southern Brazil. The consistent trimming of precipitation totals in Central Brazil is aligned with longer term climate outlooks, which for weeks have called for abnormal dryness in Central and Northern Brazil throughout the month of February. Cumulative rainfall in Southern Brazil (which accounts for 35% of Brazil’s soy area) will reach 3-6″ into early next week. Pockets of RGDS and Parana will see totals of 6-8″. Unwanted rain in the south and continued soil moisture loss across the safrinha corn belt are concerns. Argentine weather will be favourably cool/wet.
- Small percentage changes in value are now larger flat price moves. Yet, this volatility is a symptom of a developing bull market. We maintain that breaks must be used by consumers to pick away at forward coverage.