- HEADLINES: Chicago can hold a trend; Reverses Tuesday’s market with corn/wheat pacing the decline; Mato Grosso corn reseeding/soy crop quality issues on the rains.
- Chicago is in reverse at midday with corn, soybean, and wheat futures lower with the market taking back most of Tuesday’s gain. The fear of another week of slow US export sales on Thursday along with the inability to extend Tuesday’s rally has left Chicago in a sort of price direction limbo. Both the bears and the bulls have talking points in recent days.
- The selling started in wheat and then spread to corn/soybeans in modest volume trade. It is not taking much size to push Chicago values around with funds already long and waiting for the March USDA data before they can start adding to positions. China pricing which was evident on Tuesday has not returned into midday. However, world cash grain and soy markets keep climbing which is likely to underpin futures markets. And US farmers will not sell in a down market, so cash basis levels keep rising to secure grain. We believe the morning selling to be somewhat overdone to the downside amid shrinking S American crop ideas.
- Chicago brokers estimate that funds have sold 9,500 contracts of corn, 2,600 contracts of soybeans, and 2,700 contracts of wheat. In the soy products, funds have sold 1,400 contracts of soymeal and 200 contracts of soyoil.
- Mato Grosso is a big place (the size of Texas), but producer reports on soybean yield/seed quality is worsening. Producers report that soybean seed moisture ranges from 19-26% and is not declining amid the constant rain. Commercials are docking moisture laden soybeans by as much as 25% with soybeans said to be sticky. The moist beans make transportation difficult with end users worrying about heating/mould. Moreover, an estimated 10-15% of the already planted winter corn (IMEA estimated progress at 50% through Friday) will have to be replanted due to poor seed germination. The wet Mato Grosso weather is causing serious concern to producers who are fighting the calendar to get corn seed in the ground. The situation must be closely followed, and the latest yield data argues for a decline in the Brazilian soy crop as yield/quality disappoint.
- Central US cash corn basis levels are firming as Chicago declines and the cash market tries to pull supply from tight fisted farmers. Traders are debating whether China will ship all the corn that it has purchased from the US with weekly exports needing to average (to reach the USDA annual forecast) 65 million bu/week. This is a big export ask, but the US soybean export program last autumn showed that China is following through on its Phase One commitment. Moreover, with China not feeding 30 million mt of food waste, it needs the corn to replace the feedstuff. One should always question a big export program that is just starting, but the record high domestic cash basis level in Central IL tells us that China will likely export most of its purchases. And export sources report that China will book another 2-3 million mt of US old crop corn before the end of the 2020/21 crop year.
- The midday GFS weather forecast is wetter across S Brazil (RGDS), but otherwise unchanged with above normal rains for N Brazil and well below normal rainfall for Argentina. Both the excessive rain in N Brazil and the flash drought for Argentina is becoming increasingly concerning. Heat will remain a feature across Argentina and S Brazil with daily highs in the 90′s to the lower 100′s. The warmest period will be on the weekend when some Argentine and S Brazilian crop areas will endure highs in the mid 90′s to the lower 100′s. The combination of heat/dryness is really starting to take a toll on the Argentine and S Brazilian soybean/corn crops. S American crop sizes are in retreat amid unfavourable weather conditions.
- Chicago values are pushing lower on chart related selling as the bull’s tire of the back-and-forth trade. S American soy quality (too much rain in Mato Grosso) and quantity (too little rain in Argentina) are in decline. And vessels are having to wait 40-45 days to berth and load at Brazilian ports. Making matter worse are the low water levels of the Parana River which is increasing the cost to load a panamax of corn in Argentina. China shows no willingness to cancel or push back their corn purchases amid a strong domestic feedgrain market with import margins being extremely profitable. We see breaks like today as buying opportunities.