- HEADLINES: Wheat soars following explosion at Kremlin; Row crops follow; GFS weather forecast stays erratic in US.
- Chicago grain futures are higher at midday, wheat sharply so, with soybean well above session lows as the trade shuffles between risk off and risk on. Macro input leans negative amid crude’s $2.90/barrel plunge and as equity markets stagnate amid growing concern over regional banking issues. But top priority in the ag space is an explosion at the Kremlin in Russia this morning and a probable end of the Black Sea export corridor at mid-month. A close above $6.34, July Chicago wheat, and $7.76, July KC, argue for a reversal bottom. Both markets are still oversold/near oversold.
- Ukraine has denied involvement in an explosion in Moscow, but President Zelenskyy also suggested Russia has no incentive to extend the corridor deal on May 18. War persists in eastern Ukraine, and while uncertainty over evolution of counter-offensives and their impact on grain remains, We would remind that funds in Chicago wheat this morning were short a net 130,000 contracts, just 32,000 short of the all-time record, and were short an estimated 1-2,000 contracts in KC. The risk of rapid/intense covering of these positions lingers in the background amid the potential for slowing Black Sea exports and as model guidance overnight eliminated rain chances from the US southern and western Plains.
- We would note that the European market’s reaction to Black Sea headlines is muted, but our work suggests that EU/Black Sea cash markets must lead US wheat prices lower as all major exporter prices reach parity. Spot corn in Brazil is down $0.05/bu at $5.28. It is the flow of money in the US that has exacerbated today’s move.
- US ethanol production in the week ending April 28 totalled 287 million gallons, vs. 284 million the prior week and up 1% from last year. Production data since early spring has been somewhat unexciting, but normal seasonal trends are being followed. US ethanol stocks last Friday totalled 981 million gallons, down 40 million week on week and down a sizeable 128 million from mid-March’s peak. A further rapid drawdown in stocks lies ahead, and a 5-7% jump in weekly production is anticipated over the next 6-8 weeks. Ethanol production margins are profitable. The US swap market suggests cash ethanol prices so far in May have not followed crude and gasoline lower.
- The GFS weather forecast continues to keep any increase in Central Brazilian rain changes into the 11-15 day period. Rapid soil moisture loss remains probable into May 14. There is also a growing risk that Argentine wheat area is abandoned amid ongoing historic drought conditions in Cordoba, Santa Fe and Entre Rios. Zero precipitation is forecast in Argentina nearby, and rainfall loses intensity seasonally during the Southern Hemisphere winter months.
- Current surpluses of wheat globally erode in 2023/24 if the Southern Hemisphere is negatively impacted by a lack of planted area in Argentina and El Niño-inspired drought in Australia. There remains very little room for error.
- The GFS weather forecast is much wetter across the eastern Plains and Midwest next week, with cumulative totals of 3-5” now offered to E OK, MO, IL, IN, OH and KY. The GFS forecast is struggling with the N American upper air pattern as the spring/summer climate evolves. GFS weather output can’t be dismissed, but 12-hour changes in the model’s solution have been incredibly erratic, recall rainfall of 6-7” was forecast in KS & NE in Tuesday’s midday forecast only to be eliminated overnight. Confidence beyond 5-7 days is low. Rainfall into early next week should favour NE, The Dakotas and far Southern Midwest.
- Volatility remains the theme. The market is beginning its transition to new crop supply and demand, but that old crop stocks remain extremely tight only heightens changes to daily/weekly market perceptions.